|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington,
 D.C. 20549           
|FORM
 10-K/A                      
|Amendment
 No. 2                  

|   |                                                                                           
|-- | ------------------------------------------------------------------------------------------
|x  | Annual report pursuant to section
 13 or 15(d) of the Securities Exchange Act of 1934.    
|   | For the
 fiscal year ending December 31, 2011                                             
|   |                                                                                           
|Or
|   |                                                                                           
|o  | Transition report pursuant to
 Section 13 or 15(d) of the Securities Exchange Act of 1934.
|   | For the
 transition period from ______________ to _____________.                          

|                                                       
|-------------------------------------------------------
|Commission file number 000-52347                       
|                                                       
|TSINGDA
 EEDU CORPORATION                              
|                                                       
|(Exact
 name of registrant as specified in its charter)

|                                                                      |  |                                       
|--------------------------------------------------------------------- |  | --------------------------------------
|Cayman Islands                                                        |  | N/A                                   
|(State
 or other jurisdiction
 of incorporation or organization)      |  | (IRS
 Employer
 Identification number)
|                                                                      |  |                                       
|No. 39, Block 74, Lugu Rd.,
 Shinjingshan District, Beijing, PR China |  | 101105                                
|(Address
 of Principal Executive Offices)                             |  | (Zip
 Code)                           

|                                                            
|------------------------------------------------------------
|+45-8842 9181                                               
|(Registrants
 Telephone Number, Including Area Code)       
|                                                            
|Securities
 registered pursuant to Section 12(b) of the Act:
|                                                            
|None                                                        
|                                                            
|Securities
 registered pursuant to Section 12(g) of the Act:
|                                                            
|Title of Each Class                                         
|Ordinary
 Shares, $.000384 par value                        

|                                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------
|Indicate by check mark if
 the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
 Securities Act.
|Yes o No x                                                                                                               

|                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Indicate by check mark if
 the registrant is not required to file reports pursuant to Section 13 or
 Section 15(d) of the Exchange Act.                                                                                                                                                                                                                     
|Yes o No x                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                            
|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 x NO o                                                                                                                                                                                                                                                                                                                                                  

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

Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):

|                          |                     |                         |                            
|------------------------- | ------------------- | ----------------------- | ---------------------------
|Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company x

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

The aggregate market value
of the voting and non-voting common equity held by non-affiliates of the
registrant as of December 31, 2011 cannot be calculated because there is no
market for the issuers securities.

As of March 30, 2012, there
were 35,754,862 Ordinary Shares, par value $0.000384 per share, of the
registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

---



EXPLANATORY NOTE

Tsingda
eEDU Corporation is filing this Amendment No. 3 on Form 10-K/A to its
Annual Report on Form 10-K for the fiscal year ended December 31, 2011, or
the Form 10-K, which was originally filed with the Securities and Exchange
Commission, or SEC, on March 30, 2012 and amended on January 16, 2013 in order
to respond to certain comments of the staff of the SEC.

This
Form 10-K/A continues to speak as of the date of the Form 10-K and no
attempt has been made to modify or update disclosures in the original
Form 10-K except as noted above. This Form 10-K/A does not reflect
events occurring after the filing of the Form 10-K or modify or update any
related disclosures and any information not affected by the amendments
contained in this Form 10-K/A is unchanged and reflects the disclosure
made at the time of the filing of the Form 10-K with the SEC. Currently
dated Exhibits 31.1, 31.2, 32.1 and 32.2 are included in this Form 10-K/A.

---



TABLE OF CONTENTS

|         |                                                                                                                |  |   
|-------- | -------------------------------------------------------------------------------------------------------------- |  | --
|         | PART I                                                                                                         |  |   
|Item 1.  | Business                                                                                                       |  | 1 
|Item 1A. | Risk Factors                                                                                                   |  | 27
|Item 1B. | Unresolved Staff Comments                                                                                      |  | 41
|Item 2.  | Properties                                                                                                     |  | 42
|Item 3.  | Legal Proceedings                                                                                              |  | 42
|         |                                                                                                                |  |   
|         | PART II                                                                                                        |  |   
|Item 5.  | Market For Registrants
 Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
 Securities |  | 43
|Item 6.  | Selected Financial Data                                                                                        |  | 44
|Item 7.  | Managements Discussion and
 Analysis of Financial Condition and Results of Operations                         |  | 44
|Item 7A. | Quantitative and
 Qualitative Disclosures About Market Risk                                                    |  | 62
|Item 8.  | Financial Statements and
 Supplementary Data                                                                   |  | 62
|Item 9.  | Changes in and
 Disagreements with Accountants on Accounting and Financial Disclosure                          |  | 62
|Item 9A. | Controls and Procedures                                                                                        |  | 62
|Item 9B. | Other Information                                                                                              |  | 63
|         |                                                                                                                |  |   
|         | PART III                                                                                                       |  |   
|Item 10. | Directors, Executive
 Officers and Corporate Governance                                                        |  | 64
|Item 11. | Executive Compensation                                                                                         |  | 66
|Item 12. | Security Ownership of
 Certain Beneficial Owners and Management and Related Stockholder Matters                |  | 68
|Item 13. | Certain Relationships and
 Related Transactions                                                                |  | 69
|Item 14. | Principal Accounting Fees
 and Services                                                                        |  | 70
|         |                                                                                                                |  |   
|         | PART IV                                                                                                        |  |   
|Item 15. | Exhibits and Financial
 Statement Schedules                                                                    |  | 71

---



PART I

ITEM 1. BUSINESS

Overview

Tsingda eEDU Corporation
(we, our, usit, the Company or Tsingda eEDU), a Cayman Island
corporation, together with its subsidiaries and affiliates, is a leading
offline and online provider of educational services in the PRC. We have
established the largest chain of education centers in the PRC, known as
Tsingda Learning Centers. These offline educational centers principally
target elementary school students and consist mainly of franchised locations.

As of December 31, 2011, we
have approximately 2,926 learning centers nationwide. We also have developed a
robust, interactive educational platform which allows students to search and
subscribe to virtual classrooms offered by a wide range of teachers in the PRC.

Background and Key Events

Compass Acquisition
Corporation was incorporated in the Cayman Islands on September 27, 2006. The
Company was originally organized as a blank check company to investigate and
acquire a target company or business seeking the advantages of being a publicly
held corporation.

On May 24, 2010, Compass
Acquisition Corporation and its controlling shareholders entered into a share
exchange agreement (Share Exchange Agreement) with Tsing Da Century
Education Technology Co. Ltd., a British Virgin Islands business company ( Tsingda
Technology ), and its shareholders. As a result of the transactions
contemplated in the Share Exchange Agreement, we acquired Tsingda Technology
and its indirect, controlled subsidiary Tsingda Education, a Chinese company
which provides offline and online education services.

On November 15, 2010, the
Companys shareholders approved the change of the Companys name from Compass
Acquisition Corporation to Tsingda eEDU Corporation.

Tsingda Technology owns 100%
of the issued and outstanding capital stock of Beijing Tsingda Century
Management Consulting Ltd. (Tsingda Management or WFOE), a
wholly foreign owned enterprise incorporated under the laws of the Peoples
Republic of China ( PRC). On April 26, 2010, Tsingda Management
entered into a series of contractual agreements, collectively, the VIE
Agreements, with Beijing Tsingda Century Investment Consultant of Education Co.
Ltd ( Tsingda Education), a company incorporated under the laws of the
PRC, and its shareholders, in which Tsingda Management effectively assumed
management of the business activities of Tsingda Education. Beijing Tsingda
Century Network Technology Co. Ltd., a PRC company, is a wholly owned
subsidiary of Tsingda Education. The VIE Agreements are comprised of a series
of agreements, including a Consulting Services Agreement, Operating Agreement,
Proxy Agreement, and Option Agreement, through which Tsingda Management has the
right to advise, consult, manage and operate Tsingda Education for a quarterly
fee in the amount of 100% of Tsingda Educations quarterly, after tax net
profits. Additionally, Tsingda Educations shareholders have pledged their
right, title and equity interest in Tsingda Education as security for Tsingda
Management to collect consulting and service fees through an Equity Pledge
Agreement. In order to further reinforce Tsingda Managements rights to control
and operate Tsingda Education, Tsingda Educations shareholders have granted
Tsingda Management the exclusive right and option to acquire all of their
equity interests in Tsingda Education through the Option Agreement. As all of
the companies are under common control, this structure has been accounted for
as a reorganization of entities and the financial statements have been prepared
as if the reorganization had occurred retroactively.

Tsingda Education owns the
directly-owned learning centers and enters into franchise agreement with each
franchised learning center. These franchise agreements are typically effective
for a one year term. The franchised locations must conform to certain operating
requirements of the Company, such as the quality of products and services
offered and participation of promotional activities. Each franchised location
pays an initial franchise

1

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licensing fee to the Company
as well as an annual management fee at the end of each subsequent year. The
Company offers discounted e-cards (used by our students to purchase courses) to
the franchised locations. Our franchisees pay an initial franchise licensing
fee of between $7,000 and $10,000 per location depending on franchise
territory, and thereafter, franchisees pay an annual management fee equal to
10% of their initial franchise licensing fee. A franchisee receives e-cards
from the Company with a face value equal to five times the amount of franchise
and management fees paid. Our franchisees also have the option to purchase
additional e-cards at the same 80% discount. Franchisees earn revenue from the
sale of e-cards to students at face value. In other words, for every dollar
spent by our students, our franchisees net eighty cents. Each e-card has a
specific serial number, and our IT server tracks the opening and usage of these
cards in real time. We use this information in order to accurately allocate
revenues among teachers. Beginning August 2010, the Company also began to
generate revenue via the sale of reference materials and publications.

Corporate Structure and Related Agreements

Our organizational structure as of the date of this report is summarized below:

(GRAPHIC)

*Tsingda Education shareholders
are Hui Zhang, Juntao Liu and Chungmai Kang. Mr. Hui Zhang and Mr. Juntao Liu
collectively own 57.4 %of Tsingda
Education and therefore have control over it. Mr. Hui Zhang and Mr. Juntao Liu,
beneficially own approximately 31.9% of our ordinary shares issued and
outstanding as of December 31, 2011. Mr. Hui Zhang, CEO and Chairman of the
Board of Tsingda eEDU, and Mr. Juntao Liu, Executive Vice President and a
director of Tsingda eEDU, are both executive officers of Tsingda Education and
its subsidiaries, including Beijing Tsingda Century Network Technology Co., Ltd
( Tsingda Network) and Beijing Tsingda Century Training School (Tsingda
Training).

Pursuant
to the VIE Agreements, the WFOE effectively assumed management of the business
activities of Tsingda Education and has the right to appoint all executives and
senior management and the members of its board of directors in exchange for an
annual consulting service fee in the amount of 100% of Tsingda Educations
annual net income. The shareholders of Tsingda Education (the Tsingda Education Shareholders) have
pledged their right, title and equity interests in Tsingda Education as
security for the WFOE to collect consulting services fees through the Equity
Pledge Agreement. In order to further reinforce the WFOEs rights to control
and operate

2

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Tsingda Education, the
Tsingda Education Shareholders have granted the WFOE an exclusive right and
option to acquire all of their equity interests in Tsingda Education through
the Option Agreement.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Equity Interest Pledge
 Agreement. The WFOE and the Tsingda Education Shareholders have entered into
 Equity Interest Pledge Agreements, pursuant to which each shareholder pledges
 all of his shares of Tsingda Education to the WFOE in order to guarantee
 cash-flow payments under the Consulting Services Agreement. The Equity Pledge
 Agreement further entitles the WFOE to collect dividends from Tsingda
 Education during the term of the pledge. The term of the Equity Interest
 Pledge Agreement is 2 years from Tsingda Educations satisfaction of all its
 obligations under the Consulting Services Agreement. In the event Tsingda
 Education fails to cure a material breach, the WFOE may, among other remedies
 available, terminate this agreement. The primary remedy for default under the
 Equity Interest Pledge Agreement is to engage in an auction or sale of the
 equity interests being pledged. Such an auction or sale may not result in our
 receipt of full value of the equity interest or the business of Tsingda
 Education and any proceeds we receive would be net of the payment of related
 expenses and taxes.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Consulting Service
 Agreement. Tsingda Education and the WFOE have entered into a Consulting
 Services Agreement which provides that the WFOE will be the exclusive
 provider of consulting and management services to Tsingda Education and
 Tsingda Education will pay all of its net income to the WFOE quarterly for
 such services. Any such payment from the WFOE to the Company would need to
 comply with applicable Chinese laws affecting payments from Chinese companies
 to non-Chinese companies. See Risk Factors  Risks Associated With Doing
 Business in China. The Consulting Services Agreement is effective until it
 is terminated by either party in the event the other party becomes bankrupt
 or insolvent, if the WFOE ceases operations, or if circumstances arise which
 materially and adversely affect the performance or the objectives of the
 agreement. The WFOE may also terminate such agreement with or without cause.                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Option Agreement. Pursuant
 to the Option Agreement among the WFOE, Tsingda Education and each Tsingda
 Education Shareholder, the Tsingda Education Shareholders have granted the
 WFOE an exclusive right and option to acquire all of their equity interests
 in Tsingda Education at any time. The Option Agreement is effective for the
 maximum period of time permitted by Chinese law until it is early terminated
 according to the terms of the Option Agreement. The WFOE or its designee may
 exercise the option at any time by giving a written notice to the Tsingda
 Education Shareholders and specify the amount of the equity interest to be
 purchased and manner of purchase. The purchase price of the equity interest pursuant to an
 exercise of the option shall equal the
 capital paid in by the Tsingda Education Shareholders, unless
 applicable PRC laws and regulations
 require an appraisal of the equity interest or stipulate other
 restrictions regarding the
 purchase price of the equity interest.                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Voting Right Proxy
 Agreement. Pursuant to the Voting Right Proxy Agreement among the WFOE,
 Tsingda Education and the Tsingda Education Shareholders, the Tsingda
 Education Shareholders have granted the WFOE a voting and proxy right to vote
 their equity interest in Tsingda Education. The Voting Right Proxy Agreement
 is effective until terminated by mutual agreement or by the WFOE with 30 days
 prior written notice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

These contractual
arrangements may not be as effective in providing us with control over the VIE
as direct ownership. Due to the VIE structure, we have to rely on contractual
rights to effect control and management of Tsingda Education and its
subsidiaries, which exposes us to the risk of potential breach of contract by
the shareholders of Tsingda Education. The VIE Agreements are subject to
significant risks which are also discussed in more details in the Risks
Related to our Corporate Structure section of this annual report.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The PRC government may
 determine that the VIE Agreements which we utilize to control Tsingda Education
 are not in compliance with applicable PRC laws, rules and regulations and
 that they are therefore unenforceable. If the PRC government determines the
 VIE Agreements are unenforceable as they may circumvent the PRC restrictions
 relating to foreign investment restrictions, the relevant regulatory
 authorities would have broad discretion in dealing with such breach and could
 have a material adverse impact on our business, financial condition and
 results of operations.

3

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| |   |                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The primary remedy under
 the Equity Interest Pledge Agreement for default in these arrangements is to
 engage in an auction or sale of the shares. Such an auction or sale may not
 result in our receipt of full value of the equity or the business of the
 entities and that any proceeds we receive would be net of the payment of
 related expenses and taxes.
| |   |                                                                                                                                                                                                                                                                                                                                                                     
| |  | The pricing arrangement
 under the VIE Agreements may be challenged by the PRC tax authorities. We
 could face adverse tax consequences if the PRC tax authorities determine that
 the VIE Agreements were not entered into based on arms length negotiations.
 The PRC tax authority may levy additional tax, penalties and interest.                             

The VIE Agreements are
governed by PRC law and provide for the resolution of disputes through
arbitration proceedings pursuant to PRC laws. The legal environment in China is
not as developed as in other jurisdictions. As a result, uncertainties in the
PRC legal system could limit our ability to enforce the VIE Agreements.

We agreed to waive the
consulting fee payable by Tsingda Education for a period of 5 years from
April 26, 2010 to April 26, 2015 in order for Tsingda
Education to have sufficient cash to fund the expansion of its business.

Market Information

General

Chinas education market is
substantial based on the sheer size of its population. According to information
published by the PRC government, it appears that our target population market
as of December 31, 2011 is approximately 360 million individuals. The group is
comprised of: infants and children below school age (6) - 160 million; primary
school students - 110 million; junior high school students - 60 million; and
senior high school students 30 million.

The importance of education
in China is grounded upon a number of factors. Confucian doctrines placed high
importance on education. Another factor which placed significant import on
education arose from Chinas one child policy implemented in 1979 in an
effort to control its staggering population. As a result of the one child
policy, many Chinese families believe that their future rests with the success
of their only child. Consequently, there is a strong parental push towards
education. Another factor contributing to the demand for education in China is
the need to support the enormous economic growth currently underway in the
country.

In the PRC, school
attendance is mandatory through junior high school. Beyond junior high school,
schooling is voluntary and students must pay for senior high school and any
post-secondary school. Senior high school students typically range in age from
15 to 19. Students in post-secondary schools (or any educational institution
beyond senior high school) typically range in age from 20 to 24. Moreover,
unlike public schooling in the United States, admission to prestigious public
high schools is premised on student qualification, including results from
entrance exams. Consequently, competition for prestigious high schools is
intense. In fact, the country has developed a keen awareness of the most
prestigious high school by region and countrywide. Many of the most prestigious
high schools are located in tier one cities, principally Beijing. These
prestigious high schools are the recipients of disproportionate governmental
funding which in turn attracts more competent teachers.

The use of online education
is trending favorably in China. Based on industry data, the market scale of
online education in 2008 in the PRC amounted to approximately $5.1 billion with
2012 projections reaching $10.6 billion. The Chinese online education market is
expected to experience average growth of 150% in the next five years.

Shortage of funding

Chinas educational system
historically has been under-funded compared to the rest of the world. In 2008,
Chinas fiscal education expenditure was 3.48% of GDP compared with the world
average of 4.5% Recently, the PRC

4

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government has taken
initiatives to improve its educational system countrywide due principally to
the recognition that the countrys technological development ultimately rests
on the level of competency, or level of education, of its workforce. Yet
despite these initiatives, there remains a severe disparity in educational
funding between rural and urban areas in China as discussed below.

Funding disparity

Chinas vast territory and
large population have led to a significant disparity in public educational
offerings between urban and rural areas. According to official statistics,
there is a significant gap in the average education investment of students
between rich and poor provinces. The public funding disparity for primary
schools, junior high schools and senior high schools can range between 6-8
times more in the rich, urban areas compared with the poorer, rural areas.
Compared with first-tier cities in PRC, many rural areas lack qualified teacher
and training resources due principally to lack of funding from local
governments. In recent years, a series of positive measures have been taken by
related authorities to support the development of distance education. However,
the problem is still quite pronounced, and massive input from the private
sector is in demand.

The Tsingda Learning Concept

General

We are an online provider of
supplementary educational services in China. Our website is
http://www.eeduol.com. The information contained on our websites does not form
a part of this prospectus. We rolled out our Tsingda Learning Center concept
in 2006, and more recently in late 2008, we introduced our web-based real-time
interactive learning platform called Tsingda Virtual Internet Classroom.

Our educational model is
depicted below:

Our educational services are
not accredited by the PRC Ministry of Education or any other governmental
agency. As such, our learning concept does not function as a substitute or
alternative to traditional government run schools, which are accredited by the
PRC Ministry of Education to grant diplomas and/or degrees, rather it has been
shaped to supplement learning provided by government run schools in the PRC. No
accrediting learning centers compete with us in our industry. Accredited
learning centers are traditional degree-granting schools and we are not at a
competitive disadvantage because we are not an accredited learning center.

For the year ended December
31, 2011, we had revenues of $45,155,225, as compared to revenues of
$27,447,545 for the year ended December 31, 2010, an increase of approximately
64.51%.

Learning Centers

As of December 31, 2011 and
after four years of operations, we had over 2,926 operating Tsingda Learning
Centers in 1,500 cities and 23 provinces. Of the total amount, 32 were
Company-owned with the remainder being franchised operations. Tsingda Education
owns the company-owned learning centers and it enters into franchise agreements
for the franchised learning centers.

Tsingda Education is the
party to all of the franchise agreements.

None of the shareholders,
officers, directors or other affiliates of Tsingda eEDU, Tsingda Management or
Tsingda Education is a franchisee or officer, director, beneficial holder or in
any other way, a related party of any of our franchised locations.

5

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Our Tsingda Learning Centers
principally target elementary school (grades K-8) students and in most
instances are located in close proximity of a local elementary school. We
designed the rollout of our franchised learning centers to generally avoid the
tier one cities of Shanghai, Beijing, Chengdu, and Guangzhou. Instead, we are
geographically concentrated on the second and third tier cities. We believe
there are 50,000 2nd and 3rd tier cities in the PRC. We employed this strategy
because we believe that competition in these lower tier cities would be less
intense than first tier cities, but more importantly, we anticipated stronger
product demand in the rural areas due to disparity in educational funding between
the two areas.

While we concentrate our
franchise development efforts in the rural areas for reasons discussed above,
we located our initial Company-owned centers in close proximity to our
headquarters in Beijing. This allows us to exert greater operating control over
our own centers, as well as provide a nearby training center for new
franchisees. We plan on opening future Company-owned centers in other tier one
cities which will serve as regional training centers.

Our target customers are
students ranging from 6 to 18 years of age studying at elementary, junior and
senior high schools. Of our customers, 70% are elementary school students, 20%
are middle school students and 10% are high school students. Our marketing
methods consist of:

 Referrals from former
teachers. Approximately 50% of our franchisees are former school teachers and
they are active in their school district and community in encouraging students
to attend learning centers after school. They achieve this primarily through
passing leaflets and through word of mouth.

 Concentrated Advertising.
As stated above, learning centers generally distribute leaflets in front of
school and advertise on bulletin boards in high density residential areas.

 Activities. Learning
centers periodically hold recruitment conferences and free tours of online
content, etc. in public areas where parents and teachers are invited.

 Mass Advertising. We
advertise on local and national television, local newspapers and magazines, and
on the Internet.

Although we do not recruit
students based on prior academic performance, regulations prohibiting a PRC
educational institution from recruiting students based on prior academic
performance do not apply to us.

Teaching at our learning
centers is solely delivered electronically via desktop computers housed at our
locations, either taught in live real time by a teacher at a remote location,
or from a pre-recorded course. Our proprietary courseware provides two core
curriculums: synchronous (or sync) courses and featured courses. Sync courses
match textbooks from local schools and are delivered synchronously with the
curriculum for these schools. Featured courses consist of learning programs
designed to bolster skills in core subjects such as math and English, among
others. Featured courses also prepare students for the highly competitive high
school and college entrance exams. Our courseware provides a broad learning
experience to the student. Learning modules includes classes directed by a wide
range of teachers, including renowned teachers from tier one cites, Q&A
sessions, and one on one teaching. Our courseware also features regular mock
tests and exams, and gap detection which determines student weakness and
automatically generates subsequent teaching aids. We also have digitized
textbooks for 97% of targeted schools in the PRC. We believe our courseware is
the most advanced in the industry and is a compelling learning regime
particularly for students from less populated areas where teaching resources
are limited.

6

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In China, high school exams and college
entrance exams are conducted on a local and provincial level, and are not
standardized on a national level, such as its United States counterpart, the
SAT. In that regard, there are many different exams and our students prepare
for high school entrance exams by taking our courses that are synchronized with
the textbooks they are studying. The most popular of our synchronous courses
are keyed to the following textbooks:

|                  |  |                                                                                                                                                     
|----------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Subject           |  | Textbook
 Editions/Publisher                                                                                                                        
|                  |  |                                                                                                                                                     
|                  |  |                                                                                                                                                     
|Chinese
 Language |  | Remin University, Jiangsu
 Edition, Beijing Normal University
 Shanghai Edition, Hebei Edition, Hunan Edition                                       
|Mathematics       |  | Remin University, Jiangsu
 Edition, Beijing Normal University
 Zhejiang Edition, Shanghai Edition, Hebei Edition,
 Remin University, Jiangsu Edition
|English           |  | Beijing Normal University,
 Zhejiang Edition, Foreign Language
 Teaching and Research Press, Yilin-Oxford English                                   
|Physics           |  | Remin University, Jiangsu
 Edition, Beijing Normal University
 Zhejiang Edition, Shanghai Edition, Hebei Edition, Hunan Edition                     
|Chemistry         |  | Remin University, Jiangsu
 Edition, Beijing Normal University
 Zhejiang Edition, Shanghai Edition, Hebei Edition, Hunan Edition                     

Our students prepare for
their college entrance exam by consuming our featured courses on subjects that
are typically covered in a provincial college entrance exam:

|                  |  |                                                                                                     
|----------------- |  | ----------------------------------------------------------------------------------------------------
|Subject           |  | Contents                                                                                            
|                  |  |                                                                                                     
|                  |  |                                                                                                     
|Chinese
 Language |  | Composition, Reading                                                                                
|Mathematics       |  | Focused Algebra, Mystery
 of Geometry                                                               
|English           |  | Listening training,
 Speaking training, Efficient Reading, Writing                                  
|Physics           |  | Focused Mechanics, Focused
 Electricity, Focused Optics, Focused Heat, Focused Atom                 
|Chemistry         |  | Chemistry Experiments                                                                               
|                  |  | Nan Kai University Chair,
 Mock test, Simulation Questions Analysis                                 
|Special
 Subject  |  | Huang Gang Chair, Mock
 test, Simulation Question Analysis                                          
|Academic
 Chair   |  | Chair of Middle School
 attached to China Normal University, Mock test, Simulation Question Analysis
|Psychological     |  | Psychological Counseling
 before University Entrance Exam, Case Study                               
|Counseling        |  |                                                                                                     

Online Virtual Classrooms

In the fourth quarter of
2008, we successfully developed a highly interactive, real-time, and
personalized learning platform called the Tsingda Internet Classroom. Tsingda
Internet Classroom has been designed to be online marketplace whereby buyers
(students) and sellers (teachers) are linked through our proprietary software
interface for the sole purpose of transacting educational related services. The
target audience is mainly high school students; however some classrooms are
oriented towards junior high and other students. Course subjects along with
pricing and presentations dates are posted to a presentation page on our
web-site by company qualified teachers. Our teacher roster includes
approximately 3,326 renowned teachers from tier one cities. These teachers
have achieved recognition based on awards from the Ministry of Education.
Interested students can browse presentation web-pages by teacher or subject
matter. Teacher credentials, course outline, pricing, presentation times, and
presentation mode (live or pre-recorded) also are displayed. Course purchases
are made electronically, and are delivered through a video feed which can be
viewed electronically by the student. More popular courses are recorded for
later presentation. Our online learning platform offers students from less
developed regions the opportunity to be able experience the teaching
disciplines of more experienced, including these renowned teachers from tier
one cities. Unlike the courseware provided at a learning center, virtual
classroom courses have not been designed to be synchronous. In most courses,
students can communicate electronically with teachers.

The Tsingda virtual
classroom was first launched for high school students, and later included junior
high and elementary students. As of the December 31, 2011, total registered
students and active students of the Tsingda virtual classroom were over 630,000
and 123,000, respectively, and the number of certified teachers was over
33,000. A significant portion of our existing student base and current revenues
of our virtual classroom is attributable to students who have attended or are
attending our learning centers.

7

---



Our Revenue Model

We generate revenues both
from our Company-owned and franchised learning centers and from the sale of
e-cards which are used to purchase our courses.

Tsingda Learning Centers

From franchised locations,
we receive (a) a one time, franchise licensing fee, (b) annual management fees
equal to 10% of the initial franchise licensing fee, (c) 18% of student
generated revenue from pre-recorded courses and 8% of student generated revenue
from real-time courses, and (d) 10% from the sale of reference books and
stationery products sold in the centers. We retain 100% of the revenue generated
at Company-owned locations.

Tsingda Learning Centers

As of December 31, 2011,
approximately 2,926 Tsingda Learning Centers are in operation in over 1,500
cities and 23 provinces in China. As of the December 31, 2011, total registered
students and active students of the Tsingda Learning Centers were over 7.5
million and 1.6 million respectively. The map below depicts the concentration
of Tsingda Learning Centers by region as of December 31, 2011. The following
table reflects the concentration of our learning center locations by city and
province:

Top 10 provinces of Tsingda
learning center locations are shown as the following table:

|                           |  |           |  |         |  |       |  |        |  |          |  |       |  |           |  |       |  |        |  |        | 
|-------------------------- |  | --------- |  | ------- |  | ----- |  | ------ |  | -------- |  | ----- |  | --------- |  | ----- |  | ------ |  | ------ | 
|Province                   |  | Shangdong |  | Jiangsu |  | Henan |  | Sichun |  | Zhejiang |  | Hunan |  | Guangdong |  | Anhui |  | Shanxi |  | Fujian | 
|                           |  |           |  |         |  |       |  |        |  |          |  |       |  |           |  |       |  |        |  |        | 
|Number of Learning Centers |  | 298       |  | 226     |  | 178   |  | 178    |  | 173      |  | 135   |  | 129       |  | 110   |  | 109    |  | 100    | 

Key Features of Our Courseware

Key features of our
proprietary courseware are categorized as follows:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ○ | Comprehensive Reference
 Library: We have
 digitized 97% of the teaching materials of all elementary, junior high and
 high schools in the PRC. The library allows for easy student reference to the
 familiar teaching materials.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ○ | Curriculum Matching
 Courseware: Early
 in its product development, we recognized that in the PRC, like most other
 developed or developing countries, teaching curriculum for the identical
 subject matter varies by region or province. Apart from digitizing
 substantially all of the relevant teaching materials, we have customized our
 teaching courseware to match local teaching materials. This means that a
 student in a Sichuan city learning center and a student in Nanjing city
 learning center will receive different courseware material on the same
 subject matter. We developed these customized learning materials in
 collaboration with regional teachers.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ○ | Synchronous Courseware
 Delivery: The
 courseware delivers teaching materials to the student synchronously with
 curriculums from local schools. Students can drill down to lessons which
 coincide with current school classes.                                                                                                                                                                                                                                                                                                                                                                                                                                                     

8

---



| |   |                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ○ | Diverse Teaching
 Disciplines. For
 any subject in our curriculum, students can select presentations from
 numerous teachers, including renowned teachers.                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                          
| | ○ | Gap Detection: Our proprietary courseware detects
 weaknesses in a students aptitude. During testing and Q&A sessions,
 incorrect answers generate subsequent questions specifically aimed at
 bolstering student weaknesses.                                                                           
| |   |                                                                                                                                                                                                                                                                                                          
| | ○ | Results Evaluation. The courseware is result oriented and
 thus provides scores on mock tests and practice sessions so that students or
 their parents can gauge performance. It also delivers progress reports on
 demand which indicate a students progress in a given subject over a period
 of time.

Our Curriculum

Learning centers provide two
core curriculums: synchronous (or sync) courses and featured courses, and both
are depicted below;

|                   |  |                                                                                                                                                                                                     
|------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Basic
 Curriculums |  | Module                                                                                                                                                                                              
|                   |  |                                                                                                                                                                                                     
|                   |  |                                                                                                                                                                                                     
|Sync
 courses      |  | Match local textbooks in
 subjects like English and math.                                                                                                                                           
|                   |  |                                                                                                                                                                                                     
|Featured
 courses  |  | Primary school English
 Primary school math                                                                                                                                                         
|                   |  |                                                                                                                                                                                                     
|                   |  | Primary school Olympic
 math                                                                                                                                                                        
|                   |  |                                                                                                                                                                                                     
|                   |  | Primary school literature                                                                                                                                                                           
|                   |  |                                                                                                                                                                                                     
|                   |  | Kid English series                                                                                                                                                                                  
|                   |  |                                                                                                                                                                                                     
|                   |  | Intensive teaching and
 drill series                                                                                                                                                                
|                   |  |                                                                                                                                                                                                     
|                   |  | Composition series Video
 from famous school High school admission exam preparatory channel College
 admission exam preparatory channel Traditional Chinese cultures workshop
 Science and discovery

We also have entered into
licensing arrangements with third parties to provide extracurricular materials
that are delivered through video, audio and animation. These presentations
relate to such matters as Chinese and worldwide culture, geography and history.
While these extracurricular products do not provide meaningful revenues to a
learning center, they provide students with an educational diversion from core
subjects.

PRC Regulation of Franchise Businesses

We have made all required
filings and met all requirements under PRC law to legally operate a franchise
business in the PRC. The required filings include (i) copies of the business
license or enterprise registration certificate; (ii) a sample franchise
contract; (iii) a brochure for franchise operations; (iv) a marketing plan; (v)
written commitment and relevant materials proving that the relevant provisions
have been followed; and (vi) other documents and materials required by relevant
governing authorities.

The legal requirements to
operate a franchise business in the PRC under the Regulation on the
Administration of Commercial Franchises require the franchisor to possess a
mature business model and the ability to provide long-term business guidance,
technical support, business training and other services to its franchisees. The
franchisor

9

---



must have at least two
direct sales stores, and have been engaged in the business for more than a
year. If this franchisor conducts its operations within the scope of a single
province, autonomous region, or municipality directly under the PRC Central
Government, it is required to file the required legal documents with the
relevant governing authorities of the province, autonomous region or
municipality directly under the PRC Central Government; and if the franchisor
conducts its operations within the scope of two or more provinces, autonomous
regions, or municipalities directly under the PRC Central Government, it is
required to file the required legal documents with the competent commercial
authority of the State Council.

Franchise and Company-owned Center Details

A typical franchised
learning center is approximately 100 to 300 square meters while Company-owned
locations are almost double in size at 300 to 800 square meters. Each franchise
center is staffed with 4-5 employees, while Company-owned centers are staffed
with 8-10 employees. The staff generally includes one supervisor, with the
remainder of staff consisting of counselors. Our experience to date has been
that most centers are owned and operated by former teachers in the respective
regions. Thus, these operators often times are familiar with many of the
families in the area and are able to promote the centers attributes the local
market.

Generally, learning centers
are located within close proximity of an elementary school, and most students
are able to walk from their school to the learning center. Hours of operation
are between 9:00 am to 8:30 pm each school day, however, high student traffic
generally occurs between 3:00 pm to 6:00 pm during the school day. During
winter recess (4 weeks) and summer recess (8 weeks), many children of single or
dual income parents arrive at the learning center in the morning and leave in
the evening. While at the learning centers, students can access the learning
center curriculum or our virtual classrooms. A typical franchise center
receives approximately 40-80 students per day, while a Company-owned center
receives approximately 80-100 students per day.

Each learning center
consists of three segregated areas,online
learning, counselor
guidance, and educational
products depicted as follows:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ○ | Online Learning Area. Each franchised and Company-owned center
 generally supports 15 and 50 computers, respectively, in the online learning
 area. During periods of high student traffic, computers are accessible to
 students for a maximum of one hour. Students pay for courses exclusively
 through the Tsingda e-card, a re-chargeable debit card, which may be
 purchased at any learning center wish cash or via electronic bank transfer.
 Once a student enters his name, ID and password, our proprietary software
 immediately recognizes the students school, grade level, and proficiency,
 and instantaneously delivers a menu of teaching materials designed to match
 the students current curriculum. The menu includes sync and featured
 courses, practice sessions, online question and answer database, mock tests,
 and interactive question and answer sessions.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ○ | Counselor Guidance Area. Students utilize the counselor guidance
 area to complete homework, take exams, or to perform workshop materials. The
 guidance area is supervised by counselor to ensure that students are not
 distracted by other students. In addition, parent meeting are held in this
 area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ○ | Education Product Area. Each center provides an array of products
 available for sale to students, which include teaching materials
 complimentary to courseware, DVDs, books, learning toys, and general office
 supplies. Students also are able to purchase Tsingda e learning cards in
 this area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Courses can be purchased under a variety of
packages and pricing, including by day, by month, and by semester. Typically, our
learning centers hold four hour sessions for elementary school students and
three hour sessions for our middle and high school students for our Monday
through Friday programs. For our weekend program, all sessions for all students
are bifurcated into two separate two hour segments.

10

---



Franchise Arrangements

Each franchise agreement
grants a specific territory to a franchisee which in turn requires the
franchisee to open a corresponding number of centers commensurate with such
territory as follows:

|                          |  |                         
|------------------------- |  | ------------------------
|Typical Number of Centers |  | Territory               
|                          |  |                         
|                          |  |                         
|3                         |  | County                  
|5                         |  | Perfecture
 City        
|8*                        |  | Provincial
 Capital City
|50*                       |  | Province                

* The actual number of
centers for a Provincial Capital City and Province may vary depending on
certain factors determined by the Company and the franchisee.

For reference purposes, the
PRC consist of 23 provinces, 4 municipalities, 5 autonomous regions and 2
special administrative regions. These administrative divisions are further
divided into prefectures with each prefecture consisting of numerous counties
and townships.

The term of each franchise
agreement is one year, and renewable annually by the parties. Under the
agreement, franchisees are required to pay an initial franchise licensing fee
of between $7,000 and $10,000 per location depending on franchise territory,
and thereafter franchisees pay an annual management fee equal to 10% of their
initial franchise licensing fee. Franchisees must maintain a standardized
signage, storefront and interior design, adhere to company pricing policies for
courseware, unified promotion activities and exclusively use company generated
materials, among other terms. Franchisees are required to bear all the costs of
owing and operating each center, including rent, staffing, and marketing. The
estimated cost to open a learning center for a franchisee ranges from $40,000
to $60,000 inclusive of franchise payments to the company, lease deposits,
leasehold improvements, furniture, fixtures and equipment (10-40 desktop
computers). Franchisees also are required to obtain necessary operating
permits, and comply with applicable laws and regulations. Our franchise
attrition rate for 2010 and 2011 was 2.3% and 1.9%, respectively.

Pursuant to our franchise
agreements, the franchisee is solely responsible to obtain all necessary
operating permits. In case the franchisee fails to obtain such operating
permits or fully comply with relevant regulations, Tsingda Education will not
be liable for any loss or damages of such franchisee. However, Tsingda
Education does not have indemnification rights against franchisees pursuant to
the franchise agreement. As a result, Tsingda Education may potentially suffer
loss or damages or be penalized if a third party or government authority
successfully bring claim or action against Tsingda Education for its failure to
supervise the franchisee to obtain such operating permit.

Tsingda Virtual Classroom

The Tsingda Internet
Classroom is a robust, multi-faceted on line educational platform delivering
educational services in the PRC. The virtual classroom has been designed to be
an online marketplace whereby buyers (students) and sellers (teachers) are
linked through its proprietary software for the sole purpose of transacting
educational related services. The platform currently targets mainly high school
students and to a lesser extent junior high school students. We expect to apply
this platform to other educational areas, such as a Chinese language learning
program that can be accessed worldwide, and adult vocational training classes
for use in the PRC. We do not have a timetable as when we plan to introduce
these other educational programs.

The Tsingda virtual
classroom was first launched for high school students, and later included
junior high and elementary students. As of December 31, 2011, total registered
students and active students were over 560,000 and 123,000, respectively, and
the number of certified teachers was over 33,000 (approximately 10% % of which
are renowned). A significant portion of our existing student base and current
revenues of our virtual classroom is attributable to students who have attended
or are attending our learning centers.

Students enroll in the
system by providing relevant personal and educational information, along with
electronic bank information. Students log on to the platform by entering an
assigned user name and password. The software interface allows students to
browse the system by subject matter and teacher name. An interested subscriber
can

11

---



enter the virtual classroom
for a free trial of the first 5 minutes, after which the student can either log
out or remain online and his/her account will be charged for the class.

Our various classrooms are
depicted in the graphic below:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ○ | Renowned Teacher Classroom: The Company has attracted approximately
 3,326 teachers who are classified as renowned, out of our 33,000 total
 teachers (approximately 10%) to prepare and develop courses. A renowned
 teacher is generally one who has received a distinguished teacher award from
 the Ministry of Education and in our opinion has developed an outstanding
 reputation in the teaching community. These courses are well attended with
 attendance ranging from 1,000-10,000 students. The renowned teacher classroom
 enables student from the rural regions to experience the teaching disciplines
 of these teachers. Renowned teacher classrooms are often recorded for
 subsequent viewing by students.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ○ | General Classroom: These classes are presented by qualified,
 albeit not renowned teachers. These classrooms are designed for 30 to 50
 students. These classrooms are used for general courses, including
 mathematics, English, and physics.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ○ | One-on-One Classroom: These are real time classrooms specially
 designed for students desiring personalized and private tutoring space.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

All of the classrooms are
designed to be interactive whereby teacher and student can communicate
electronically through text messaging, audio feeds, and email, however, due to
the size of the Renowned Teacher Classroom, interactive communications are
limited. Our system also maintains records of the teacher/student
communications.

As mentioned elsewhere
herein, we recognized the disparity in the level of educational services
delivered by the government to the various regions in China. We believe that
our platform attempts to bridge the education gap by allowing students from the
poorer, less funded regions, to experience the disciplines of other qualified
teachers, including renowned teachers.

Teacher Arrangements

Qualifications
of Teachers

We believe the strength and
future success of our virtual classroom is dependent upon the qualifications of
our faculty. As a result, we have implemented the following practices designed
at attain and maintain high teacher and subject matter integrity;

| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ○ | Background. We perform a series of background checks
 to verify academic credentials and employment history of each teacher. These
 checks include obtaining transcripts from schools and universities as well as
 phone interviews with colleagues.
| |   |                                                                                                                                                                                                                                                     
| | ○ | Experience. Each teacher must have at least a degree
 from a university or college recognized by the Ministry of Education.                                                                                                                         
| |   |                                                                                                                                                                                                                                                     
| | ○ | Course Subjects. Course subjects and course outlines are
 approved in advance to ensure that courses presented avoid sensitive
 political and social issues.                                                                                        
| |   |                                                                                                                                                                                                                                                     
| | ○ | Quality Control. We frequently monitors live sessions to
 ensure that teachers adhere to pre-approved course outlines and to assess
 overall teacher performance. We also monitor email exchanges between students
 and teachers.                   

12

---



As of December 31, 2011, we
had over 123,000 qualified teachers.

Financial
Arrangements with Teachers

We enter into formal
agreements with our qualified teachers. Under the agreement, qualified teachers
receive a percentage of subscription revenue from live courses and any courses
that are pre-recorded for later use. The percentage inuring to the teacher is
60% for live courses and 10% for all pre-recorded classes. All course materials
prepared by teachers are property of the Company.

Qualified teachers are
afforded the flexibility to develop course content which they perceive as
receptive to students, subject to our approval. Teachers are then able to post
to the platform, specific information concerning one or more classes offered to
students. Relevant information includes the subject matter of the class, date
and time of the class, price of the class, and the qualifications of the
teacher. On any given day, a student can browse over hundreds of classes on a
variety of subject matters. More popular classes are English, math and physics,
however specialized subjects are also offered by some teachers. Courses are
presented live or pre-recorded from a prior live session. Classes range between
0.5 to 1 hours longs. Pricing ranges between $1.5 and $50 per hour, again
dependent upon class subject matter, level of difficulty, and teacher
qualification. The following table shows the average price for three different
types of courses we offer.

|                           |  |            |       |                |   |              |  |   |       | 
|-------------------------- |  | ---------- | ----- | -------------- | - | ------------ |  | - | ----- | 
|Type                       |  | Elementary |       | Middle
 School |   | High
 School | 
|                           |  |            |       |                |   |              | 
|One-to-one classroom       |  | $          | 11.76 |                | $ | 14.71        |  | $ | 17.65 | 
|Renowned Teacher Classroom |  | $          | 5.88  |                | $ | 7.35         |  | $ | 8.82  | 
|General Classroom          |  | $          | 8.82  |                | $ | 11.76        |  | $ | 14.71 | 

Our Growth Strategy

Our growth and expansion
strategy for the next 6 to 12 months includes the following measures:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Establish
 six regional management centers: The Company plans to establish six regional management centers in
 six geographical locations. The purpose is to manage, train, and supervise
 nearby franchisee operations. The aggregate estimated cost to open these
 locations is approximately $3 million.                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Increase
 the number of franchised learning centers. As of December 31, 2011, we had over
 2,894 locations within over1,500 2nd and 3rd tier
 cities throughout China. We estimate that there are approximately 50,000 2nd and 3rd tier cities in the PRC. Our plan is to increase
 the number of franchised learning centers by increasing our advertising and
 marketing initiatives in an effort to attract more franchisees. The aggregate
 estimated cost is approximately $3.6 million

On average, the total cost
of opening a Company-owned learning center is approximately $100,000 as
described in further detail in the following table:

|                              |  |   |             | 
|----------------------------- |  | - | ----------- | 
|Interior decoration           |  | $ | 22,059      | 
|Equipments and facilities     |  | $ | 5,882       | 
|                              |  |   | 44,118/6    | 
|6-month Rent (paid up
 front) |  | $ | month       | 
|Deposit                       |  | $ | 7,353/month | 
|Miscellaneous                 |  | $ | 22,059      | 
|Total                         |  | $ | 101,471     | 

13

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Increase
 traffic to our virtual classrooms. We plan to allocate more capital resources to the marketing and
 promotion of our virtual classrooms. The above mentioned brand promotion
 campaign will include sponsoring events at prominent high-schools designed to
 promote our virtual classrooms, advertising in school newspapers, and to a
 lesser extent, subscribing to more per click ad space on selected Internet
 sites, such as Sina.com and Yahoo.com.cn. We also expect to experience
 increased traffic to our virtual classrooms coincident with our franchise
 expansion efforts. Since introduction of this platform, historical results
 have indicated that a majority of our virtual classroom subscribers have
 originated from our learning centers.

In order to execute our plan
of expanding our business operations we will need to (i) increase the number of
our learning centers, (ii) scale and adapt our existing network infrastructure
to accommodate increased systems traffic and (iii) increase our marketing
efforts. If we fail to expend sufficient capital to execute our growth
strategy, our operating results will be harmed.

Marketing and Promotion

Our marketing efforts target
three principal areas; franchisees, students for our Company-owned learning
centers, and students for our virtual classrooms.

We attract franchisees by
conducting regional seminars on a periodic basis in areas that we have targeted
for expansion, as well as advertising on regional television and in local
newspapers in these areas. These efforts have produced in excess of 2,200
operating franchisees.

Our Company-owned learning
centers are in close proximity to schools and large residential areas. We have
been able to attract students to our learning centers principally through the
distribution of leaflets in the nearby areas. We do not recruit students based
on academic performance.

Traffic to our virtual
classrooms has been driven principally by students from our learning centers.
We expect to increase traffic to our virtual classrooms commensurate with the
numerical increase of our learning centers.

We will continue the above
stated marketing measures for the foreseeable future.

Competition

We do not have direct
competition from our business model of offering online educational services at
home and at learning centers. We face competition from online web schools with
respect to our virtual classroom model, such as China Edu, although these schools
are generally limited by the scope of classes offered and the number of
teachers available for presentation. China Edu offers only pre-recorded courses
broadcast online, targeting students aged three to eighteen in tier 1 and tier
2 cities in China. The price point of China Edu is between $176 to $426 per
year. We differentiate our business from China Edu by targeting students aged
six through eighteen in tier 2 and tier 3 cities at a substantially lower price
point, by offering pre-recorded as well as live, real-time online courses,
consumable both at home and at franchised or Company-owned learning centers.

Our business also face
competition from traditional offline cram schools, however, these schools are
fragmented throughout the country with concentration mainly in tier one cities.
The largest of such cram schools are Xueda, Juren and China TAL Education,
which are focused on serving the tier 1 cities. Because these schools are
fragmented, they have no more than 200 locations, all of which locations are
Company-owned. Further, they do not offer online courses, and their teaching
materials are not synchronized with official textbooks. We compete with these
cram schools by offering online courses at home and at learning centers,
courses synchronized with textbooks, a lower price point, and because of our
franchise model, are able to expand more quickly and to more markets than the
cram school business model. Accredited learning centers are traditional
degree-granting schools. As we are not an accredited learning center, we do not
compete with these institutions.

14

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We believe our current
competitive advantages which will lead to potential future success are as
follows:

| |                                                                                                                                                                                                    |                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                    |                                                                                                                                                
| | Business Footprint and
 Reputation. We are
 the largest provider of supplementary educational teaching in the PRC and we
 have achieved industry acclaim for products and services.               
| |                                                                                                                                                                                                    |                                                                                                                                                
| | Management Experience. We have developed a strong management
 team which has demonstrated the ability to operate a highly successful
 business model.                                             
| |                                                                                                                                                                                                    |                                                                                                                                                
| | Scalability of Franchise
 Model. We believe
 that we have standardized an innovative, high quality teaching platform at
 our learning centers which allows for substantial geographical expansion.
| |                                                                                                                                                                                                    |                                                                                                                                                
| | Attributes of our Virtual
 Classrooms. Our
 virtual classrooms have numerous attributes, including                                                                                                
| |                                                                                                                                                                                                    |                                                                                                                                                
| |                                                                                                                                                                                                    | No
 geographical limits.
 We allow students from anywhere in the PRC or elsewhere to subscribe to a
 wide menu of courses,                     
| |                                                                                                                                                                                                    |                                                                                                                                                
| |                                                                                                                                                                                                    | many of which are
 presented by renowned teachers.                                                                                             
| |                                                                                                                                                                                                    |                                                                                                                                                
| |                                                                                                                                                                                                    | Real-time
 Interaction. Many
 of our classrooms allow real-time interaction between the student and
 teacher.                                  
| |                                                                                                                                                                                                    |                                                                                                                                                
| |                                                                                                                                                                                                    | Learning
 on demand. We
 provide a wide menu of live and pre-recorded courses with a broad scheduling
 format, including weekends and holidays.

Employees

As of December 31, 2011, we
had approximately 420 full time employees and six officers, including our
chairman and chief executive officer. Our employees are not represented by any
collective bargaining agreement, and we have never experienced a work stoppage.
We believe we have good relations with our employees. We also have contracts
with third party software providers from time to time to develop software
applications in accordance with our specifications.

Properties

Our corporate offices are
located at No. 39, Block 74, Lugu Rd., Shinjingshan District, Beijing. The
office space consists of approximately 20,000 square meters. Annual rent for
fiscal year 2012 is expected to be approximately $952,380, payable in equal
monthly installments. Our lease for this space expires on November 15, 2018.

Equipment and Equipment Suppliers

Presently, the Company owns
over 281 servers which are located in Beijing, Sichun, Shandong, Zhejiang and
Tiejing. These servers are maintained under service agreements with third
parties. For each Company-owned learning center, the Company owns between 40 to
50 desktop computers.

The Company purchases its
servers and computers from various large suppliers like Dell and Lenovo, among
others. The Company purchase products from its suppliers on an as needed
basis and presently does not believe the loss of any one supplier will have an
adverse effect on its business.

Software Development

Our learning center and
virtual classroom software has been developed internally by our engineers and
developers and through collaboration with third party developers. We retain
ownership to all work product developed internally and by third parties. We
will maintain this development strategy for future software products. Our
development team has expertise in software and database programming, web
application, browser, and desktop technologies.

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Government Regulation

The Chinese government
regulates the education services industry and the substance of Internet
content. This section summarizes the principal Chinese regulations relating to
our businesses. We operate our business in China under a legal framework that
consists of the State Council, which is the highest executive authority of the
Chinese central government, and several ministries and agencies under its
authority, including the Ministry of Education, or MOE, the State
Administration of Foreign Exchange, or SAFE, the Ministry of Information
Industry, or MII, the State Administration for Industry and Commerce, or SAIC,
the Ministry of Civil Affairs, or MCA, and their respective authorized local
counterparts.

We have been advised by our
PRC counsel that, except for the license for broadcasting audio-video programs
through the Internet discussed below, for which we have already applied, no
consent, approval or license other than those already obtained by our Chinese
subsidiaries and affiliates is required under any of the existing laws and
regulations of China for our business and operations.

Regulations on Broadcasting Audio-Video Programs through the
Internet or Other Information Network

The State Administration of
Radio, Film and Television, or SARFT, and MII promulgated the Rules for
Administration of Internet Video-Audio Programs Service, or the Video-Audio
Programs Rules, which became effective on January 31, 2008. The Video-Audio
Programs Rules apply to the activities of broadcasting, integration,
transmission, downloading of audio-video programs with computers, televisions
or mobile phones as the main terminals and through various types of information
networks. Pursuant to the Video-Audio Programs Rules, a permit for broadcasting
audio-video programs through an information network is required to engage in
these Internet broadcasting activities. On April 13, 2005, the State Council
announced a policy on private investments in businesses in China that relate to
cultural matters, which prohibits private investments in businesses relating to
the dissemination of audio-video programs through information networks. According
to the Rules
for Administration of Internet Video-Audio Programs Services, if an
entity engages in the provision of video-audio program services through the
Internet without an appropriate license, the competent departments of radio,
film and television may issue a warning, order such entity to take corrective
action, stop the operations,
confiscate the equipment involved in the illegal activities and/or impose fines
and penalties. On December 24, 2010, we obtained the License for Broadcasting
Audio-Video Program through the Internet issued by the State Administration of
Radio Film and Television (license No. 0110588).

On June 29, 2004, the State
Council issued theDecision on Setting Down
Administrative Licenses for the Administrative Examination and Approval Items
Really Necessary to be Retained, which provides that an
administrative license is required for online education schools that provide
degrees to students, but not for educational websites that do not provide
degrees to students, such as Tsingda Education. Educational websites refers
to websites of organizations providing education or education-related
information services to website visitors by means of a database or online
education platform connected via the Internet or an educational television
station. Online education schools refers to education websites that issue
educational certificates in connection with their providing academic education
services or training services.

Regulations on Operating Private Schools

The principal regulations
governing private education in China consist of theEducation Law of China,The Law for Promoting Private Education (2003), The Implementation Rules for
the Law for Promoting Private Education (2004) and theRegulations on Chinese-Foreign Cooperation in
Operating Schools. These regulations are summarized below.

Education Law of China

TheEducation Law of China, or theEducation Law, was enacted on March 18,
1995. TheEducation Law sets
forth provisions relating to the fundamental education systems of China,
including a system of pre-school education, primary education, secondary
education and higher education, a system of nine-year compulsory education and
a

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system of education
certificates. TheEducation Law
requires the government to formulate plans for the development of education and
the establishment and operation of schools and other education institutions. In
principle, enterprises, social organizations and individuals are encouraged to
operate schools and other types of educational organizations in accordance with
Chinese laws and regulations. Nevertheless, no school or any other accredited
educational institution may be established for profit-making purposes. However,
private schools may be operated for reasonable returns, as described in more
detail below.

The Law for Promoting Private Education (2003) and The
Implementation Rules for the Law for Promoting Private Education (2004)

TheLaw for Promoting Private Education (2003)
became effective on September 1, 2003, and its implementing regulations,The Implementation Rules for the Law for Promoting
Private Education (2004), became effective on April 1, 2004. Under
these regulations, private schools are defined as schools established by
individuals or private social organizations using private funds. Private
schools providing degree education, pre-school education, education for
self-study aid and other academic education are subject to approval by the
education authorities, while private schools engaging in occupational
qualification training and occupational skill training are subject to approvals
from the authorities in charge of labor and social welfare. An approved private
school will be granted an operating permit, and it must be registered with the
MCA or its local counterpart as a privately run non-enterprise legal person.

The operation of private
schools is highly regulated. For example, the types and amounts of fees charged
by private schools offering certifications must be approved by the relevant
governmental authority and be publicly disclosed, and the types and amounts of
fees charged by private schools that do not offer certifications need only be
filed with the relevant governmental authority and be publicly disclosed.

Private education is treated
as a public welfare undertaking under the regulations. Nonetheless, investors
in a private school may elect to require reasonable returns from the schools.
Under the regulations, an election to establish a private school as one
requiring reasonable returns must be made in the articles of association of the
school. For schools that have made this election, the amount of reasonable
return that can be distributed to investors each year is determined based on a
percentage of the schools operating surplus, which is equal to the schools
annual net income less the aggregate amount of donations received, government
subsidies, if any, the amount required to be reserved for the schools
development fund and other expenses as required by the regulations. This
percentage is determined by the schools board of directors, taking into
consideration the following factors: (i) the schools tuition and other fees,
(ii) the ratio of the schools expenses used for educational activities and
improving the educational conditions to the total fees collected; and (iii) the
schools admission standards and educational quality. Information relating to
these factors must be publicly disclosed before the schools board determines
the percentage of the schools annual net balance that can be distributed as
reasonable returns. This disclosed information and the decision to distribute
reasonable returns must also be filed with the approval authorities within 15
days from the decision made by the board. However, none of the current Chinese
laws and regulations provides a formula or other guidelines for determining
reasonable returns. In addition, none of the current Chinese laws and
regulations sets forth different requirements or restrictions on a private
schools ability to operate its education business based on such schools
status as a school that requires reasonable returns or a school that has not
made this election. At the end of each fiscal year, private schools are
required to allocate a certain amount to their development fund for the
construction and maintenance of the school and the procurement and upgrade of
educational equipment. For private schools that require reasonable returns,
this amount must be no less than 25% of the annual net income or the annual
increase in the net assets of the school, while for other private schools, this
amount must be no less than 25% of the annual increase in the net assets of the
school, if any. Private schools that have not elected to require reasonable
returns are entitled to the same preferential tax treatment as public schools.
The regulations require that preferential tax treatment policies applicable to
private schools requiring reasonable returns to be formulated by the finance
authority, taxation authority and other authorities under the State Council,
but to date no such regulations have been promulgated by the relevant
authorities. We have received a legal opinion from our PRC counsel stating that
we are not a private school.

17

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Regulations on Chinese-Foreign Cooperation
in Operating Schools

Chinese-foreign cooperation
in the operation of schools and training programs is governed by theRegulations on Operating Chinese-Foreign Schools,
issued by the State Council in 2003 in accordance with theEducation Law, theOccupational Education Law and theLaw for Promoting Private Education.

We are not subject to the Regulations
on Chinese-Foreign Cooperation in Operating Schools and its Implementing
Rules. TheRegulations on
Operating Chinese-Foreign Schools and itsImplementing Rules are intended to encourage substantive
cooperation between foreign education institutions and Chinese educational
organizations. These regulations regulate schools or programs jointly operated
by foreign and Chinese education institutions which are required to have
relevant qualifications and experience in providing high-quality education.
Tsingda eEDU and its affiliates are not foreign education institutions as
defined under these regulations. Furthermore, according to the legal opinion we
obtained from our PRC legal counsel, neither our VIE entity, Tsingda Education,
nor the Tsingda Learning Centers operated by Tsingda are private schools as
defined in the Law for Promoting Private Education.

Regulations on Internet Information
Services

The State Council issued the
Telecom Regulations and the Internet Information Services Administrative
Measures, or the Internet Information Measures, on September 25, 2000.

The Internet Information
Measures require that commercial Internet content providers, or ICPs, must
either obtain a license for Internet information services, or an ICP license,
from, or make an ICP filing with, the appropriate telecommunications
authorities to carry on any commercial Internet information services in China.
Generally, an ICP license is required to provide Internet information services
for profit-making purposes, whereas only an ICP filing is required to provide
Internet information services on a non-profit basis. We have received all
necessary approvals in this regard.

In July 2006, the MII issued
theNotice on Strengthening Management of
Foreign Investment in Operating Value-Added Telecom Services. The
notice prohibits Chinese ICPs engaged in providing value-added telecom services
from leasing, transferring or selling their ICP licenses or providing
facilities or other resources to illegal foreign investors. The notice requires
Chinese ICPs to directly own the trademarks and domain names for the websites
they operate, as well as servers and other infrastructure used to support these
websites. The notice also requires Chinese ICPs to evaluate their compliance
with the notice by November 1, 2006 and correct any non-compliance. A Chinese
ICPs failure to complete the procedures by November 1, 2006 could be the basis
for revocation of its ICP license.

Regulations Relating to Information
Security

On December 28, 2000, the
National Peoples Congress enacted theDecisions Regarding Maintaining Internet Security, which prohibits
any use of the Internet that results in a breach of public security,
dissemination of socially destabilizing content or divulgence of state secrets.
The conduct prohibited is broadly defined under the decisions.

According to other relevant
regulations, ICPs must complete mandatory security filing procedures with local
public security authorities and must also report any public dissemination of
prohibited content.

Regulations on Protection of the Right of
Dissemination through Information Networks

On May 18, 2006, the State
Council issued theRegulations on Protection
of the Right of Dissemination through Information Networks, and they
became effective on July 1, 2006. These regulations require that every
organization or individual who disseminates a third partys work, performance,
audio or visual recording products to the public through an information network
must obtain permission from, and pay compensation to, the copyright owner of
these products, unless otherwise provided under relevant laws and regulations.
The copyright owner may take technical measures to protect his or her right of
dissemination through information networks and any organization or individual
may not intentionally evade, destroy or otherwise assist others in evading
these protective measures unless permissible under law. These regulations also
provide that permission from and compensation for the

18

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copyright owner are not
required in the event of limited dissemination to teaching or research staff
for the purpose of school teaching or scientific research.

All of our online services
and products are delivered by Tsingda Education through software and teaching
materials. 90% of these software and teaching materials are self-developed, 8%
purchased, and 2% are jointly developed with third parties. Tsingda Education
is the sole owner of the copyright for the 90% self-developed software and
teaching materials. Tsingda Century entered into license agreements with the
providers with regard to the 8% purchased courseware so that we obtained the
right to use these software and teaching materials on our online platform and
the cooperative platform. As to the 2% jointly developed software and teaching
materials, Tsingda Education entered into agreements with collaborators
pursuant to which we jointly develop these materials and we are entitled to use
the software and materials developed, and are obligated to share the profits
with them. We believe our operations are in compliance with the Regulations on
Protection of the Right of Dissemination through Information Networks.

Regulations on Copyright and Trademark
Protection

China has adopted
legislation governing intellectual property rights, including copyrights and
trademarks. China is a signatory to the main international conventions on
intellectual property rights and became a member of theAgreement on Trade Related Aspects of Intellectual
Property Rights, orTRIPS, upon its accession to the World Trade Organization in December 2001.

Copyright. The National Peoples Congress amended itsCopyright Law in 2001 to widen the scope of works and
rights that are eligible for copyright protection. The amendedCopyright Law extends copyright
protection to Internet activities, products disseminated over the Internet and
software products. In addition, there is a voluntary registration system
administered by the China Copyright Protection Center.

Trademark. TheChinese Trademark Law,
adopted in 1982 and revised in 2001, protects the proprietary rights to
registered trademarks. The Trademark Office, which is under the SAIC, handles
trademark registrations and grants a ten-year term to registered trademarks,
subject to renewal for another ten years. Trademark license agreements must be
filed with the Trademark Office for recording. We have registered nine
trademarks with the Trademark Office and are in the process of registering
additional marks. In addition, if a registered trademark is recognized as a
well-known trademark, the proprietary right of the trademark holder may be
extended beyond the registered sphere of products and services of the
trademark.

On November 5, 2004, the MII
amended theMeasures for Administration of
Domain Names for the Chinese Internet, or theDomain Name Measures. TheDomain Name Measures regulate the
registration of domain names, such as the first tier domain name .cn. In
February 2006, China Internet Network Information Center, or CINIC, issued theImplementing Rules for Domain Name Registration and
the Measures on Domain Name Disputes Resolution, pursuant to which
CINIC can authorize a domain name dispute resolution institution to decide
disputes.

Regulation of the Software Industry

Policies to Encourage the Development of
Software

On June 24, 2000, the State
Council issuedCertain Policies to Encourage
the Development of Software and Integrated Circuit Industries, or
the Policies, to encourage the development of software and integrated circuit
industries in China and to enhance the ability of PRC information technology
companies to compete in the international market. The Policies facilitate the
development of software and integrated circuit industries in China through
various methods, including:

| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  encouraging venture
 capital investments in the software industry and providing capital to
 software enterprises or assisting such software enterprises to raise capital
 overseas;                               
| |  providing tax
 incentives, including an immediate tax rebate for taxpayers who sell self-developed
 software products before 2010 in the amount of the statutory value-added tax
 that exceeds 3%, and a number of

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| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | exemptions and reduced
 corporate income tax rates;                                                                                   
| |  providing government
 support, such as government funding in the development of software
 technology;                               
| |  providing preferential
 treatments, such as credit facilities with low interest rates to enterprises
 that export software products;
| |  adopting various
 strategies to ensure that the software industry has sufficient expertise; and                                     
| |  implementing measures to
 enhance intellectual property protection in China.                                                        

To qualify for preferential
treatments, an enterprise must be recognized as a software enterprise by
governmental authorities. A software enterprise is subject to annual
inspection, failure to pass such inspection in a given year would cause the
enterprise to lose the relevant benefits

Software Products Administration

On October 27, 2000, the
MIIT issued theMeasures Concerning Software
Products Administration to regulate and administer software products
and facilitate the development of the software industry in China. Pursuant to
the Measures Concerning Software Products Administration, all software products
operated or sold in China must be duly registered with and recorded by the
relevant authorities, and no entity or individual is allowed to sell
unregistered and unrecorded software products. In order to produce software
products in China, a software producer is required to have:

| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  the status of an
 enterprise legal person, which scope of operations must include computer
 software business (including technology development of software or production
 of software products);
| |  a fixed production site;                                                                                                                                                                         
| |  necessary conditions and
 technologies for producing software products; and                                                                                                                      
| |  quality control measures
 and capabilities for the production of software products.                                                                                                              

Software developers or
producers are allowed to sell their registered and recorded software products
independently or through agents, or by way of licensing. Software products
developed in China must be registered with local provincial governmental
authorities in charge of the information industry and subsequently filed with
the taxation authority at the same level and the MIIT. Imported software
products,i.e., software
developed overseas and sold or distributed into China, must be registered with
the MIIT. Upon registration, the software products will be granted registration
certificates. Each registration certificate is valid for five years from the
issuance date and may be renewed upon expiry. The MIIT and other relevant
authorities may carry out supervision and inspection over the development,
production, operation and import/export of software products in and out of
China.

On March 5, 2009, the MIIT
promulgated the newMeasures Concerning
Software Products Administration, or the New Measures, which became
effective on April 10, 2009. Under the New Measures, software products operated
or sold in China are not required to be registered or recorded by relevant
authorities, and software products developed in China (including those
developed in China on the basis of imported software) can enjoy certain
favorable policies when they have been registered and recorded. The New
Measures also eliminated the previous requirements set forth above.

Software Copyright

The State Council
promulgated theRegulations on the
Protection of Computer Software, or the Software Protection
Regulations, on December 20, 2001, which became effective on January 1, 2002.
The Software Protection Regulations were promulgated, among other things, to
protect the copyright of computer software in China. According to the Software
Protection Regulations, computer software that is independently developed and
attached to physical goods will be protected. However, such protection does not
apply to any ideas, mathematical concepts, processing and operation methods
used in the development of software solutions. Under the Software Protection
Regulations, PRC citizens, legal persons and organizations will enjoy copyright
protection for computer software that they have developed, regardless of
whether the software has been published. Foreigners or any person without a
nationality will enjoy copyright protection over computer software that they
have developed, as long as such computer software was first distributed in
China. Software of foreigners or any person without a nationality will

20

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enjoy copyright protection
in China under these regulations in accordance with a bilateral agreement, if
any, executed by and between China and the country to which the developer is a
citizen of or in which the developer resides, or in accordance with an
international treaty to which China is a party. Under the Software Protection
Regulations, owners of software copyright will enjoy the rights of publication,
authorship, modification, duplication, issuance, lease, transmission on the
information network, translation, licensing and transfer. Software copyright
protection takes effect on the day of completion of the softwares development.
The protection period for software developed by legal persons and other
organizations is fifty years and ends on December 31 of the fiftieth year from
the date the software solution was first published.

However, the Software
Protection Regulations will not protect the software if it is not published
within fifty years from the date of the completion of its development. Civil
remedies available under the Software Protection Regulations against copyright
infringements include cessation of the infringement, elimination of the
effects, apology and monetary compensation. The copyright administrative
authorities may order the infringer to stop all infringing acts, confiscate
illegal gains, confiscate and destroy infringing copies, and may impose a fine
on the offender under certain circumstances.

Software Copyright Registration

On February 20, 2002, the
State Copyright Administration of the PRC promulgated and enforced theMeasures Concerning Registration of Computer
Software Copyright Procedures, or the Registration Procedures, to
implement the Software Protection Regulations and to facilitate the development
of Chinas software industry. The Registration Procedures apply to the
registration of software copyrights and software copyright exclusive licensing
contracts and assignment contracts. The registrant of a software copyright will
either be the copyright owner or another person (a natural person, legal person
or an organization) in whom the software copyright becomes vested through
succession, assignment or inheritance. Upon registration, the registrant should
be granted a registration certificate by the China Copyright Protection Center.

Limitations on Foreign Ownership of Our
Businesses

The Foreign Investment
Industry Guidance Catalogue (amended in 2007) and other applicable laws and
regulations limit foreign ownership in entities, or foreign participation in
entities, engaging in specified education activities by restricting foreign
investment in educational websites. From a practical perspective, the MOE will
not approve any foreign investment or participation in online degree education.

Our current operations,
including our provision of online video-audio programs, may be deemed as within
the prohibited or restricted industries in the Catalogue. Our corporate
structure, especially the VIE Agreements, is designed to comply with current
regulatory limitations on foreign ownership. Under the current PRC laws and
regulations, it is not clear whether foreign participation through VIE arrangement
is permitted. There was no regulatory action to sanction foreign involvement in
the restricted or prohibited industries through a VIE structure. Both Tsingda
Education and the WFOE are PRC domestic enterprises. The business licenses of
both entities were approved by relevant governmental authorities. Despite this,
there is no assurance that the PRC government will not take a more restrictive
view on the VIE structure and impose sanctions against such arrangements. We
have disclosed such risks in the risk factor discussions entitled Risks Related to
Our Corporate Structure of this annual report.

Operating License

Our business is subject to
regulation by governmental agencies in the PRC. Business and company
registrations are certified on a regular basis and must be in compliance with
the laws and regulations of the PRC and provincial and local governments and
industry agencies, which are controlled and monitored through the issuance of
licenses and certificates.

Tsingda Education has
received a license from the Beijing Administration for Industry and Commerce.
This business license enables us to conduct our business of providing
non-certified educational services. The registration

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No. is 10112006225438, and
it is valid from October 24, 2003 through October 23, 2013. Tsingda Management
has received a license from the Beijing Administration for Industry and
Commerce which enables us to engage in business consulting, education
information services and organizing cultural exchanges activities (excluding shows).
This license is valid from November 26, 2007 to November 25, 2027. Once the
terms expire, all the business licenses are renewable.

SAFE regulations on overseas investment of
Chinese residents and employee stock options

The SAFE issuedThe Notice on Issues Relating to the Administration
of Foreign Exchange in Fund-Raising and Reverse Investment Activities of
Domestic Residents Conducted via Offshore Special Purpose Companies
in October 2005, which became effective in November 2005, and an implementing
rule in May 2007, collectively SAFE Rules. According to SAFE Rules, Chinese
residents, including both legal persons and natural persons and Chinese
citizens and foreign citizens who reside in China, are required to register
with SAFE or its local branch before establishing or controlling any company
outside China, referred to in SAFE rules as an offshore special purpose
company, for the purpose of financing that offshore company with their
ownership interests in the assets of or their interests in any Chinese
enterprise. In addition, a Chinese resident that is a shareholder of an
offshore special purpose company is required to amend its SAFE registration
with the local SAFE branch with respect to that offshore special purpose
company in connection with the injection of equity interests or assets of a
Chinese enterprise in the offshore company or overseas fund raising by the
offshore company, or any other material change in the capital of the offshore
company, including any increase or decrease of capital, transfer or swap of
share, merger, division, long-term equity or debt investment or creation of any
security interest. The SAFE Rules apply retroactively. As a result, Chinese
residents who have established or acquired control of offshore companies that have
made onshore investments in China in the past were required to complete the
relevant registration procedures with the competent local SAFE branch. If any
resident of China failed to file its SAFE registration for an existing offshore
entity, any dividends remitted by the onshore entity to its overseas parent
since April 21, 2005 will be considered to be an evasion of foreign exchange
purchase rules, and the payment of the dividend will be illegal. As a result of
any illegal action of this type, both the onshore entity and its actual
controlling person(s) can be fined. In addition, failure to comply with the
registration procedures may result in restrictions on the relevant onshore
entity, including prohibitions on the payment of dividends and other distributions
to its offshore parent or affiliate and capital inflow from the offshore
entity. Chinese resident shareholders of the offshore entity may also be
subject to penalties under Chinese foreign exchange administration regulations.

We have asked our shareholders
and beneficial owners who are Chinese residents to make the necessary
applications and filings as required under Circular 75 and other related rules,
as well as pursuant to the Escrow Agreement we entered into in connection with
our September 2010 private placement. The Tsingda Education Shareholders
registered the pledge of their equity interest contemplated in the Equity
Pledge Agreement with the local SAIC in August 2010. Subsequently in July 2011,
the Tsingda Education Shareholders amended the registration to reflect certain
transactions among them. We will attempt to comply, and attempt to ensure that
our shareholders and beneficial owners who are subject to these rules comply,
with the relevant requirements. However, we cannot provide any assurances that
all of our shareholders and beneficial owners who are Chinese residents will
comply with our request to make or obtain any applicable registrations or
comply with other requirements required by Circular 75 or other related rules
due to uncertainty concerning the reconciliation of Circular 75 with other
approval or registration requirements. In addition, certain of the holders of
options to purchase our Ordinary Shares are Chinese residents. We have been
advised that it is unclear under SAFE Rules whether these option holders would
be deemed to be beneficial owners of our company for the purposes of these
rules as a result of holding these options. The failure or inability of our
Chinese resident shareholders or beneficial owners to register with SAFE in a
timely manner pursuant to SAFE Rules, or the failure or inability of any future
Chinese resident shareholders or beneficial owners to make any required SAFE
registration or comply with other requirements under SAFE Rules may subject
these shareholders or beneficial owners to fines or other sanctions and may
also limit our ability to contribute additional capital into or provide loans
to our Chinese subsidiaries, limit our Chinese subsidiaries ability to pay
dividends to us, repay shareholder loans or otherwise distribute profits or
proceeds from any reduction in capital, share transfer or liquidation to us, or
otherwise adversely affect us.

On March 28, 2007, SAFE
promulgated theApplication Procedure of
Foreign Exchange Administration for Domestic Individuals Participating in
Employee Stock Option Holding Plan or Stock Option Plan of Overseas

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Listed Company, or theStock Option Rule. The purpose of theStock Option Rule
is to regulate foreign exchange administration of Chinese citizens who participate
in employee stock holding plans and stock option plans of offshore listed
companies. According to theStock Option
Rule, if a Chinese citizen participates in any employee stock
holding plan or stock option plan of an offshore listed company, a Chinese
domestic agent or the Chinese subsidiary of the offshore listed company is
required to file, on behalf of the individual, an application with SAFE to
obtain approval for an annual allowance with respect to the purchase of foreign
exchange in connection with stock holding or stock option exercises. This
restriction exists because a Chinese citizen may not directly use offshore
funds to purchase stock or exercise stock options. Concurrent with the filing
of the required application with SAFE, the Chinese domestic agent or the
Chinese subsidiary must obtain approval from SAFE to open a special foreign
exchange account at a Chinese domestic bank to hold the funds required in
connection with the stock purchase or option exercise, any returned principal profits
upon sales of stock, any dividends issued on the stock and any other income or
expenditures approved by SAFE. The Chinese domestic agent or the Chinese
subsidiary also is required to obtain approval from SAFE to open an offshore
special foreign exchange account at an offshore trust bank to hold offshore
funds used in connection with any employee stock holding plans.

All proceeds obtained by a
Chinese citizen from dividends acquired from the offshore listed company
through employee stock holding plans or stock option plans, or sales of the
offshore listed companys stock acquired through other methods, must be
remitted back to China after relevant offshore expenses are deducted. The
foreign exchange proceeds from these sales can be converted into Renminbi or
transferred to the individuals foreign exchange savings account after the
proceeds have been remitted back to the special foreign exchange account opened
at a Chinese bank. If stock options are exercised in a cashless exercise, the
Chinese individuals exercising them are required to remit the proceeds to the
special foreign exchange account.. If we or our Chinese employees fail to
comply with theStock Option Rule, we and/or our Chinese employees may face sanctions imposed by foreign
exchange authority or any other Chinese government authorities.

Foreign Exchange Control and Administration

Foreign exchange in China is
primarily regulated by:

| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | The Foreign Currency
 Administration Rules (1996), as amended; and                                                     
| |  | The Administration Rules
 of the Settlement, Sale and Payment of Foreign Exchange (1996), or the
 Administration Rules.

Under the Administration
Rules, the Renminbi is convertible for current account items, including the
distribution of dividends, interest payments, and trade and service-related
foreign exchange transactions. Conversion of Renminbi into foreign currency for
capital account items, such as direct investment, loans, investment in
securities and repatriation of funds, however, is still subject to the approval
of SAFE. Under such rules, foreign-invested enterprises may only buy, sell and
remit foreign currencies at banks authorized to conduct foreign exchange
transactions after providing valid commercial documents and, in the case of
capital account item transactions, only after obtaining approval from SAFE.

Under the Foreign Currency
Administration Rules, foreign invested enterprises are required to complete the
foreign exchange registration and obtain the registration certificate. Tsingda
Management has not complied with these requirements. Tsingda Education and
Tsingda Network are domestic enterprises and do not have to comply with these
requirements.

The value of the Renminbi
against the US dollar and other currencies may fluctuate and is affected by,
among other things, changes in Chinas political and economic conditions.
Historically, the conversion of Renminbi into foreign currencies, including US
dollars, has been based on rates set by the Peoples Bank of China. On July 21,
2005, the PRC government changed its policy of pegging the value of the
Renminbi to the US dollar. Under the new policy, the Renminbi will be permitted
to fluctuate within a band against a basket of certain foreign currencies.
There remains significant international pressure on the PRC government to adopt
a substantial liberalization of its currency policy, which could result in a
further and more significant appreciation in the value of the Renminbi against
the US dollar.

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Regulation on Mergers and Acquisitions

On August 8, 2006, six PRC
regulatory agencies, including the China Securities Regulatory Commission, or
CSRC, promulgated the Regulation on Mergers and Acquisitions of Domestic
Companies by Foreign Investors, which became effective on September 8, 2006.
This new regulation, among other things, has certain provisions that purport to
require offshore special purpose vehicles, or SPVs, formed for the purpose of
listing and controlled by PRC individuals or companies, to obtain the approval
of the CSRC prior to listing their securities on an overseas stock exchange. On
September 21, 2006, the CSRC published on its official website a notice
specifying the documents and materials that are required to be submitted for
obtaining CSRC approval. In addition, under this new regulation, mergers and
acquisitions of equity or assets involving PRC enterprises by foreign investors
are subject to approval by the Ministry of Commerce or local branches or other
competent government authorities. If we continue our expansion through
acquiring PRC domestic companies by our offshore affiliates, we will be subject
to such approval requirement.

Failure to comply with this
new regulation may lead to sanctions by the Ministry of Commerce or other PRC
regulatory authorities that are provided for in other relevant regulations
governing foreign investment, foreign exchange, taxation, business
registration, securities, and administration of state-owned assets.

Restrictions on transfer of proceeds from offshore
offerings to our PRC subsidiaries.

On
August 29, 2008, the Notice of the General Affairs Department of the State
Administration of Foreign Exchange on the Relevant Operating Issues concerning
the Improvement of the Administration of Payment and Settlement of Foreign
Currency Capital of Foreign-funded Enterprises, or Circular 142, was
promulgated by SAFE. Pursuant to Circular 142, the foreign currency capital of
FIEs, after being converted to RMB, can only be used for doing business within
the business scope approved by relevant governmental authorities, and shall not
be used for domestic equity investment except as otherwise explicitly provided
by laws and regulations. In addition, FIEs may not change how they use such
capital without SAFEs approval, and may not in any case use such capital to
repay RMB loans if they have not used the proceeds of such loans.

On
November 19, 2010, SAFE promulgated Circular 59 which requires the
authenticity of settlement of net proceeds from offshore offerings to be
closely examined and the net proceeds to be settled in the manner described in
any offering documents. Circular 142 and Circular 59 may significantly limit
our ability to transfer the net proceeds from any debt or equity offering we
may undertake to our PRC subsidiaries and convert the net proceeds into RMB, which
may adversely affect our liquidity and our ability to fund and expand our
business in the PRC.

In
strengthening Circular 142, SAFE promulgated the Circular on Further Clarifying
and Regulating Relevant Issues Concerning the Administration of Foreign
Exchange under Capital Account, or SAFE Circular 45, on November 9, 2011,
which expressly prohibits a foreign invested company from converting registered
capital in foreign exchange into RMB for the purpose of equity investment,
granting certain loans, repayment of inter-company loans, or repayment of bank
loans which have been transferred to a third party. As a result, Circular 142
and Circular 45 may significantly limit our ability to transfer capital to
Tsingda Education and its schools and subsidiaries through our subsidiaries in
the PRC, which may adversely affect our ability to expand our business, and we
may not be able to convert capital into RMB to invest in or acquire any other
PRC companies, or establish other variable interest entities in the PRC.

Please
refer to more detailed discussion on the risks associated with the above
regulations in the Risks Related to Doing Business In China section in Item
1A Risk Factors.

Dividend Distributions

Pursuant to the Foreign
Currency Administration Rules promulgated in 1996 and amended in 1997 and 2008,
respectively, and various regulations issued by SAFE, and other relevant PRC
government authorities, the PRC government imposes controls on the
convertibility of the Renminbi into foreign currencies and, in certain cases,
the remittance of currency out of China.

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Tsingda Education and
Tsingda Network are regulated by the laws governing foreign-invested
enterprises in the PRC. Accordingly, they are required to allocate 10% of their
after-tax profits based on PRC accounting standards each year to their general
reserves until the accumulated amount of such reserves has exceeded 50% of
their registered capital, after which no further allocation is required to be
made. Both Tsingda Education and Tsingda Network have made the required
allocations to the general reserves. These reserve funds, however, may not be
distributed to equity owners except in accordance with PRC laws and
regulations. We cannot assure you that the PRC government authorities will not
request our subsidiaries to use their after-tax profits for their own
development and restrict our subsidiaries ability to distribute their
after-tax profits to us as dividends.

Pursuant to the new EIT law
and its implementing regulations, dividends payable by a foreign-invested
enterprise to its foreign investors will be subject to a 10% withholding tax if
the foreign investors are considered as non-resident enterprises without any
establishment or place within China or if the dividends payable have no
connection with the establishment or place of the foreign investors within
China, to the extent that the dividends are deemed China sourced income, unless
any such foreign investors jurisdiction of incorporation has a tax treaty with
China that provides for a different withholding arrangement. The Marshall
Islands, where our immediate holding company is incorporated, does not have
such a tax treaty with China. In addition, pursuant to a notice jointly
promulgated by the Ministry of Finance and the State Administration of Taxation
of the PRC on February 22, 2008, distribution of accumulated profits of
foreign-invested enterprises arising before January 1, 2008 will be exempt from
withholding tax even if the distribution is made after January 1, 2008 but the
distribution of profits arising after January 1, 2008 will be subject to
withholding tax.

Regulation of Employment

On June 29, 2007, the
National Peoples Congress promulgated the Employment Contract Law of the
Peoples Republic of China, or ECL, which became effective on January 1, 2008.
On September 18, 2008, the State Council issued the Peoples Republic of China
Employment Contract Law Implementation Rules, or ECL Implementation Rules,
which became effective on September 18, 2008, the date of issuance. The ECL and
ECL Implementation Rules require employers to enter into written contracts with
their employees, restrict the use of temporary workers and aim to give
employees long-term job security.

Pursuant to the ECL,
employment contracts lawfully entered into prior to the implementation of the
ECL and continuing as of the date of its implementation will continue to be
valid. Where an employment relationship was established prior to the
implementation of the ECL but no written employment contract was entered into,
a contract must be entered into within one month after the ECLs
implementation.

Regulations on Franchise Businesses

On February 6, 2007, the
State Council promulgated the Regulation on the Administration of Commercial
Franchisees, which became effective on May 1, 2007. This regulation requires
that any enterprise engaging in trans-provincial franchise business shall
register with the Ministry of Commerce, or MOC, and any enterprise engaging in
franchise business within one province shall register with the provincial
counterparts of MOC. On April 30, 2007, the MOC promulgated the Administrative
Measures for the Filing of Commercial Franchises, which set forth in detail the
procedures and documents required for the filing, including among other things
the franchise agreement, market plan trademarks, and patents relating to the
franchise.

According to the Regulation
on the Administration of Commercial Franchises, a franchisor conducting
franchise activities shall possess a mature business model and the ability to
provide long-term business guidance, technical support, business training and
other services to the franchisee. It shall have at least two direct sales
stores and have done the business for more than a year. If a franchisor
conducts its operations within the scope of a province, autonomous region, or
municipality, it must file legal documents with the competent commercial
authorities of the province, autonomous region or municipality. If a franchisor
conducts its operations within the scope of two or more provinces, autonomous
regions, or municipalities, it must file legal documents with the competent
commercial authority of the PRC state council. A franchisor must submit the
following documents and materials:

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| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | copies of its business
 license or enterprise registration certificate;                                         
| |   |                                                                                                                 
| |  | a sample franchise
 contract;                                                                                   
| |   |                                                                                                                 
| |  | a brochure for franchise
 operations;                                                                           
| |   |                                                                                                                 
| |  | a market plan;                                                                                                  
| |   |                                                                                                                 
| |  | written commitments and
 relevant materials proving that the relevant filing provisions have been
 followed; and
| |   |                                                                                                                 
| |  | other documents and
 materials required by the relevant commercial authorities.                                 

26

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SPECIAL NOTE ON FORWARD LOOKING
STATEMENTS

In addition to historical information, this Annual Report on
Form 10-K contains forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the sections entitled Business, Risk Factors, and
Managements Discussion and Analysis of Financial Condition and Results of
Operations. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect managements opinions only as of the
date thereof. We undertake no obligation to revise or publicly release the
results of any revision of these forward-looking statements. Readers should
carefully review the risk factors described in this Annual Report and in other
documents that we file from time to time with the Securities and Exchange
Commission.

In some cases, you can identify forward-looking statements
by terminology such as may, will, should, expects, plans,
anticipates, believes, estimates, predicts, potential, proposed,
intended, or continue or the negative of these terms or other comparable
terminology. You should read statements that contain these words carefully,
because they discuss our expectations about our future operating results or our
future financial condition or state other forward-looking information. There
may be events in the future that we are not able to accurately predict or
control. You should be aware that the occurrence of any of the events described
in these risk factors and elsewhere in this Annual Report could substantially
harm our business, results of operations and financial condition, and that upon
the occurrence of any of these events, the trading price of our securities
could decline. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
growth rates, levels of activity, performance or achievements.

Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual results. The
following discussion should be read in conjunction with our financial
statements and the related notes that appear elsewhere in this report.

The foregoing does not represent an exhaustive list of
risks. Please see Risk Factors below for additional risks which could adversely
impact our business and financial performance. Moreover, new risks emerge from
time to time and it is not possible for our management to predict all risks,
nor can we assess the impact of all risks on our business or the extent to
which any risk, or combination of risks, may cause actual results to differ
from those contained in any forward-looking statements. All forward-looking
statements included in this Report are based on information available to us on
the date of this Report. Except to the extent required by applicable laws or
rules, we undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events or otherwise. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the cautionary statements contained throughout this Report.

ITEM 1A. RISK FACTORS

Risks Relating to Our Business

We have a limited operating history and we
may not be able to sustain the growth in our business.

Our limited operating
history and the early stage of development of the online education industry in
which we operate makes it difficult to evaluate our business and future
prospects. Although our annual growth rate of sales revenue from 2009 to 2010
and 2010 to 2011 was approximately 87% and 64.51% respectively, and our annual
growth rate of pre-tax income was approximately 70.4% and 27.1% during these
same periods, there is no assurance that we will be able to sustain such growth
in the future. We may have negative growth, which in turn may impair our
business operations and profitability.

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The market for the services that we provide
is still emerging and evolving rapidly.

The market for educational services
is still evolving in the PRC. Our success will depend to a large extent on the
perceived benefit that our services provide to our customers, who are mainly
students. Therefore we will need to increase awareness of our products, protect
our reputation and develop customer loyalty among our customers, anticipate and
adapt to changing conditions in the markets in which we operate.

Increased funding of educational programs
by the local or national government may negatively impact our business.

It is possible that
increased funding of educational programs would result in either greater
competition or reduced demand for our products and services. For example,
increased funding of educational programs may lead to nationwide student access
to online educational courses and services, as well as publicly available
state-sponsored learning centers. Increased online access could dramatically
increase the demand for online supplemental education, which could be expected
to lead to an increase in the number of private competitors we face. The
government may also determine to compete with us directly by offering
supplemental education services, and would be able to undercut our prices and
adversely affect the demand for our products and services.

Additional funding of
education may also reduce the overall demand for supplemental education in the
event such funds are used to better educate students in the primary and
secondary schools. To the extent the quality of education in schools increases,
the need for supplemental education may decrease. In any of such events, we
would expect our results of operations and future growth prospects to be
harmed.

We may have difficulty expanding our
business operations.

In order to expand our
business operations we will need to (i) increase the number of our learning
centers, (ii) scale and adapt our existing network infrastructure to
accommodate increased systems traffic and (iii) increase our marketing efforts.
Through 2011, we expect to open approximately 600 additional franchised locations.
We plan on a broad scale brand promotion campaign, and we will need
significantly more computing power as traffic within our system increases and
our learning center locations expand. We will be required to spend significant
capital and resources to manage our additional franchises, execute our
promotional campaign and to purchase equipment, and upgrade our technology and
network infrastructure to handle increased Internet traffic. In this regard, we
have budgeted approximately $1.2 million for our marketing campaign,
approximately $1.4 million for IT expenditures, and approximately $1.8 million
to add and improve our course content. We expect to generate this revenue
through our existing cash flow. If we fail to expend sufficient capital to execute
our growth strategy, our operating results will be harmed.

Problems with content delivery services,
bandwidth providers, data centers or other third parties could harm our
business, financial condition or results of operations.

Our business relies significantly
on third-party vendors, such as data centers, content delivery services and
bandwidth providers, while no single vendor is material to our operations. If
any third-party vendor fails to provide their services or if their services are
no longer available to us for any reason and we are not immediately able to
find replacement providers, our business, financial conditions or results of
operations could be materially adversely affected.

Additionally, any disruption
in network access or related services provided by these third-party providers
or any failure of these third-party providers to handle current or higher
volumes of use could significantly harm our business operations. If our service
is disrupted, we may lose revenues due to our inability to provide services to
our franchised learning centers and we may be obligated to compensate these
franchisees for their loss. Our reputation also may suffer in the event of a
disruption. Any financial or other difficulties our providers face may
negatively impact our business and we are unable to predict the nature and
extent of any such impact. We exercise very little control over these
third-party vendors, which increases our vulnerability to problems with the
servicesthey provide. Any errors, failures, interruptions or delays experienced
in connection with these third-party technologies and

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information services could
negatively impact our relationships with our franchisees and materially
adversely affect our brand reputation and our business, financial condition or
results of operations and expose us to liabilities to third parties.

Our data centers are vulnerable to natural
disasters, terrorism and system failures that could significantly harm our
business operations and lead to client dissatisfaction.

In delivering our solutions,
we are dependent on the operation of our data centers and bandwidth providers,
which are vulnerable to damage or interruption from earthquakes, terrorist
attacks, war, floods, fires, power loss, telecommunications failures, computer
viruses, computer denial of service attacks or other attempts to harm our
system, and similar events. We do not have insurance to cover any losses. Some
of our systems are not fully redundant, and our disaster recovery planning
cannot account for all eventualities. The occurrence of a natural disaster, a
terrorist attack, a providers decision to close a facility we are using
without adequate notice or other unanticipated problems at our data centers
could result in lengthy interruptions in our service. Interruptions in our
service could reduce our revenues and profits, and our brand reputation could
be damaged if customers believe our system is unreliable, which could have a
material adverse affect on our business, financial condition and results of operations.

Our business may be adversely affected by
malicious third-party software applications that interfere with the function of
our technology.

Our business may be
adversely affected by malicious software applications that make changes to
operating computers and interfere with our technology. These applications may
attempt to change users experience in using our virtual classrooms or teaching
modules at our learning centers, including changing configurations of our user
interface, or otherwise interfering with our ability to connect with users. The
interference may occur without disclosure to or consent from users, resulting
in a negative experience that users may associate with our solutions. These
software applications may be difficult or impossible to uninstall or disable,
may reinstall themselves and may circumvent other applications efforts to
block or remove them. If our efforts to combat these malicious software
applications are unsuccessful, our reputation may be harmed, and users may be
reluctant to use our services. This could result in a decline in usage of our
educational services and corresponding revenues, which would have a material
adverse effect on our business, financial condition and results of operations.

If we fail to manage our growth
effectively, our business, financial condition and results of operations could
be materially adversely affected.

We have experienced, and
continue to experience, rapid growth in our operations and headcount, which has
placed, and will continue to place, significant demands on our management,
operational and financial infrastructure. If we do not effectively manage our
growth, the quality of our solutions and services could suffer, which could
negatively affect our brand and operating results. To effectively manage this
growth, we will need to continue to improve, among other things:

| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our information and
 communication systems to ensure that our operations are well coordinated and
 that we can effectively communicate with our growing base of franchisees and
 users;
| |  | our systems of internal
 controls to ensure timely and accurate reporting of all of our operations;
 and                                                                               
| |  | our information technology
 infrastructure to maintain the effectiveness of our systems.                                                                                               

In order to enhance and
improve these systems we will be required to make significant capital
expenditures and allocation of valuable management resources. If the
improvements are not implemented successfully, our ability to manage our growth
will be impaired and we may have to make additional expenditures to address
these issues, which could materially adversely affect our business, financial
condition and results of operations.

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We may incur significant costs to ensure
compliance with United States corporate governance and accounting requirements.

We may incur significant
costs associated with our public company reporting requirements, costs
associated with newly applicable corporate governance requirements, including
requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented
by the Securities and Exchange Commission. We expect all of the applicable
rules and regulations to significantly increase our legal and financial
compliance costs and to make some activities more time consuming and costly. We
also expect that these rules and regulations will make it more expensive for us
to obtain director and officer liability insurance, and we may be required to
accept reduced policy limits and coverage or incur substantially higher costs
to obtain the same or similar coverage. We currently estimate our annual costs
for such compliance to be approximately $500,000, however we cannot predict the
amount of future compliance costs or other additional costs we may incur or the
timing of such costs.

We are currently evaluating
and monitoring developments with respect to these newly applicable rules, and
we cannot predict or estimate the amount of additional costs we may incur or
the timing of such costs.

We are dependent upon key personnel and the
loss of key personnel, or the inability to hire or retain qualified personnel,
could have an adverse effect on our business and operations.

Our success is heavily
dependent on the continued active participation of our current executive
officers listed under Management. Loss of the services of one or more of our
officers could have a material adverse effect upon our business, financial
condition or results of operations. Further, our success and achievement of our
growth plans depend on our ability to recruit, hire, train and retain other
highly qualified technical and managerial personnel. Competition for qualified
employees among companies in the PRC is intense, and the loss of any of such
persons, or an inability to attract, retain and motivate any additional highly
skilled employees required for the expansion of our activities, could have a
materially adverse effect on us. The inability on our part to attract and
retain the necessary personnel and consultants and advisors could have a
material adverse effect on our business, financial condition or results of
operations.

As of December 31, 2011, we
had a total of approximately 420 employees in our offices in the PRC. However,
there can be no assurance that we will be able to maintain a prolonged good
relationship with our existing or ex-employees and that no labor disruptions
will occur in the future. Should any industrial action or labor unrest occur,
our business operations could be adversely affected.

Potential claims alleging infringement of
third partys intellectual property by us could harm our ability to compete and
result in significant expense to us and loss of significant rights.

Our operations are
technology driven, and we have sought patent and copyright protection for our
key software packages. However, we may confront, from time to time, third
parties that may assert patent, copyright, and other intellectual property
rights to these and other software packages which are important to our
business. Any claims that our products or processes infringe the intellectual
property rights of others, regardless of the merit or resolution of such
claims, could cause us to incur significant costs in responding to, defending,
and resolving such claims, and may divert the efforts and attention of our
management and technical personnel away from the business. As a result of such
intellectual property infringement claims, we could be required or otherwise
decide it is appropriate to pay third-party infringement claims; discontinue
using the technology or processes subject to infringement claims which would
include the software relating to our learning centers and virtual classrooms;
develop other technology not subject to infringement claims, which could be
time-consuming and costly or may not be possible; and/or license technology
from the third-party claiming infringement, which license may not be available
on commercially reasonable terms. The occurrence of any of the foregoing could
result in unexpected expenses or require us to recognize an impairment of our
assets, which would reduce the value of the assets and increase expenses. In
addition, if we are required to discontinue the use of existing software, our
revenue could be negatively impacted.

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Risks Related to our Corporate Structure

Our principal shareholder is able to
control substantially all matters requiring a vote of our shareholders and its
interests may differ from the interests of our other shareholders.

Tsing Da Century Education
Technology Co., Ltd., a Belize corporation (not to be confused with Tsingda
Technology, a BVI corporation, which is our direct-wholly-owned subsidiary), is
our majority shareholder and beneficially owns approximately 31.9% of our
issued and outstanding Ordinary Shares. Mr. Zhang Hui, our Chairman and
President, is an officer and majority owner of this company. Therefore, Mr.
Zhang is able to exert substantial control on all matters requiring approval by
our shareholders, including the election of our directors and officers. This
concentration of ownership may also have the effect of discouraging, delaying
or preventing a future change of control, which could deprive our stockholders
of an opportunity to receive a premium for their shares as part of a sale of
our company and might reduce the price of our shares.

The contractual agreements with Tsingda
Education are not as effective as direct ownership. Because we rely on Tsingda
Education for our revenue, any termination of, or disruption to, these
contractual arrangements could detrimentally affect our business.

Presently all of our
business operations are carried out by Tsingda Education, and its wholly owned
subsidiary, Tsingda Network. We do not own any equity interests in Tsingda
Education, but control and receive the economic benefits of its business
operations through various contractual arrangements. Through these contractual
arrangements, we have the ability to substantially control the daily operations
and financial affairs of Tsingda Education, as we are able to appoint its
senior executives and approve all matters requiring shareholder approval.
Accordingly, we consolidate Tsingda Education results, assets and liabilities
in our financial statements.

However, these contractual
agreements may be terminated under certain circumstances. Generally the PRC has
substantially less experience related to the enforcement of contractual rights
through its judiciary or the arbitration process as compared to the United
States or the Cayman Islands. This inexperience presents the risk that the
judiciary or arbitrators in the PRC may be reluctant to enforce contractual rights,
interpret these rights and remedies differently than what was intended by the
parties to the agreements, or find that such contractual agreements do not
comply with restrictions in current PRC laws. A PRC court may also set aside an
arbitration award by reason of any defect the court considers to be present in
the arbitration proceeding, remedies at law may not be adequate and a PRC court
may not order specific performance. In addition, any legal proceeding may
result in substantial costs, disruptions to our business, damage to our
reputation and diversion of our resources.

If Tsingda Education or its
stockholders fail to perform their obligations under the contractual
arrangements, we may have to rely on legal remedies under PRC laws, including
seeking specific performance or injunctive relief, and claiming damages, and
there is a risk that we may be unable to obtain these remedies. Therefore our
contractual arrangements may not be as effective in providing control over
Tsingda Education as direct ownership. Because we rely on Tsingda Education for
our revenue, any termination of or disruption to these contractual arrangements
could detrimentally affect our business.

If the PRC government determines that our
agreements with these companies are not in compliance with applicable
regulations, our business in the PRC could be adversely affected.

The Chinese government
restricts foreign investment in education and Internet-related businesses,
including distribution of content over the Internet. Our current operations,
including our provision of online video-audio programs, may be deemed as within
the prohibited or restricted industries in the Foreign Investment Industry
Guidance Catalogue. Our corporate structure, especially the VIE Agreements, is
designed to comply with current regulatory limitations on foreign ownership.
Under the current PRC laws and regulations, it is not clear whether foreign
participation through VIE arrangements are permitted. There is no assurance
that the PRC government will not take a more restrictive view on our VIE
structure and impose sanctions on such arrangements. We cannot be sure that the
PRC government would view our operating arrangements to be in compliance with
PRC licensing, registration, restrictions on foreign investment or other
regulatory requirements, including without limitation the

31

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requirements described in
the Government Regulations section. We have agreed to waive the consulting
fees payable by to us Tsingda Education for a period of five years, until April
26, 2015. Our decision to waive such fees may be deemed by the PRC government
as a way to avoid compliance with restrictions related to foreign investment in
prohibited or restricted industries.

If we are determined not to
be in compliance, the PRC government could levy fines, revoke our business and
operating licenses, require us to discontinue or restrict our operations,
restrict our right to collect revenues, block our website, require us to
restructure our business, corporate structure or operations, impose additional
conditions or requirements with which we may not be able to comply, impose
restrictions on our business operations or on our customers, or take other
regulatory or enforcement actions against us that could be harmful to our
business. We may also encounter difficulties in obtaining performance under or
enforcement of related contracts.

In addition, our agreements
are governed by the PRC laws and regulations. PRC laws and regulations
concerning the validity of the contractual arrangements are uncertain, as many
of these laws and regulations are relatively new and may be subject to change,
and their official interpretation and enforcement by the PRC government may
involve substantial uncertainty.

We may not be able to consolidate the financial
results of some of our affiliated companies or such consolidation could
materially adversely affect our operating results and financial condition.

All of our business is
conducted through Tsingda Education which currently is considered for
accounting purposes a variable interest entity (VIE), and we are considered
the primary beneficiary, enabling us to consolidate our financial results in
our consolidated financial statements. We have also received a legal opinion
from our PRC legal counsel that the VIE Agreements are valid and enforceable
under PRC Laws. In the event that in the future a company we hold as a VIE
would no longer meet the definition of a VIE, or we are deemed not to be the
primary beneficiary, we would not be able to consolidate line by line that
entitys financial results in our consolidated financial statements for PRC
purposes. Also, if in the future an affiliate company becomes a VIE and we
become the primary beneficiary, we would be required to consolidate that
entitys financial results in our consolidated financial statements for PRC
purposes. If such entitys financial results were negative, this could have a
corresponding negative impact on our operating results for PRC purposes.
However, any material variations in the accounting principles, practices and
methods used in preparing financial statements for PRC purposes from the
principles, practices and methods generally accepted in the United States and
in the SEC accounting regulations must be discussed, quantified and reconciled
in financial statements for United States and SEC purposes.

We rely on certain contractual agreements
between Tsingda Management and Tsingda Education, and if any of these
agreements are terminated or unenforceable, our business and operations will be
materially and adversely affected. In the event of termination or
unenforceability of any of these agreements, our financial condition, results
of operations and future growth prospects may be materially harmed.

We rely on the VIE
Agreements between our wholly-owned subsidiary, Tsingda Management, and our
variable interest entity, Tsingda Education to control Tsingda Education. Under
the terms of the exclusive consulting services agreement Tsingda Management has
the exclusive right to provide business consulting and related services to
Tsingda Education in connection with its business operations. Under this
agreement, Tsingda Management owns the intellectual property rights arising
from the performance of these services, including, but not limited to, any trade
secrets, copyrights, patents, know-how, unpatented methods and processes and
otherwise, whether developed by Tsingda Management or Tsingda Education based
on Tsingda Managements provision of such services under the agreement. Tsingda
Education pays quarterly consulting service fees to Tsingda Management that are
equal 100% of Tsingda Educations total net profit for such quarter. The
consulting services agreement is in effect from April 26, 2010 and continues
indefinitely unless terminated by (a) Tsingda Management upon a material breach
by Tsingda Education; (b) bankruptcy by either Tsingda Management or Tsingda
Education; (c) by either Tsingda Management or Tsingda Education in the event
Tsingda Management ceases operations or (d) by either Tsingda Management or
Tsingda Education in the event circumstances arise which materially adversely
affects the performance of either party under the consulting agreement. Because
100% of our revenues are generated from Tsingda Education pursuant to this
agreement, if this agreement is terminated or not enforceable, we will not be
able to generate any revenues.

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Under the terms of the
operating agreement by and among Tsingda Management, Tsingda Education and the
shareholders of Tsingda Education, Tsingda Management has the right to direct
the corporate policies regarding Tsingda Educations daily operations and
financial management, including the power to appoint the members of Tsingda
Educations board of directors as well as its executive officers. The operating
agreement is effective for an indefinite term under the laws of the PRC, and
may only be terminated by Tsingda Management. Because we rely on the operating
agreement to control the business operations of Tsingda Education, if this
agreement is terminated or not enforceable, we may lose the ability to control
the management and operations of Tsingda Education.

Under the terms of the
equity pledge agreement, Tsingda Education pledged all of its assets to Tsingda
Management for a term of two years following Tsingda Education meeting all of
its obligations under the consulting services agreement. If this agreement is
terminated or not enforceable, we may not have any adequate security or remedy
against Tsingda Education should Tsingda Education breach its obligations under
the consulting services agreement.

Under the terms of the
voting rights agreement by and among Tsingda Management, Tsingda Education and
the shareholders of Tsingda Education, the shareholders of Tsingda Education
irrevocably grant and entrust Tsingda Management, for the maximum period of
time permitted by PRC law, all voting rights in Tsingda Education. Because we
rely on the voting rights agreement to vote on all matters submitted to Tsingda
Educations shareholders for their approval, if this agreement is terminated or
not enforceable, shareholders of Tsingda Education may take shareholder
initiatives that may not be in our best interests.

Under the terms of the
option agreement by and among Tsingda Management, Tsingda Education and the
shareholders of Tsingda Education, Tsingda Management has the option to
purchase from the shareholders of Tsingda Education, all the outstanding shares
of Tsingda Education. The option agreement is effective for the maximum period
allowable under the laws of the PRC. In the event we are not able to control
Tsingda Education through our other contractual arrangement, we would need to
rely on the option agreement to purchase all the outstanding shares of Tsingda
Education. In such an event, if the option agreement is terminated or not
enforceable, then we may lose control of Tsingda Education.

Mr. Hui Zhang and Mr. Juntao Liu, the controlling
shareholders of Tsingda Education have potential conflicts of interest with us,
which may adversely affect our business.

Mr. Hui Zhang and Mr. Juntao
Liu collectively own 57.4 % of Tsingda Education and therefore have control
over it. Mr. Hui Zhang and Mr. Juntao Liu, beneficially own approximately 31.9%
of our ordinary shares issued and outstanding as of December 31, 2011. Mr. Hui
Zhang, CEO and Chairman of the Board of Tsingda eEDU, and Mr. Juntao Liu,
Executive Vice President and a director of Tsingda eEDU, are both executive
officers of Tsingda Education and its subsidiaries, including Beijing Tsingda
Century Network Technology Co., Ltd ( the Tsingda Network) and Beijing
Tsingda Century Training School. There may be conflicts of
interest between the Tsingda Education Shareholders, Tsinda Education and us
which may not be resolved in our favor and we have no agreements in place to
resolve any such conflicts. Accordingly, the interests of Mr. Hui Zhang, Mr.
Juntao Liu who are the controlling shareholders of Tsingda eEDU, may not be
aligned with those of our unaffiliated shareholders. For example, Mr. Hui Zhang
and Mr. Juntao Liu may cause Tsingda Education to delay the payment of
consulting services fees to us via the WFOE or they may cause Tsingda Education
to unlawfully terminate the VIE Agreements. There may be conflicts of interest
between their duties to us and their interests as shareholders and officers of
Tsingda Education. We cannot assure you that they will act entirely in our
interests when conflicts of interest arise or that conflicts of interest will
be resolved in our favor. In addition, Mr. Hui Zhang and Mr. Juntao Liu could
violate their non-competition or employment agreements with us or their legal
duties by diverting business opportunities from us, resulting in our loss of
corporate opportunities. If we are unable to resolve any such conflicts, or if
we suffer significant delays or other obstacles as a result of such conflicts,
our business and operations could be severely disrupted, which could materially
and adversely affect our results of operations and damage our reputation.

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Risks Related to Doing Business in China

PRC economic, political and social
conditions, as well as changes in any government policies, laws and
regulations, could adversely affect the overall economy in China or the
prospects of the education market, which in turn could adversely affect our
business.

Substantially all of our
operations are conducted in China, and substantially all of our revenues are
derived from China. Accordingly, our business, financial condition, results of
operations, prospects and certain transactions we may undertake are subject, to
a significant extent, to economic, political and legal developments in China.

The PRC economy differs from
the economies of most developed countries in many respects, including the
amount of government involvement, level of development, growth rate, control of
foreign exchange and allocation of resources. While the PRC economy has
experienced significant growth in the past two to three decades, growth has
been uneven, both geographically and among various sectors of the economy. Demand
for our services may depend, in large part, on economic conditions in China.
Any slowdown in Chinas economic growth may cause families to reduce the use of
our services for their children, which in turn could reduce our net revenues.

Although the PRC economy has
been transitioning from a planned economy to a more market-oriented economy
since the late 1970s, the PRC government continues to play a significant role
in regulating industry development by imposing ongoing policies. The PRC
government also exercises significant control over Chinas economic growth
through the allocation of resources, controlling the incurrence and payment of
foreign currency-denominated obligations, setting monetary policy and providing
preferential treatment to particular industries or companies. Changes in any of
these policies, laws and regulations could adversely affect the overall economy
in China or the prospects of the education market, which could harm our
business.

The PRC government has
implemented various measures to encourage foreign investment and sustainable
economic growth and to guide the allocation of financial and other resources,
which have for the most part had a positive effect on our business and growth.
However, we cannot assure you that the PRC government will not repeal or alter
these measures or introduce new measures that will have a negative effect on
us.

Chinas social and political
conditions are also not as stable as those of the United States and other
developed countries. Any sudden changes to Chinas political system or the
occurrence of widespread social unrest could have negative effects on our
business and results of operations. In addition, China has tumultuous relations
with some of its neighbors and a significant further deterioration in such
relations could have negative effects on the PRC economy and lead to changes in
governmental policies that would be adverse to our business interests.

PRC regulations regarding offshore
financing activities by PRC residents have undertaken continuous changes which
may increase the administrative burden we face and create regulatory
uncertainties that could adversely affect our business.

On August 8, 2006, the PRC
Ministry of Commerce (MOFCOM), joined by the China Securities Regulatory
Commission (CSRC), the State Administration of Foreign Exchange (SAFE) as
well as other government agencies, released a Provisions for Foreign Investors
to Merge with or Acquire Domestic Enterprises (M&A Regulation), which
took effect September 8, 2006 and was amended in 2009. These new rules
significantly revised Chinas regulatory framework governing
onshore-to-offshore restructurings and foreign acquisitions of domestic
enterprises. These new rules reflect greater PRC government attention to
cross-border merger, acquisition and other investment activities, by confirming
MOFCOM as a key regulator for issues related to mergers and acquisitions in
China and requiring MOFCOM approval of a broad range of merger, acquisition and
investment transactions. According to the new M&A Regulation, a
related-party acquisition in which an offshore Company-owned or controlled by a
PRC resident acquires a domestic company controlled by the same PRC resident
shall be subject to the approval of MOFCOM.

Among other things, the
M&A Regulation also included new provisions to require that the overseas
listing of an offshore company which is directly or indirectly controlled by a
PRC resident for the purpose of overseas listing of

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such PRC residents
interests in a domestic company, known as a special purpose company, must
obtain the approval of CSRC prior to the listing.

We believe that our current
VIE structure avoids the acquisition transaction which is directly the target
under scrutiny of the M&A Regulation, including the requirement of CSRC
approval. No PRC regulatory authority has stated that this type of structure is
subject to the M&A Regulations and we know of no similar VIE structure that
has been reviewed under the M&A Regulations. Thus, in its current practice,
it appears the M&A Regulation does not apply to our corporate structure.

However, the application of
this M&A Regulation remains uncertain since neither MOFCOM nor CSRC has
approved any Chinese companys foreign listing. There is no consensus currently
existing among the leading PRC law firms regarding the scope and applicability
of the MOFCOM or CSRC approval requirements. If the MOFCOM, CSRC or other PRC
regulatory body subsequently determines that the new M&A Regulation applies
to our situation and CSRCs approval was required for an offering of our
securities, we may face sanctions by the MOFCOM, CSRC or other PRC regulatory
agencies. In such event, these regulatory agencies may impose fines and
penalties on our operations in the PRC, limit our operating privileges in the
PRC, delay or restrict the repatriation of funds to our offshore companies, or
take other actions that could have a material adverse effect on our business,
financial condition, results of operations, reputation and prospects, as well
as the trading price of our securities.

Foreign exchange restrictions on transfer
of proceeds from offshore offerings to our PRC subsidiaries.

On
August 29, 2008, the Notice of the General Affairs Department of the State
Administration of Foreign Exchange on the Relevant Operating Issues concerning
the Improvement of the Administration of Payment and Settlement of Foreign
Currency Capital of Foreign-funded Enterprises, or Circular 142, was
promulgated by SAFE. Pursuant to Circular 142, the foreign currency capital of
FIEs, after being converted to RMB, can only be used for doing business within
the business scope approved by relevant governmental authorities, and shall not
be used for domestic equity investment except as otherwise explicitly provided
by laws and regulations. In addition, FIEs may not change how they use such
capital without SAFEs approval, and may not in any case use such capital to
repay RMB loans if they have not used the proceeds of such loans.

On
November 19, 2010, SAFE promulgated Circular 59 which requires the
authenticity of settlement of net proceeds from offshore offerings to be
closely examined and the net proceeds to be settled in the manner described in
any offering documents. Circular 142 and Circular 59 may significantly limit
our ability to transfer the net proceeds from any debt or equity offering we
may undertake to our PRC subsidiaries and convert the net proceeds into RMB,
which may adversely affect our liquidity and our ability to fund and expand our
business in the PRC.

Contracts
we have entered into or may enter into with any third parties which provide for
services which are outside of our permitted business scope may be voided by PRC
authorities.

Pursuant
to PRC laws and regulations, a company may only engage in business within its
permitted business scope, as set forth in a license granted to such company. If
the business conducted by a company outside of its permitted business scope
falls within certain restricted, prohibited or controlled categories as set
forth by the PRC government, a PRC court could terminate all contracts relating
to the conduct of such business if suit is brought by the counterparty to such
contract. According to its current business license, the permitted business
scope of Tsingda Education does not include tutoring and test preparation.
However, such business is not currently within the restricted, prohibited or
controlled categories established by the PRC. In the event tutoring or testing
preparation services become controlled, restricted or prohibited by the PRC
government, Tsingda Education could be deemed as not having the business
license necessary to provide such services, and thus any contract of Tsingda
Education under which such services are provided could be voided. We can
provide no assurance that activities performed by Tsingda
Education outside the scope of its business license will not in the
future become controlled, restricted or prohibited by the PRC government. In
such event, we can provide no assurance that the parties Tsingda Education
provides such services to will not challenge or seek to void the validity of
contracts Tsingda Education may have with them. If such contracts were
challenged and adjudicated as void by any PRC court, Tsingda Educations business
may be materially affected and it could suffer severe loss of revenue that may
have a material adverse effect on its and our future operating prospects,
financial condition and results of operations.

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PRC
regulation of loans to, and direct investment in, PRC entities by offshore
holding companies and governmental control of currency conversion may restrict
or prevent us from making loans to the WFOE, Tsingda Education and its
subsidiaries or making additional capital contributions to our PRC
subsidiaries, which could materially and adversely affect our liquidity and our
ability to fund and expand our business.

We
are an offshore holding company conducting our operations in China through our
PRC subsidiaries and Tsingda Education and its subsidiaries. We may need to
make loans to our PRC subsidiaries or Tsingda Education and its subsidiaries,
or we may make additional capital contributions to our PRC subsidiaries.

Any
loans to our PRC subsidiaries or Tsingda Education are subject to PRC
regulations. For example, loans by us to our wholly-owned subsidiaries in
China, each of which is a foreign-invested enterprise, to finance their
activities cannot exceed statutory limits and must be registered with the PRC
State Administration of Foreign Exchange, or SAFE, or its local counterparts.
Loans by us to Tsingda Education and its schools and subsidiaries, which are
domestic PRC entities, must be approved by the relevant government authorities
and must also be registered with SAFE or its local counterparts.

We
may also decide to finance our PRC subsidiaries by means of capital
contributions. These capital contributions must be approved by the PRC Ministry
of Commerce or its local counterparts. We are unlikely, however, to finance the
activities of Tsingda Education and its schools and subsidiaries by means of
capital contributions due to regulatory issues related to foreign investment in
domestic PRC entities, as well as the licensing and other regulatory issues.
SAFE promulgated Circular 142, on August 29, 2008 to regulate the
conversion by a foreign-invested company of its capital contribution in foreign
currency into RMB. SAFE Circular 142 requires that the paid-in capital of a
foreign-invested company settled in RMB converted from foreign currencies shall
be used only for purposes within the business scope as approved by the
authorities in charge of foreign investment or by other competent authorities
and as registered with the local branch of the State Administration of Industry
and Commerce (the SAIC) and, unless set forth in the business scope or in
other regulations, may not be used for equity investments within the PRC. In
addition, SAFE strengthened its oversight of the flow and use of the paid-in
capital of a foreign-invested company settled in RMB converted from foreign
currencies. The use of such RMB paid-in capital may not be changed without
SAFEs approval. Violations of Circular 142 will result in severe monetary or
other penalties. In strengthening Circular 142, SAFE promulgated the Circular
on Further Clarifying and Regulating Relevant Issues Concerning the
Administration of Foreign Exchange under Capital Account, or SAFE Circular 45,
on November 9, 2011, which expressly prohibits a foreign invested company
from converting registered capital in foreign exchange into RMB for the purpose
of equity investment, granting certain loans, repayment of inter-company loans,
or repayment of bank loans which have been transferred to a third party. As a
result, Circular 142 and Circular 45 may significantly limit our ability to
transfer capital to Tsingda Education and its schools and subsidiaries through
our subsidiaries in the PRC, which may adversely affect our ability to expand
our business, and we may not be able to convert capital into RMB to invest in
or acquire any other PRC companies, or establish other variable interest
entities in the PRC. See also Item 4. Information on the CompanyB. Business
OverviewRegulation. We cannot assure you that, if sought, we will be able to
obtain these government registrations or approvals on a timely basis, if at
all. If we fail to receive such registrations or approvals, our ability to
capitalize our PRC operations may be negatively affected, which could adversely
affect our liquidity and our ability to fund and expand our business.

We may be subject to PRC penalties and may
be required to forfeit $100,000 if our PRC resident shareholders including
Zhang Hui, our chairman and CEO, and Liu Juntao, our Executive Vice President do
not obtain SAFE Circular 75 approval of their ownership of our shares.

Under PRC law, a PRC
resident is required to obtain approval from SAFE when such PRC resident
acquires securities of a foreign company. In that respect, all nineteen of our
PRC resident shareholders including Zhang Hui, our chairman and CEO, and Liu
Juntao, our Executive Vice President, are required to obtain SAFE approval of
the shares indirectly held by them. If they fail to obtain SAFE approval, we
may be subject to penalties under PRC law. Failure to obtain the approval may
result in restrictions on the Company, including prohibitions on the payment of
dividends and other distributions to its offshore affiliates and capital inflow
from the offshore entities.

We have requested our shareholders
and beneficial owners who may be subject to SAFE rules to make the necessary
applications, filings and amendments as required under SAFE rules. We have
advised these shareholders and

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beneficial owners to comply
with the relevant requirements. To date, the required filings are underway for
all of our PRC resident shareholders. However, we cannot provide any assurance
that all of our shareholders and beneficial owners who may be PRC residents
will comply with our request to make or obtain any applicable registrations or
comply with other requirements required by SAFE rules. Under the terms of our
Holdback Escrow Agreement, the failure or inability of Zhang Hui or Liu Juntao
(but not our other PRC resident shareholders) to make any required registrations
or comply with other requirements may result in the forfeiture of $100,000
currently held in escrow for our benefit, may subject such shareholders or
beneficial owners to fines and legal sanctions and may also limit our ability
to contribute additional capital into or provide loans to our PRC subsidiaries,
limit the ability of our PRC subsidiaries to pay dividends or otherwise
distribute profits to us, or otherwise adversely affect us.

Under the EIT Law, we may be classified as
a resident enterprise of the PRC. Such classification could result in
unfavorable tax consequences to us and our non-PRC shareholders.

Under the EIT Law, an
enterprise established outside of China with de facto management bodies
within China is considered a resident enterprise, meaning that it can be
treated in a manner similar to a Chinese enterprise for enterprise income tax
purposes, although the dividends paid to one resident enterprise from another
may qualify as tax-exempt income. The implementing rules of the EIT Law
define de facto management as substantial and overall management and control
over the production and operations, personnel, accounting, and properties of
the enterprise. The EIT Law and its implementing rules are relatively new and
ambiguous in terms of some definitions, requirements and detailed procedures,
and currently no official interpretation or application of this new resident
enterprise classification is available; therefore, it is unclear how tax
authorities will determine tax residency based on the facts of each case.

We have been advised by our
PRC legal counsel that we are, under the EIT Law, likely to be classified as a
resident enterprise and that we are exempt from PRC income taxes because income
from equity investments (such as dividends and bonuses) between resident
enterprises is tax exempt.

If any PRC taxes apply to
our non-PRC shareholders, a non-PRC shareholder may be entitled to a reduced
rate of PRC taxes under an applicable income tax treaty and/or a foreign tax
credit against such shareholders domestic income tax liability (subject to
applicable conditions and limitations). You should consult with your own tax
advisors regarding the applicability of any such taxes, the effects of any
applicable income tax treaties, and any available foreign tax credits. In the
event we become subject to the EIT Laws, our tax obligations can be expected to
increase, which would adversely affect our net income, results of operations
and future growth prospects.

Due to various restrictions under PRC laws
on the distribution of dividends by our PRC operating companies, we may not be
able to pay dividends to our shareholders.

The Wholly-Foreign Owned
Enterprise Law (1986), as amended and The Wholly-Foreign Owned Enterprise Law
Implementing Rules (1990), as amended and the Company Law of the PRC (2006)
contain the principal regulations governing dividend distributions by wholly
foreign owned enterprises. Under these regulations, wholly foreign owned
enterprises may pay dividends only out of their accumulated profits, if any,
determined in accordance with PRC accounting standards and regulations.
Additionally, such companies are required to set aside a certain amount of
their accumulated profits each year, if any, to fund certain reserve funds.
These reserves are not distributable as cash dividends except in the event of
liquidation and cannot be used for working capital purposes. Tsingda Education
and Tsingda Network are regulated by the laws governing foreign-invested
enterprises in the PRC. Accordingly, Tsingda Education and Tsingda Network are
required to allocate 10% of their after-tax profits based on PRC accounting
standards each year to their general reserves until the accumulated amount of
such reserves has exceeded 50% of their registered capital, after which no
further allocation is required to be made. If a companys legal accumulations
fund is not sufficient to make up for the losses of the company from the
previous year, the current years profits are first used for making up the
losses before the legal accumulations funds is drawn. As of December 31, 2011,
the registered capitals of Tsingda Education and Tsingda Network are $4,421,156
and $588,235, respectively, and both companies have made the required
allocations to the general reserves. These reserve funds, however, may not be
distributed to equity owners except in accordance with PRC laws and
regulations. We cannot assure you that the PRC government authorities will not
request our subsidiaries to use their

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after-tax profits for their
own development and restrict our subsidiaries ability to distribute their
after-tax profits to us as dividends.

The PRC government also
imposes controls on the conversion of RMB into foreign currencies and the
remittance of currencies out of the PRC. We may experience difficulties in
completing the administrative procedures necessary to obtain and remit foreign
currency for the payment of dividends from the Companys profits.

Furthermore, if our
subsidiaries or affiliates in China incur debt on their own in the future, the
instruments governing the debt may restrict its ability to pay dividends or
make other payments. If we or our subsidiaries are unable to receive all of the
revenues from our operations through these contractual or dividend arrangements,
we may be unable to pay dividends on our Ordinary Shares.

Investors and other market participants may
have limited access to the corporate records we file with PRC government
entities such as SAIC and therefore have limited means to conduct due diligence
on our business.

While our financial
statements are prepared according to US GAAP, financial statements of Tsingda
Education and its subsidiaries are prepared according to PRC accounting
standards. The WFOE, Tsingda Education and its subsidiaries are required to
file tax returns, financial reports and other documents and to report
shareholder change, director and officer change, assets transfer and other
corporate changes with PRC government authorities, including SAIC. Such PRC
government authorities generally do not give public access to the complete
corporate records. Most authorities only allow access to persons who have
obtained specific authorization from the subject company or to interested
parties in a legal proceeding when the person can show the notice of acceptance
or other court document. As such, investors may have difficulty conducting
independent due diligence on our operations in China to make investment
decisions.

Lack of indemnification rights in our
franchise agreement may result in penalties or damages to us in the event the
franchisee fails to obtain necessary operating permits under relevant PRC laws.

Our franchisees are required
to obtain necessary operating permits and comply with applicable PRC laws and
regulations. Pursuant to our franchise agreements, the franchisee is solely
responsible to obtain the necessary operating permits. In case the franchisee
fails to obtain such operating permits or fully comply with relevant
regulations, we will not be liable for any loss or damages of such franchisee.
However, Tsingda Education does not have indemnification rights against the
franchisees pursuant to the franchise agreement. As a result, we may
potentially suffer loss or damages or be penalized if a third party or
government authority successfully brings a claim or action against us or
Tsingda Education for our franchisees failure to to obtain such operating
permits or comply with such regulations.

Changes in PRC regulations relating to
tuitions may adversely affect our business.

Currently, we are not
regulated by the Ministry of Education of the PRC due to the fact that we are a
non-accredited learning center and do not offer certification programs. The
types and amounts of fees charged by private schools offering certification
programs must be approved by the relevant governmental authority and be
publicly disclosed, and the types and amounts of fees charged by private
schools that do not offer certification programs need only be filed with the
relevant governmental authority and be publicly disclosed. If the PRC
government decides to regulate private schools which do not offer certification
programs similar to their regulations of certification programs, set limits on
fees chargeable by us, or impose a special tax on our business, such events
could significantly affect our operations.

You may experience difficulties in
effecting service of legal process, enforcing foreign judgments or bringing
original actions in China based on United States or other foreign laws against
us, our management or the experts named in this current report.

We conduct substantially all
of our operations in China and substantially all of our assets are located in
China. In addition, all of our senior executive officers reside within China.
As a result, it may not be possible to effect service

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of process within the United
States or elsewhere outside of China upon our senior executive officers,
including with respect to matters arising under U.S. federal securities laws or
applicable state securities laws. Moreover, our PRC counsel has advised us that
the PRC does not have treaties with the United States or many other countries
providing for the reciprocal recognition and enforcement of judgment of courts.

Governmental control of currency conversion
may affect the value of your investment.

The PRC government imposes
controls on the convertibility of RMB into foreign currencies and, in certain
cases, the remittance of currency out of China. We receive substantially all of
our revenues in RMB. Under our current structure, our income is primarily
derived from Tsingda Education. Shortages in the availability of foreign
currency may restrict the ability of our PRC subsidiaries and our affiliated
entity to remit sufficient foreign currency to pay dividends or other payments
to us, or otherwise satisfy their foreign currency denominated obligations.
Under existing PRC foreign exchange regulations, payments of current account
items, including profit distributions, interest payments and expenditures from
trade-related transactions, can be made in foreign currencies without prior
approval from the PRC State Administration of Foreign Exchange by complying
with certain procedural requirements. However, approval from appropriate
government authorities is required where RMB is to be converted into foreign
currency and remitted out of China to pay capital expenses such as the
repayment of bank loans denominated in foreign currencies. The PRC government
may also, at its discretion, restrict access in the future to foreign currencies
for current account transactions. If the foreign exchange control system
prevents us from obtaining sufficient foreign currency to satisfy our currency
demands, we may not be able to pay dividends in foreign currencies to our
shareholders.

Fluctuation in the value of RMB may have a
material adverse effect on your investment.

The value of RMB against the
U.S. dollar and other currencies may fluctuate and is affected by, among other
things, changes in political and economic conditions. Our revenues and costs are
mostly denominated in RMB, while a significant portion of our financial assets
are denominated in U.S. dollars. Our revenue is based entirely on that
generated by our affiliated entity in China. Any significant fluctuation in
value of RMB may materially and adversely affect our cash flows, revenues,
earnings and financial position, and the value of, and any dividends payable
on, our stock in U.S. dollars. For example, an appreciation of RMB against the
U.S. dollar would make any new RMB denominated investments or expenditures more
costly to us, to the extent that we need to convert U.S. dollars into RMB for
such purposes. An appreciation of RMB against the U.S. dollar would also result
in foreign currency translation losses for financial reporting purposes when we
translate our U.S. dollar denominated financial assets into RMB, as RMB is our
reporting currency.

We face risks related to health epidemics
and other outbreaks.

Our business could be
adversely affected by the effects of an epidemic or outbreak that will cause
social and economic disruptions in China, such as SARS or H1N1 flu. Any
prolonged recurrence of SARS, H1N1 or other adverse public health developments
in China may have a material adverse effect on our business operations as
schools may be closed for an extended period of time. For instance, health or
other government regulations adopted in response may require temporary closure
of our production facilities or of our offices. Such closures would severely
disrupt our business operations and adversely affect our results of operations.
We have not adopted any written preventive measures or contingency plans to
combat any future outbreak of SARS, H1N1 or any other epidemic.

Failure to comply with the United States
Foreign Corrupt Practices Act could subject us to penalties and other adverse
consequences.

We are subject to the United
States Foreign Corrupt Practices Act, which generally prohibits United States
companies from engaging in bribery or other prohibited payments to foreign
officials for the purpose of obtaining or retaining business. Foreign
companies, including some that may compete with us, are not subject to these
prohibitions. Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices occur from time-to-time in the PRC. We can make no
assurance, however, that our employees or other agents will not engage in such
conduct

39

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for which we might be held
responsible. To date, we have taken no steps to prevent violations of the FCPA
other than the adoption of a code of ethics. Although we intend to adopt a code
of ethics to ensure compliance with the FCPA and Chinese anti-corruption laws
by all individuals involved with our company, our employees or other agents may
engage in such conduct for which we might be held responsible. If our employees
or other agents are found to have engaged in such practices, we could suffer
severe penalties and other consequences that may have a material adverse effect
on our business, financial condition and results of operations.

Risks Related to an Investment in Our Securities

We are not listed or quoted on any exchange
and we may never obtain such a listing or quotation.

There is presently no public
market in our shares and there may never be a market for our stock. Stock held
by our shareholders may have little or no value. We cannot guarantee that our
stock will be listed on a securities exchange or if a market for our stock
listed will ever develop. Even if our shares are quoted for sale, buyers may be
insufficient in numbers to allow for a robust market, and therefore, it may
prove impossible to sell your shares.

To date, we have not paid any cash
dividends and no cash dividends will be paid in the foreseeable future.

We do not anticipate paying
cash dividends on our Ordinary Shares in the foreseeable future and we may not
have sufficient funds legally available to pay dividends, especially
considering the fact that we have agreed to waive consulting fee payable by
Tsingda Education until April 26, 2015. Even if the funds are legally available
for distribution, we may nevertheless decide not to pay any dividends. We
intend to retain all earnings from our operations.

The market price for our Ordinary Shares
may be highly volatile.

The market price of our
Ordinary Shares may be volatile due to certain factors, including, but not
limited to, market trends in PRC stock generally, quarterly fluctuations in our
financial and operating results; general conditions in the PRC market; or
changes in earnings estimates. Such volatility may make it more difficult, if
not impossible, to sell your shares in such quantity or at such price as or
when you determine. This volatility can be expected to harm our stock price,
our ability to raise money in capital markets and our future growth prospects.

The application of the penny stock rules
could adversely affect the market price of our Ordinary Shares and increase
your transaction costs to sell those shares.

If the future trading price
of our Ordinary Shares is below $5 per share, the open-market trading of our
Ordinary Shares will be subject to the penny stock rules. The penny stock
rules impose additional sales practice requirements on broker-dealers who sell
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination
for the purchase of securities and have received the purchasers written
consent to the transaction before the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the broker-dealer must
deliver, before the transaction, a disclosure schedule prescribed by the Securities
and Exchange Commission relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information on the
limited market in penny stocks. These additional burdens imposed on
broker-dealers may restrict the ability or decrease the willingness of
broker-dealers to sell our Ordinary Shares, and may result in decreased
liquidity for our Ordinary Shares and increased transaction costs for sales and
purchases of our Ordinary Shares as compared to other securities.

The market price for our
Ordinary Shares may be volatile and subject to wide fluctuations in response to
factors including the following:

40

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| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | actual or anticipated
 fluctuations in our quarterly operating results;                                                               
| |  | changes in financial
 estimates by securities research analysts;                                                                      
| |  | announcements by us or our
 competitors of new products, acquisitions, strategic partnerships, joint
 ventures or capital commitments;
| |  | addition or departure of
 key personnel;                                                                                              
| |  | fluctuations of exchange
 rates between RMB and the U.S. dollar;                                                                      
| |  | intellectual property
 litigation;                                                                                                    
| |  | general economic or political
 conditions in China.                                                                                   

In addition, the securities
market has from time to time experienced significant price and volume
fluctuations that are not related to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect
the market price of our stock.

We may need additional capital, and the
sale of additional shares or other equity securities could result in additional
dilution to our shareholders.

We believe that our current
cash and cash equivalents, anticipated cash flow from operations and the net
proceeds from the private placement of Ordinary Shares on September 16, 2010
will be sufficient to meet our anticipated cash needs for the near future. We
may, however, require additional cash resources due to changed business
conditions or other future developments, including any investments or
acquisitions we may decide to pursue. If our resources are insufficient to
satisfy our cash requirements, we may seek to sell additional equity or debt
securities or obtain a credit facility. The sale of additional equity
securities could result in additional dilution to our shareholders. The
incurrence of indebtedness would result in increased debt service obligations
and could result in operating and financing covenants that would restrict our
operations. We cannot assure you that financing will be available in amounts or
on terms acceptable to us, if at all.

If we fail to maintain an effective system
of internal controls, we may not be able to accurately report our financial
results or prevent fraud.

We are subject to reporting
obligations under the U.S. securities laws. The SEC, as required by Section 404
of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company
to include a management report on such companys internal controls over
financial reporting in its annual report, which contains managements
assessment of the effectiveness of our internal controls over financial
reporting.

Our reporting obligations as
a public company will place a significant strain on our management, operational
and financial resources and systems for the foreseeable future. Effective
internal controls, particularly those related to revenue recognition, are
necessary for us to produce reliable financial reports and are important to
help prevent fraud. As a result, our failure to achieve and maintain effective
internal controls over financial reporting could result in the loss of investor
confidence in the reliability of our financial statements, which in turn could
harm our business and negatively impact the trading price of our stock.
Furthermore, we anticipate that we will incur considerable costs and use
significant management time and other resources in an effort to comply with
Section 404 and other requirements of the Sarbanes-Oxley Act.

Currently, none of our
employees, including our Chief Financial Officer, who is responsible for
preparing and supervising the preparation of our financial statements, have any
formal training in U.S. GAAP and SEC rules and regulations. In that regard, we
rely exclusively on our independent accountants and our outside counsel for
advice with respect to U.S. GAAP and SEC rules and regulations. Therefore,
there is a risk that our current or future financial statements may not be
properly prepared in accordance with U.S. GAAP or that our current or future
disclosures are not in compliance with SEC rules and regulations.

ITEM 1B.
UNRESOLVED STAFF COMMENTS

None.

41

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ITEM 2.
PROPERTIES & INTELLECTUAL PROPERTY

We were
granted trademark protection from PRC authorities for the names and logo of
Tsingda Century and Tsingda Xiaoboshi.

A total of
eight patents have been filed with the PRC authorities with respect to various
aspects of our business, of which four of the applications have been granted
and four applications are pending.

|                                                                      |  |                |  |                                |  |                        
|--------------------------------------------------------------------- |  | -------------- |  | ------------------------------ |  | -----------------------
|Description Appearance Design                                         |  | Patent No      |  | Term of the Patent             |  | Date Issued/Filed      
|                                                                      |  |                |  |                                |  |                        
|Card (all-in-card for entrepreneurship training)                      |  | 200730161941.4 |  | July 27, 2007 to July 26, 2017 |  | Issued: June 25, 2008  
|Card (Tsingda Learning Center)                                        |  | 200730161942.9 |  | July 27, 2007 to July 26, 2017 |  | Issued: July 16, 2008  
|Card (all-in-card for early education)                                |  | 200730161943.3 |  | July 27, 2007 to July 26, 2017 |  | Issued: June 25, 2008  
|Card (all-in-card for China education)                                |  | 200730161944.8 |  | July 27, 2007 to July 26, 2017 |  | Issued: May 21, 2008   
|Computer-aided Children Evaluation and Guiding System                 |  | 2007101298785  |  | Pending                        |  | Filed: February 20 2009
|Computer-aided Children Care Pattern System                           |  | 2007101298770  |  | Pending                        |  | Filed: February 20 2009
|Distant Network Education Interactive Platform                        |  | 2007101298766  |  | Pending                        |  | Filed: February 20 2009
|Evaluation and Monitoring Method of Distant Online Education Platform |  | 2007101298751  |  | Pending                        |  | Filed: February 20 2009

We have
registered four software applications with the PRC authorities with respect to
various aspects of our business. Under PRC Copyright Law, a copyright protects
both the design of a software product and the name of the product. Copyrights
are granted for a term of 50 years from the date of first publication.

|                                         |  |                  |  |                 
|---------------------------------------- |  | ---------------- |  | ----------------
|Name of the Software                     |  | Date of Filing   |  | Registration No.
|                                         |  |                  |  |                 
|                                         |  |                  |  |                 
|Network Baomu Software V1.0              |  | May 20, 2007     |  | 2007SR14359     
|Tsingda Shouhushen Software V2.0         |  | December 1, 2008 |  | 2009SR014243    
|Tsingda Learning Center Software V1.0    |  | April 20, 2007   |  | 2009SR014242    
|Tsingda Internet Classroom Software V1.0 |  | July 15, 2008    |  | 2009SR014244    

ITEM 3. LEGAL
PROCEEDINGS

From time to
time, we may become involved in various lawsuits and legal proceedings, which
arise, in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have a material
adverse effect on our business, financial condition or operating results.

ITEM 4. MINE SAFETY DISCLOSURE

Not
applicable.

42

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PART II

ITEM 5. MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES

(a) Market
Information. There is currently no market for our
ordinary shares.

(b) Record Holders.
As of March 29, 2012, there were 2,316 holders of record of our ordinary
shares.

(c) Dividends.
We have not paid dividends on our ordinary shares in the past and do not
anticipate doing so in the foreseeable future. We currently intend to retain
future earnings, if any, to fund the development and growth of our business. In
addition, the Loan and Security Agreement with Access Capital requires that we
obtain their consent prior to paying any dividends.

(d) Sales of
Unregistered Securities

During the
period covered by this report we did not issue any other securities that were
not registered under the Securities Act of 1933, as amended, except previously
disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K.

(f) Securities
Authorized for Issuance under Equity Compensation Plans

The following
table discloses information as of December 31, 2011 with respect to
compensation plans (including individual compensation arrangements) under which
our equity securities are authorized for issuance.

|                                                            |  |                                                                                              |            |                                                                              |  |                                                                                                                                                |  |  |   | 
|----------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- | ---------- | ---------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  |  | - | 
|                                                            |  | (a)                                                                                          |            | (b)                                                                          |  | (c)                                                                                                                                            | 
|                                                            |  |                                                                                              |            |                                                                              |  |                                                                                                                                                | 
|Plan Category                                               |  | Number of securitiesto
 be issued uponexercise of
 outstanding options,
 warrants and rights |            | Weighted-average
 exercise price of
 outstandingoptions,
 warrants andrights |  | Number of securities
 remaining availablefor
 future issuanceunder
 equity compensation
 plans (excluding
 securities reflected in
 column (a) | 
|                                                            |  |                                                                                              |            |                                                                              |  |                                                                                                                                                | 
|Equity Compensation plans approved by
 security holders     |  |                                                                                              | 1,000,000- |                                                                              |  | 0.63-                                                                                                                                          |  |  | 0 | 
|Equity Compensation plans not approved by
 security holders |  |                                                                                              |           |                                                                              |  |                                                                                                                                               |  |  |  | 
|Total                                                       |  |                                                                                              |           |                                                                              |  |                                                                                                                                               |  |  |   | 

On April 29,
2011, the Company adopted the 2011 Equity Incentive Plan (the Plan) pursuant
to which the Board of Directors may grant ordinary shares and stock options to
its employees. The Company granted 900,000 ordinary shares to three executives
for no cost and granted one executive 100,000 non-qualified stock options to
purchase 100,000 of the Companys ordinary shares at an exercise price of $2
per share. The stock options vest over a term of 5 years. The fair value of the
ordinary shares was estimated on the date of issuance. The calculated fair
value of the options was $0.63 per share. The amount of compensation cost
recognized for the options granted was $8,465 and recorded in the general and
administrative expenses for the year ended December 31, 2011. The amount of
compensation cost recognized for the shares issued were $1,440,000 and $0, and
were recorded in the general and administrative expenses for the years ended
December 31, 2011 and 2010, respectively.

43

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ITEM 6. SELECTED
FINANCIAL DATA

We are a
smaller reporting company as defined by Regulation S-K and as such, are not
providing the information contained in this item pursuant to Regulation S-K.

ITEM 7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Forward-Looking Statements

Certain statements, other than purely
historical information, including estimates, projections, statements relating
to our business plans, objectives, and expected operating results, and the
assumptions upon which those statements are based, are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements generally are
identified by the words believes, project, expects, anticipates,
estimates, intends, strategy, plan, may, will, would, will be,
will continue, will likely result, and similar expressions. We intend such
forward-looking statements to be covered by the safe-harbor provisions for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, and are including this statement for purposes of complying
with those safe-harbor provisions. Forward-looking statements are based on
current expectations and assumptions that are subject to risks and
uncertainties which may cause actual results to differ materially from the
forward-looking statements. Our ability to predict results or the actual effect
of future plans or strategies is inherently uncertain. Factors which could have
a material adverse affect on our operations and future prospects on a
consolidated basis include, but are not limited to: changes in economic
conditions, legislative/regulatory changes, availability of capital, interest
rates, competition, and generally accepted accounting principles. These risks
and uncertainties should also be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
Further information concerning our business, including additional factors that
could materially affect our financial results, is included herein and in our
other filings with the SEC. Readers of this Annual Report are strongly
encouraged to review the risk factors relating to the Company which are set
forth herein.

COMPANY OVERVIEW

On May 24,
2010, Compass Acquisition Corporation and its controlling shareholders entered
into a share exchange agreement (Share Exchange Agreement) with Tsing Da
Century Education Technology Co. Ltd., a British Virgin Islands business
company ( Tsingda Technology ), and its shareholders. On November 15,
2010, the Companys shareholders approved the change of the Companys name from
Compass Acquisition Corporation to Tsingda eEDU Corporation and the name
change is effective immediately following the shareholders approval.

Tsingda
Technology owns 100% of the issued and outstanding capital stock of Beijing
Tsingda Century Management Consulting Ltd. (Tsingda Management ), a
wholly foreign owned enterprise incorporated under the laws of the Peoples
Republic of China ( PRC). On April 26, 2010, Tsingda Management
entered into a series of contractual agreements with Beijing Tsingda Century
Investment Consultant of Education Co. Ltd ( Tsingda Education ), a
company incorporated under the laws of the PRC, and its shareholders, in which
Tsingda Management effectively assumed management of the business activities of
Tsingda Education. Beijing Tsingda Century Network Technology Co. Ltd., a PRC
company, is a wholly owned subsidiary of Tsingda Education. The contractual
arrangements are comprised of a series of agreements, including a Consulting
Services Agreement, Operating Agreement, Proxy Agreement, and Option Agreement,
through which Tsingda Management has the right to advise, consult, manage and
operate Tsingda Education for a quarterly fee in the amount of 100% of Tsingda
Educations quarterly, after tax net profits. Additionally, Tsingda Educations
shareholders have pledged their rights, titles and equity interest in Tsingda
Education as security for Tsingda Management to collect consulting and service
fees through an Equity Pledge Agreement. In order to further reinforce Tsingda
Managements rights to control and operate Tsingda Education, Tsingda
Educations shareholders have granted Tsingda Management the exclusive right
and option to acquire all of their equity interests in Tsingda Education
through the Option Agreement. As all of the companies are under common control,
this structure has been accounted for as a reorganization of entities and the
financial statements have been prepared as if the reorganization had occurred
retroactively.

44

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Pursuant to
the VIE Agreements, the WFOE effectively assumed management of the business
activities of Tsingda Education and has the right to appoint all executives and
senior management and the members of its board of directors. The shareholders
of Tsingda Education (the Tsingda Education Shareholders) have pledged their
right, title and equity interests in Tsingda Education as security for the WFOE
to collect consulting services fees through the Equity Pledge Agreement. In
order to further reinforce the WFOEs rights to control and operate Tsingda
Education, the Tsingda Education Shareholders have granted the WFOE an
exclusive right and option to acquire all of their equity interests in Tsingda
Education through the Option Agreement.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Equity
 Interest Pledge Agreement. The WFOE and the Tsingda Education Shareholders
 have entered into Equity Interest Pledge Agreements, pursuant to which each
 shareholder pledges all of his shares of Tsingda Education to the WFOE in
 order to guarantee cash-flow payments under the Consulting Services
 Agreement. The Equity Pledge Agreement further entitles the WFOE to collect
 dividends from Tsingda Education during the term of the pledge. The term of
 the Equity Interest Pledge Agreement is 2 years from Tsingda Educations
 satisfaction of all its obligations under the Consulting Services Agreement.
 In the event Tsingda Education fails to cure a material breach, the WFOE may,
 among other remedies available, terminate this agreement.                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Consulting
 Service Agreement. Tsingda Education and the WFOE have entered into a
 Consulting Services Agreement which provides that the WFOE will be the
 exclusive provider of consulting and management services to Tsingda Education
 and Tsingda Education will pay all of its net income to the WFOE quarterly
 for such services. Any such payment from the WFOE to the Company would need
 to comply with applicable Chinese laws affecting payments from Chinese
 companies to non-Chinese companies. See Risk Factors  Risks Associated With
 Doing Business in China. The Consulting Services Agreement is effective
 until it is terminated by either party in the event the other party becomes
 bankrupt or insolvent, if the WFOE ceases operations, or if circumstances
 arise which materially and adversely affect the performance or the objectives
 of the agreement. The WFOE may also terminate such agreement with or without
 cause.                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Option
 Agreement. Pursuant to the Option Agreement among the WFOE, Tsingda Education
 and each Tsingda Education Shareholder, the Tsingda Education Shareholders
 have granted the WFOE an exclusive right and option to acquire all of their
 equity interests in Tsingda Education at any time. The Option Agreement is
 effective for the maximum period of time permitted by Chinese law until it is
 early terminated according to the terms of the Option Agreement. The WFOE or
 its designee may exercise the option at any time by giving a written notice
 to the Tsingda Education Shareholders and specify the amount of the equity
 interest to be purchased and manner of purchase. The purchase price of the equity interest pursuant to an exercise of the option shall equal the capital
 paid in by the Tsingda Education Shareholders, unless applicable PRC laws and regulations require an
 appraisal of the equity interest
 or stipulate other restrictions regarding the purchase price of the
 equity interest.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Voting Right
 Proxy Agreement. Pursuant to the Voting Right Proxy Agreement among the WFOE,
 Tsingda Education and the Tsingda Education Shareholders, the Tsingda
 Education Shareholders have granted the WFOE a voting and proxy right to vote
 their equity interest in Tsingda Education. The Voting Right Proxy Agreement
 is effective until terminated by mutual agreement or by the WFOE with 30 days
 prior written notice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Tsingda
Education, with its subsidiary Tsingda Network, is a leading offline and online
provider of educational services in the PRC. It has established the largest
chain of education centers in the PRC, known as Tsingda Learning Centers.
These offline educational centers principally target elementary school students
and consist mainly of franchised locations. As of December 31, 2011, it has
approximately 2,926 learning centers nationwide. It also has developed a
robust, interactive educational platform which allows students to search and
subscribe to virtual classrooms offered by a wide range of teachers in the PRC.

We have
franchise agreements with each of our franchised locations. These franchise
agreements are typically effective for a one year term. The franchised
locations must conform to certain operating requirements of the Company, such
as the quality of products and services offered and participation of
promotional activities. Each

45

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franchised
location pays an initial franchise licensing fee to the Company as well as an
annual management fee at the end of each subsequent year. The Company offers
discounted e-cards (used by our students to purchase courses) to the franchised
locations. Our franchisees pay an initial franchise licensing fee of between
$7,000 and $10,000 per location depending on franchise territory, and
thereafter, franchisees pay an annual management fee equal to 10% of their initial
franchise licensing fee. A franchisee receives e-cards from the Company with a
face value equal to five times the amount of franchise and management fees
paid. Our franchisees also have the option to purchase additional e-cards at
the same 80% discount. Franchisees earn revenues from the sale of e-cards to
students at face value. In other words, for every dollar spent by our students,
our franchisees take eighty cents. Each e-card has a specific serial number,
and our IT server tracks the opening and usage of these cards in real time. We
use this information in order to accurately allocate revenues among teachers.
Beginning August 2010, the Company began to generate revenue via the sale of
reference materials and publications.

With respect
to the revenues generated from Tsingda Virtual Internet Classroom, if the
e-cards are sold to students directly, the teachers and the Company share such
revenues (equivalent to the face value of the e-cards sold) at a 70:30 split.
If e-cards are sold to students via franchised learning centers, the Company
receives 20% of the face value of the e-cards and the remaining 80% is shared
by the franchisees and teachers.

Our financial
statements are prepared in US Dollars and in accordance with accounting
principles generally accepted in the United States. See Critical Accounting
Policies - Foreign Currency Translation below for information concerning the
exchange rates at the Renminbi (RMB) were translated into US Dollars (USD)
at various pertinent dates and for pertinent periods.

Recruitment of
Students

The following
table shows the change in the number of active students from 2010 to 2011.

No. of active
students increased for the specified quarter

|     |  |    |         |    |  |         |  |    |         |  |  |         | 
|---- |  | -- | ------- | -- |  | ------- |  | -- | ------- |  |  | ------- | 
|     |  |    |         |    |  |         |  |    |         |  |  |         | 
|Year |  | Q1 |         | Q2 |  | Q3      |  | Q4 |        
|     |  |    |         |    |  |         |  |    |        
|2010 |  |    | 301,203 |    |  | 328,813 |  |    | 337,440 |  |  | 373,196 | 
|2011 |  |    | 382,656 |    |  | 410,621 |  |    | 483,494 |  |  | 337,751 | 

Note: We
classify students who have provided us with their personal information as
registered. Registered students who have purchased an e-card or are using an
e-card to purchase our courses are classified as active. Students who have
purchased an e-card and have not used an e-card for more than one year are
de-classified from active status and classified as registered. The numbers in
the table above are calculated based on the number of newly active students
minus (-) the number of active students lost in the specified quarter.

Online Content

The Company
has continued to add new courses. For purposes of the following table, new
courses means (i) newly created courses that were not previously available and
(ii) previously available courses which have been revised or updated.

No. of new
courses increased for the specified quarter

|     |  |    |        |    |  |        |  |    |        |  |  |        | 
|---- |  | -- | ------ | -- |  | ------ |  | -- | ------ |  |  | ------ | 
|     |  |    |        |    |  |        |  |    |        |  |  |        | 
|Year |  | Q1 |        | Q2 |  | Q3     |  | Q4 |       
|     |  |    |        |    |  |        |  |    |       
|2010 |  |    | 91,200 |    |  | 90,524 |  |    | 74,200 |  |  | 98,496 | 
|2011 |  |    | 62,032 |    |  | 72,772 |  |    | 79,124 |  |  | 66,422 | 

46

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Sale of e-Cards

The Company
has continued to see increased sales of e-cards, which are used by students to
purchase our course offerings.

Face value of
e-cards sold for the specified quarter

|     |  |    |            |    |  |            |  |    |            |  |  |            | 
|---- |  | -- | ---------- | -- |  | ---------- |  | -- | ---------- |  |  | ---------- | 
|     |  |    |            |    |  |            |  |    |            |  |  |            | 
|Year |  | Q1 |            | Q2 |  | Q3         |  | Q4 |           
|     |  |    |            |    |  |            |  |    |           
|2010 |  |    | 16,835,727 |    |  | 26,459,676 |  |    | 37,106,079 |  |  | 33,077,838 | 
|2011 |  |    | 13,581,872 |    |  | 35,342,955 |  |    | 63,195,784 |  |  | 47,191,079 | 

Note: The
Company sells e-cards at an average discount rate of 80% to franchised learning
centers who then re-sell e-cards to students at face value. The face value of
e-cards sold refers to the amount paid by students. With respect to the
revenues generated from Tsingda Virtual Internet Classroom, if the e-cards are
sold to students directly, the teachers and the Company share such revenues
(equivalent to the face value of the e-cards sold) at a 70:30 split. If e-cards
are sold to students via franchised learning centers, the Company receives 20%
of the face value of the e-cards and the remaining 80% is shared by the
franchisees and teachers.

Revenue Breakdown

For the fiscal
years 2010 and 2011, the tables below break down the source of our revenues. We
generate most of our revenues through franchise licensing fees, management
fees, sales of e-cards, and, beginning August 2010, the sale of reference books
and materials. Our franchisees pay an initial franchise licensing fee of
between $7,000 and $10,000 per location depending on franchise territory, and
thereafter, franchisees pay an annual management fee equal to 10% of their
initial franchise licensing fee. A franchisee receives e-cards from the Company
with a face value equal to five times the amount of franchise and management
fees paid. Our franchisees also have the option to purchase additional e-cards
at the same 80% discount. Franchisees earn revenues from the sale of e-cards to
students at face value. In other words, for every dollar spent by our students,
our franchisees take eighty cents.

With respect
to the revenues generated from Tsingda Virtual Internet Classroom, if the
e-cards are sold to students directly, the teachers and the Company share such
revenues(equivalent to the face value of the e-cards sold) at a 70:30 split. If
e-cards are sold to students via franchised learning centers, the Company
receives 20% of the face value of the e-cards and the remaining 80% is shared
by the franchisees and teachers.

Each e-card
has a specific serial number, and our IT server tracks the opening and usage of
these cards in real time. We use this information in order to accurately
allocate revenues among teachers.

2010 Revenue Breakdown (in Dollars)

|        |  |                |           |                           |   |                                                |  |                                                                |            |                               |   |           |  |       |           |  |   |        |  |   |            | 
|------- |  | -------------- | --------- | ------------------------- | - | ---------------------------------------------- |  | -------------------------------------------------------------- | ---------- | ----------------------------- | - | --------- |  | ----- | --------- |  | - | ------ |  | - | ---------- | 
|Year    |  | Licensing
 Fee |           | Annual 
 Management 
 Fee |   | Pre-
 Recorded 
 Courses 
 (Sale of 
 e-Cards) |  | Tsingda 
 Virtual 
 Internet 
 Class Room
 (Sale of 
 e-Cards) |            | Materials
 and 
 publications |   | Others    |  | Total |          
|        |  |                |           |                           |   |                                                |  |                                                                |            |                               |   |           |  |       |          
|Q1/2010 |  | $              | 1,308,823 |                           | $ | 37,968                                         |  | $                                                              | 2,136,709  |                               | $ | 161,697   |  |       |          |  | $ | 4,961  |  | $ | 3,650,158  | 
|Q2/2010 |  | $              | 1,854,665 |                           | $ | 41,388                                         |  | $                                                              | 3,040,743  |                               | $ | 820,653   |  |       |          |  | $ | 7,862  |  | $ | 5,765,311  | 
|Q3/2010 |  | $              | 2,947,794 |                           | $ | 42,067                                         |  | $                                                              | 3,865,578  |                               | $ | 1,095,375 |  | $     | 1,309,983 |  | $ | 4,366  |  | $ | 9,265,163  | 
|Q4/2010 |  | $              | 2,293,866 |                           | $ | 43,505                                         |  | $                                                              | 4,055,885  |                               | $ | 1,037,908 |  | $     | 1,335,749 |  |   |       |  | $ | 8,766,913  | 
|Total   |  | $              | 8,405,148 |                           | $ | 164,928                                        |  | $                                                              | 13,098,915 |                               | $ | 3,115,633 |  | $     | 2,645,732 |  | $ | 17,189 |  | $ | 27,447,545 | 

47

---



2011 Revenue Breakdown (in Dollars)

|        |  |                |           |                          |   |                                                |  |                                                                 |            |                                    |   |           |  |       |           |  |   |           |  |   |            | 
|------- |  | -------------- | --------- | ------------------------ | - | ---------------------------------------------- |  | --------------------------------------------------------------- | ---------- | ---------------------------------- | - | --------- |  | ----- | --------- |  | - | --------- |  | - | ---------- | 
|Year    |  | Licensing
 Fee |           | Annual 
 Management
 Fee |   | Pre-
 Recorded 
 Courses 
 (Sale of 
 e-Cards) |  | Tsingda 
 Virtual 
 Internet 
 Class Room 
 (Sale of 
 e-Cards) |            | Materials
 and 
 publications
 (1) |   | Others    |  | Total |          
|        |  |                |           |                          |   |                                                |  |                                                                 |            |                                    |   |           |  |       |          
|Q1/2011 |  | $              | 1,177,613 |                          | $ | 361,782                                        |  | $                                                               | 4,187,179  |                                    | $ | 1,075,526 |  | $     | 1,397,774 |  | $ | 29,473    |  | $ | 8,229,347  | 
|Q2/2011 |  | $              | 1,802,490 |                          | $ | 426,793                                        |  | $                                                               | 3,609,657  |                                    | $ | 1,846,401 |  | $     | 902,003   |  | $ | 273,845   |  | $ | 8,861,189  | 
|Q3/2011 |  | $              | 3,483,246 |                          | $ | 623,021                                        |  | $                                                               | 5,081,674  |                                    | $ | 1,928,289 |  | $     | 3,909,936 |  | $ | 480,134   |  | $ | 15,506,300 | 
|Q4/2011 |  | $              | 3,079,923 |                          | $ | 832,400                                        |  | $                                                               | 4,492,833  |                                    | $ | 1,190,847 |  | $     | 1,917,979 |  | $ | 1,044,407 |  | $ | 12,558,389 | 
|Total   |  | $              | 9,543,272 |                          | $ | 2,243,996                                      |  | $                                                               | 17,371,343 |                                    | $ | 6,041,063 |  | $     | 8,127,692 |  | $ | 1,827,859 |  | $ | 45,155,225 | 

(1): Materials
and publications include reference books and materials, either self-branded or
cooperative. Sales of reference books and materials began in August, 2010.

Students must
use e-cards to purchase all online content, while the purchase of reference
books and materials are transacted in cash. The sales of reference materials
and publications began in August, 2010, and it accounts for approximately 18%
of total revenue in 2011. While the sale of e-cards continues to be the single
biggest source of revenue, franchise licensing fees and sales of reference
materials make up a substantial portion of our revenue.

(2) Others
mainly refer to the revenues generated from Huanggang Experimental School and
Family Baby Club. The revenues from the two business projects are set forth as
follows:

|        |  |                                 |         |                    |   |         | 
|------- |  | ------------------------------- | ------- | ------------------ | - | ------- | 
|Year    |  | Huanggang
 Experimental
 School |         | Family Baby 
 Club |  
|        |  |                                 |         |                    |  
|Q1/2011 |  |                                 | 0       |                    |   | 0       | 
|Q2/2011 |  | $                               | 264,374 |                    | $ | 9,471   | 
|Q3/2011 |  | $                               | 309,227 |                    | $ | 170,903 | 
|Q4/2011 |  | $                               | 144,724 |                    | $ | 103,688 | 
|Total   |  | $                               | 718,325 |                    | $ | 284,062 | 

PRC Regulation of Franchise Business

We have made
all required filings and met all requirements under PRC law to legally operate
a franchise business in the PRC. The required filings include (i) copies of the
business license or enterprise registration certificate; (ii) a sample
franchise contract; (iii) a brochure for franchise operations; (iv) a marketing
plan; (v) written commitment and relevant materials proving that the relevant
provisions have been followed; and (vi) other documents and materials required
by relevant governing authorities.

The legal
requirements to operate a franchise business in the PRC under the Regulation on
the Administration of Commercial Franchises require the franchisor to possess a
mature business model and the ability to provide long-term business guidance,
technical support, business training and other services to its franchisees. The
franchisor must have at least two direct sales stores, and have been engaged in
the business for more than a year. If this franchisor conducts its operations
within the scope of a single province, autonomous region, or municipality
directly

48

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under the PRC
Central Government, it is required to file the required legal documents with
the relevant governing authorities of the province, autonomous region or
municipality directly under the PRC Central Government; and if the franchisor
conducts its operations within the scope of two or more provinces, autonomous
regions, or municipalities directly under the PRC Central Government, it is
required to file the required legal documents with the competent commercial
authority of the State Council.

Our Growth Strategy

Our growth and
expansion strategy for the next 6 to 12 months includes the following measures,
the cost of which is expected to come from our existing revenue stream:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Establish six regional management centers.
 As of December 31, 2011, we have 32 company owned locations. The new regional
 management centers will also serve as company-owned learning centers. Due to
 the size of our company-owned locations, we are able to absorb higher student
 traffic and generate higher overall revenues compared to franchised locations.
 We also recognize 100% of the revenue stream from these locations. The
 aggregate estimated cost to open these locations is $1.4 million. In addition
 to providing services as learning centers, the regional management centers
 will be responsible for, among other things, training the staffs of the
 nearby franchised centers, organizing and holding training seminars,
 developing new franchised centers, managing and conducting recruitment events
 for franchised centers, and communicating with and reporting to company
 headquarters.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Increase the number of franchised learning centers.
 As of December 31, 2011, we had 2,894 locations with over 1,400 of them
 located in 2nd and 3rd tier cities. We estimate there
 are approximately 50,000 2nd and 3rdtier cities in the
 PRC. Our plan is to establish 1,500 new franchised learning centers by
 carrying out our advertising and marketing initiatives. We plan on spending
 approximately $6.2 million on a broad scale brand promotional campaign. This
 campaign will target a number of media outlets, including advertisements on
 regional television and in local newspapers in select markets, as well as
 holding periodic regional events in these markets, all of which will be
 designed to attract franchisees.                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Increase traffic to our virtual classrooms.
 The Company plans to allocate more capital resources to the marketing and
 promotion of our virtual classrooms. The Company plans to invest $3.5 million
 in acquiring competitive third party online learning resources and in
 developing strategic learning courseware.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Develop the Deployable Learning Center.
 The Company plans to launch its self-branded deployable learning pad which
 combines Tsingdas online learning contents and other featured courses in the
 second half of 2012. Students using the learning pads not only can learn
 anywhere and anytime but can also have access to the internet to download and
 update new learning resources. The total investment on this project may reach
 $10M.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Strengthen our IT infrastructure and capability.The
 Company will purchase 300 servers and expand its bandwidth to 1020M to
 satisfy the need of growing data traffic. The total investment in this
 project may reach $5 million. We believe completion of this project will help
 the Company to have sufficient on-line capacity to serve up to 10 million
 registered students, including 2.5 million active students. .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Our marketing
efforts target three principal areas, that is, franchisees, students for our
Company-owned learning centers, and students for our virtual classrooms. We
attract franchisees by conducting regional seminars on a periodic basis in
areas that we have targeted for expansion, as well as advertising on regional
television and in local newspapers in these areas. These efforts have produced
in excess of 2,800 operating franchisees.

Our
company-owned learning centers are in close proximity to schools and large
residential areas. We have been able to attract students to our learning
centers principally through the distribution of leaflets in the nearby areas.

Traffic to our
virtual classrooms has been driven principally by students from our learning
centers. We expect to increase traffic to our virtual classrooms commensurate
with the numerical increase in our learning centers.

We will continue
these marketing measures for the foreseeable future.

49

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Results of Operations for the Twelve Months
Ended December 31, 2011 Compared to Twelve Months Ended December 31, 2010

The following
table sets forth key components of Tsingda Educations results of operations
for the periods indicated in dollars. The discussion following the table
addresses these results.

Tsingda eEDU Corporation
Consolidated Statements of Operations and Comprehensive Income
(Stated in US dollars)

|                                         |  |                                 |            |      |   |            |  
|---------------------------------------- |  | ------------------------------- | ---------- | ---- | - | ---------- | -
|                                         |  | Twelve Months Ended December 31 |           
|                                         |  |                                 |           
|                                         |  | 2011                            |            | 2010 |  
|                                         |  |                                 |            |      |  
|Sales revenue                            |  | $                               | 45,155,225 |      | $ | 27,447,545 |  
|Cost of revenue                          |  |                                 | 12,470,337 |      |   | 6,011,094  |  
|                                         |  |                                 |            |      |   |            |  
|                                         |  |                                 |            |      |   |            |  
|Gross Profit                             |  |                                 | 32,684,888 |      |   | 21,436,451 |  
|                                         |  |                                 |            |      |   |            |  
|                                         |  |                                 |            |      |   |            |  
|Operating expenses                       |  |                                 |            |      |   |            |  
|Selling expenses                         |  |                                 | 10,526,913 |      |   | 6,199,618  |  
|General and administrative expenses      |  |                                 | 6,601,251  |      |   | 3,205,802  |  
|                                         |  |                                 |            |      |   |            |  
|                                         |  |                                 |            |      |   |            |  
|Total operating expenses                 |  |                                 | 17,128,164 |      |   | 9,405,420  |  
|                                         |  |                                 |            |      |   |            |  
|                                         |  |                                 |            |      |   |            |  
|Income from operations                   |  |                                 | 15,556,724 |      |   | 12,031,031 |  
|Interest income                          |  |                                 | 1,338      |      |   | 31,102     |  
|Realized gain from short-term investment |  |                                 |           |      |   | 73,861     |  
|Other expenses                           |  |                                 | (47,903    | )    |   | (257       | )
|                                         |  |                                 |            |      |   |            |  
|                                         |  |                                 |            |      |   |            |  
|Income before income tax                 |  |                                 | 15,510,159 |      |   | 12,135,737 |  
|Income tax
 expenses                     |  |                                 | 2,337,757  |      |   | 1,834,541  |  
|                                         |  |                                 |            |      |   |            |  
|                                         |  |                                 |            |      |   |            |  
|Net Income                               |  | $                               | 13,172,402 |      | $ | 10,301,196 |  
|                                         |  |                                 |            |      |   |            |  
|                                         |  |                                 |            |      |   |            |  
|Other comprehensive income               |  |                                 |            |      |   |            |  
|                                         |  |                                 |            |      |   |            |  
|Foreign currency translation adjustments |  |                                 | 1,874,495  |      |   | 721,997    |  
|                                         |  |                                 |            |      |   |            |  
|Total Comprehensive Income               |  | $                               | 15,046,897 |      | $ | 11,023,193 |  
|                                         |  |                                 |            |      |   |            |  
|                                         |  |                                 |            |      |   |            |  
|Weighted average shares-Basic            |  | $                               | 35,077,602 |      | $ | 28,242,518 |  
|Weighted average shares-Diluted          |  |                                 | 35,918,939 |      |   | 28,242,518 |  
|Earnings per share,                      |  |                                 |            |      |   |            |  
|Basic                                    |  | $                               | 0.38       |      | $ | 0.36       |  
|Diluted                                  |  | $                               | 0.37       |      | $ | 0.36       |  

50

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Revenue. For the
twelve months ended December 31, 2011, we had revenues of $45,155,225 as
compared to revenues of $27,447,545 for the twelve months ended December 31,
2010, an increase of approximately 64.51%. We experienced strong growth in our
revenues during the twelve months period ended 2011 due to an increase in the
number of franchised locations for the Companys offline businesses, along with
the continued growth of its online learning platform. As of December 31, 2011,
we had 2,894 franchise locations and 32 company owned locations, compared with
2,315 franchise locations and 31 company owned locations, respectively, as of
December 31, 2010. In addition, online revenues for twelve months ended
December 31, 2011 increased to $6,094,871 from $3,365,285 for the comparable
period in 2010.

Expenses. For the
twelve months ended December 31, 2011, we incurred expenses, composed of
selling and general and administrative expenses, of $17,128,164 compared to
expenses of $9,405,420 for the twelve months ended December 31, 2010, an
increase of approximately 82.11%.

Selling
expenses include salaries of the staffs in our sales department, the
company-owned learning centers, and other departments such as advertising,
printing, logo manufacturing, and transportation. For the twelve months ended
December 31, 2011, we had selling expenses of $10,526,913 as compared to
$6,199,618 for the comparable period of the prior year, an increase of 69.80%.
The increase reflected the marketing efforts we spent on two new business
projects: the Family Baby Club and Huang Gang Supplementary Education Center,
our efforts in attracting new franchise locations, and the continuous promoting
efforts for our online education platform. The Family Baby Club targets
pre-school children from zero to six years old and Huang Gang Supplementary
Education Center provides well-regarded supplementary education to high school
students. Huang Gang is an area located in Hubei province and is famous for its
nationally top-ranked high schools and excellent academic performance of
students. The Education Department of Huang Gang City entered into an agreement
with the Company to establish supplemental tutoring programs throughout China,
which started in May 2011.

Key components
of selling expenses for the twelve month periods ended December 31, 2011 and
2010 were:

|                   |  |                                        |           |                                         |   |           | 
|------------------ |  | -------------------------------------- | --------- | --------------------------------------- | - | --------- | 
|                   |  | Twelve months
 ended
 December 31,2011 |           | Twelve months
 ended 
 December 31,2010 |  
|                   |  |                                        |           |                                         |   |           | 
|Salaries and wages |  | $                                      | 1,988,275 |                                         | $ | 571,234   | 
|Advertising        |  |                                        | 4,379,158 |                                         |   | 3,139,046 | 
|Printing           |  |                                        | 2,055,551 |                                         |   | 1,057,713 | 
|Others             |  |                                        | 2,103,929 |                                         |   | 1,431,625 | 

-Salaries and
wages increased by approximately 248% for the twelve months ended December 31,
2011 from the comparable 2010 period. The increase represents an increase in
our sales personnel consistent with our increased franchise sales and the establishment
of new business projects.

-Advertising
expenses increased by approximately 40% for the twelve months ended December
31, 2011 from the comparable 2010 period. These expenses represent third party
print media expenditure spent for company-owned locations and new business
projects and online platform as well as our ongoing promotional efforts to
attract new franchisees.

-Printing
expenses increased by approximately 94% for the twelve months ended December
31, 2011 from the comparable 2010 period. These expenses represent internal
costs for printing of our company newsletter and other promotional costs in
order to enhance public recognition of our brand name and sales.

51

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-Others
increased by approximately 47% for the twelve months ended December 31, 2011
from the comparable 2010 period reflecting the investment in company owned
locations and new projects. The overall expenditure in renovations or
alterations conducted in our new locations was $20,124 per month on average,
compared to $2,167 in 2010.

General and
administrative expenses include rent, salaries and wages, insurance, training
and related expenses. For the twelve months ended December 31, 2011, we had
general and administrative expenses of $6,601,251 as compared to $3,205,802 for
the comparable period from the prior year.

Key components
of general and administrative expenses for the twelve months ended December 31,
2011 and 2010 were:

|                               |  |                                        |            |                                        |   |            | 
|------------------------------ |  | -------------------------------------- | ---------- | -------------------------------------- | - | ---------- | 
|                               |  | Twelve months
 ended
 December 31,2011 |            | Twelve months
 ended
 December 31,2010 |  
|                               |  |                                        |            |                                        |  
|Office supplies                |  | $                                      | 236,657    |                                        | $ | 121,103    | 
|Salaries and wages             |  |                                        | 1,107,471  |                                        |   | 605,800    | 
|Entertainment expenses         |  |                                        | 374,537    |                                        |   | 126,112    | 
|Rent                           |  |                                        | 915,159    |                                        |   | 470,855    | 
|Consulting fee                 |  |                                        | 610,945    |                                        |   | 324,136    | 
|Share based compensation costs |  |                                        | 1,448,465  |                                        |   |           | 
|Net income                     |  |                                        | 13,172,402 |                                        |   | 10,301,196 | 
|Other comprehensive income     |  |                                        | 1,874,495  |                                        |   | 721,997    | 
|Total comprehensive income     |  |                                        | 15,046,897 |                                        |   | 11,023,193 | 

-Office
supplies increased by 95% for the twelve months ended December 31, 2011 from
the comparable 2010 period. The increase was to due to an increase in
personnel.

-Salaries and
wages increased by 83% for the twelve months ended December 31, 2011 from the
comparable 2010 period as the company retained more management personnel during
the period.

-Entertainment
expenses increased by 197% for the twelve months ended December 31, 2011 from
the comparable 2010 period due to the increase in the number of our employees.

-Rent
increased by 94% for the twelve months ended December 31, 2011 from the
comparable 2010 period. This increase is attributable to the rent payments
under the new lease for our newly established Shijingshan Headquarter-Tsingda
Century Plaza.

-Consulting
expenses decreased by 17% for the twelve months ended December 31, 2011 from
the comparable 2010 period. The Company retained more third-party consulting
services related to Finance, IT and HR in line with the expansion of our
business in 2010. The auditing and legal fees for the consecutive two years are
set forth as follows:

|         |  |      |         |      |   |        | 
|-------- |  | ---- | ------- | ---- | - | ------ | 
|         |  | 2011 |         | 2010 |  
|Auditing |  | $    | 189,402 |      | $ | 64,432 | 
|Legal    |  | $    | 384,361 |      | $ | 98,002 | 

-The Company
granted 3 executives an aggregate of 900,000 shares for no cost and 100,000
shares on April 29, 2011 pursuant to the 2011 Equity Incentive Plan. The stock
options are exercisable at $2 per share and vest over a term of 5 years. The
Company valuates the fair value of the shares and stock options granted at the
grant date using the Black-Sholes option-pricing model, and the total costs of
$1,448,465 and $0 were recorded in the years ended December 31, 2011 and 2010,
respectively.

52

---



Net Income. For the
reasons discussed above, we had net income $13,172,402 for the twelve months
ended December 31, 2011 compared with $10,301,196 for the comparable period in
2010.

Other Comprehensive Income.
We had other comprehensive income $1,874,495 for the twelve months ended
December 31, 2011 compared with $721,997 for the comparable 2010 period as a
result of foreign currency translation gain.

Total Comprehensive Income.
We had total comprehensive income of $15,046,897 for the twelve months ended
December 31, 2011, representing an increase of 36.50% compared to the
corresponding 2010 period. The reason for the increase is due to the various
reasons stated above.

LIQUIDITY AND CAPITAL RESOURCES

As of December
31, 2011, we had working capital of $17,562,293 compared with working capital
of $11,381,531 as of December 31, 2010. Changes in our working capital are
summarized as follows:

|                           |  |                             |            |                             |  |                             |  |  |            | 
|-------------------------- |  | --------------------------- | ---------- | --------------------------- |  | --------------------------- |  |  | ---------- | 
|                           |  | December31, 2011
 (Audited) |            | December31, 2010
 (Audited) |  | Increase in
 WorkingCapital | 
|                           |  |                             |            |                             |  |                             |  |  |            | 
|Total
 current assets      |  | $                           | 37,501,727 |                             |  | 21,174,491                  |  |  | 16,327,236 | 
|Total
 current liabilities |  |                             | 16,899,434 |                             |  | 9,792,960                   |  |  | 7,106,474  | 
|Working
 Capital           |  | $                           | 20,602,293 |                             |  | 11,381,531                  |  |  | 9,220,762  | 

Our increase
in working capital is primarily attributable to the increase in accounts
receivables and advances to suppliers of approximately $10,415,544 and
$3,637,263 respectively. The increase was due to the expansion of our franchise
system and increased sales of our prepaid cards. Accounts receivables will be
reduced gradually as the standard term of each receivable is one year. Before
the repayment of such prior receivable, a franchise store cannot purchase any
new prepaid card from the Company and the Company has the right to shut down
the online broadcasting system until the receivables are paid. Further, the
Company increased its promotional efforts, which was especially reflected in
the prepayment in advertisements and printing by 120% and 70% respectively. In
addition, tax payable and accounts payable were increased by 91% and 310%
respectively. While tax payable reflects the increase in net income and
business tax, accounts payable was increased due to the improvements of the new
office building, the updates of our internet infrastructure as well as the
purchase of other intangible assets.

Our primary
uses of cash have been for selling and marketing expenses, employee
compensation, and working capital. The main sources of cash have been revenues
from franchisees and from our company owned locations.

We believe the
following trends are reasonably likely to result in a material decrease in our
liquidity over the near to long term:

| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | An increase
 in working capital requirements to finance the growth of our company owned
 locations,                       
| |   |                                                                                                                           
| |  | Addition of
 administrative and marketing personnel as the business grows,                                                
| |   |                                                                                                                           
| |  | Increases in
 advertising, public relations and sales promotions for our franchising
 efforts in new and existing markets,
| |   |                                                                                                                           
| |  | Software
 development and the purchase of servers commensurate with student population
 growth, and                       
| |   |                                                                                                                           
| |  | The cost of
 being a public company and the continued increase in costs due to
 governmental compliance activities.       

The Company
currently generates cash flow through operations which we believe will be
sufficient to sustain current operations for at least the next twelve months.

53

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Cash flows
from operations are calculated based upon the local currencies using the
average translation rate. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheets.

The following
summarizes the key components of our cash flows for the twelve months ended
December 31, 2011 and 2010:

|                                           |  |                                  |            |      |   |             |  
|------------------------------------------ |  | -------------------------------- | ---------- | ---- | - | ----------- | -
|                                           |  | Twelve Months Ended
 December 31 |           
|                                           |  | 2011                             |            | 2010 |  
|                                           |  |                                  |            |      |  
|Net cash
 provided by operating activities |  | $                                | 13,756,928 |      | $ | 10,972,626  |  
|Net cash
 consumed by investing activities |  | $                                | 21,485,968 |      | $ | (16,630,096 | )
|Net cash
 provided by financing activities |  | $                                | 6,518,100  |      | $ | 8,606,327   |  
|Effect on
 cash of foreign exchange rates  |  | $                                | 361,715    |      | $ | 678,712     |  
|Net change
 in cash                        |  | $                                | (923,654   | )    | $ | 3,627,569   |  
|Cash Balance
 (Beginning of Period)        |  | $                                | 4,086,214  |      | $ | 458,645     |  
|Cash Balance
 (End of Period)              |  | $                                | 3,162,560  |      | $ | 4,086,214   |  

The net cash provided
by operating activities for the twelve months ended December 31, 2011 were
$13,756,928, compared to $10,972,626 for the comparable period in 2010. The
increase was primarily due to the increase in our sales revenue during the
period.

The net cash consumed by
investing activities for the twelve months ended December 31, 2011 were
$21,485,968, compared to $16,630,096 for the comparable periods in 2010.

On August 5,
2011, the Company entered into an Investment Agreement (the Investment
Agreement) with Mr. Guozhen Zhou, an executive of the Company and also the
founder of Asia Outstanding Students Admissions Union Ltd. (AOSA), a Company
registered in British Columbia, Canada. Under the Investment Agreement, both
parties agreed to invest $5,500,000 in total in AOSA, in which Tsingda agreed
to invest $3,000,000, representing 55% of the total equity interest of AOSA. As
of December 31, 2011, the Company paid $3,000,000 as the prepayment.

On August 10,
2011, the Company entered into a Shares Investment Agreement (the Yiying
Acquisition Agreement) with Beijing Yiying Angel Education Consulting Co.,
Ltd. (Yiying Angel) and Ms. Yitong Chen, the owner of Yiying Angel, to
acquire 70% of the equity interest of Yiying Angel from Ms. Chen for
consideration of $2,800,000 and 200,000 Company options to purchase ordinary
shares at an exercise price of $5 per share. The $2,800,000 was paid as of
December 31, 2011. Pursuant to the terms of the Supplementary Agreement, on
August 3, 2012, the Company paid $200,000 to Yiying Angel to fund the expenses
associated with shutting down of certain Yiying Angel operations. Upon the
payment of the $200,000, the acquisition closed. Yiying Angel was founded in
2006, providing early childhood educational services to children from 0 to 6
years old. As of December 31, 2011, it had
nearly 200 franchise centers in 80 cities and 4 Company-owned centers in
Beijing. We believe Yiying Angel complements the business of Tsingda Education.
We have been entitled to and responsible for 70% of the revenue and liabilities
of Yiying Angel since August 2, 2012. The financial results of Yiying Angel
will be fully consolidated in our financial statements starting from the fiscal
period ended September 30, 2012.

On November 1,
2011, the Company entered into a Co-operation Agreement (Shangxue
Co-operation Agreement) with Beijing ShangXue Educational Technology Co.
(Shangxue) pursuant to which we have the right to purchase 80% of the equity
interest of Shangxue for $1,800,000. Pursuant to the Shangxue Co-operation
Agreement, Tsingda Education paid $800,000 to Shangxue for the designated
purpose of purchasing certain software and teaching materials. Tsingda
Education also paid $450,000 as a deposit for the purchase of Shangxues equity
in exchange for an exclusivity period from the date of the agreement to the end
of 2014, during which Shangxue shall not enter into any similar agreement with
any other party. In the event Shangxue achieved certain financial performance
milestones, Tsingda Education shall acquire 80% of Shangxues equity interest
by payment of an

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additional
$550,000. In the event Shangxue fails to achieve the agreed financial
performance milestones, Shangxue shall repay the $450,000 deposit. We have the
right to decide whether to close the acquisition before the end of April 2013.
After closing of the acquisition, the board of directors of Shangxue is
authorized to decide how the profit (and loss) should be allocated between
Tsingda Education and the original Shangxue shareholders.

The net cash provided by
financing activities for the twelve months ended December 31, 2011 was
$6,518,100 compared with $8,606,327 for the comparable period in 2010.

The Company was engaged in
equity financing activities to fuel its fast expansion. On July 12, 2011, the
Company entered into a definitive Securities Purchase Agreement with AMI
Corporation (AMI). Under the Agreement, the Company sold 3,000,000 ordinary
shares to AMI at the price of $4.56 per share receiving total cash proceeds of
$13,680,000. As part of the private placement, the Company paid a consulting
service fee of $1,394,400, which is accounted for as a stock issuance cost and
the payment was directly deducted from the cash proceeds received from the
private placement.

On August 21, 2011, the
Company entered into a Share Purchase Agreement with ZHR Fund, one of the
Companys original shareholders, to buy back 1,875,000 ordinary shares of the
Company held by ZHR Fund at a price of $3.30 per share, and the total cash
payment was $6,187,500. On the same day, the Company cancelled such repurchased
shares. The difference between the closing balance of cash and cash equivalents
for the twelve months ended December 31, 2011 and 2010 is primarily
attributable to the transactions mentioned above.

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance
sheet arrangements between us and any other entity that have, or are reasonably
likely to have, a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to stockholders.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis
of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. We continually
evaluate our estimates, including those related to bad debts, inventories,
recovery of long-lived assets, income taxes, and the valuation of equity
transactions. We base our estimates on historical experience and on various
other assumptions that we believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources.
Any future changes to these estimates and assumptions could cause a material
change to our reported amounts of revenues, expenses, assets and liabilities.
Actual results may differ from these estimates under different assumptions or
conditions. We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation of the
financial statements

A summary of significant
accounting policies is included in Note 2 to the audited consolidated financial
statements for the year ended December 31, 2010. Management believes that the
application of these policies on a consistent basis enables us to provide
useful and reliable financial information about our operating results and
financial condition. Other than as indicated in this quarterly report, there
have been no material revisions to the critical accounting policies as filed in
our Annual Report on Form 10-K as of and for the year ended December 31, 2010
with the SEC on March 11, 2011.

Variable Interest Entities

Pursuant to Financial
Accounting Standards Board Interpretation No. 46 (Revised), Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51 (FIN 46R) we
are required to include in our consolidated financial statements the financial
statements of variable interest entities. FIN 46R requires a variable interest
entity

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to be consolidated by a
company if that company is subject to a majority of the risk of loss for the
variable interest entity or is entitled to receive a majority of the variable
interest entitys residual returns. Variable interest entities are those
entities in which we, through contractual arrangements, bear the risk of, and
enjoy the rewards normally associated with ownership of the entity, and therefore
we are the primary beneficiary of the entity.

Tsingda Education is
considered a variable interest entity (VIE), and we are the primary
beneficiary. On April 26, 2010, we entered into agreements with Tsingda
Education pursuant to which we shall receive a quarterly fee in an amount equal
Tsingda Educations quarterly, after tax net profits. In accordance with these
agreements, Tsingda Education shall pay consulting fees equal to 100% of its
quarterly, after tax net profits to our wholly-owned subsidiary, Tsingda
Management, and Tsingda Management shall supply the technology and
administrative services needed to service Tsingda Education. We agreed to waive
the consulting fee payable by Tsingda Education for a period of 5 years from
April 26, 2010 to April 26, 2015 in order for Tsingda Education to keep
sufficient cash to fund the expansion of its business.

The accounts of Tsingda
Education are consolidated in the accompanying financial statements pursuant to
FIN 46R. As a VIE, Tsingda Educations sales are included in our total sales,
its income from operations is consolidated with ours, and our net income
includes all of Tsingda Educations net income. We do not have any
non-controlling interest and accordingly, did not subtract any net income in calculating
the net income attributable to us. Because of the contractual arrangements, we
have pecuniary interest in Tsingda Education that requires consolidation of
Tsingda Educations financial statements with our financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated
financial statements have been prepared in accordance with U.S, Generally
Accepted Accounting Principles (US GAAP). The Companys functional currency
is the Chinese Renminbi (RMB); however the accompanying financial statements
have been translated and presented in United States Dollars ($).

BASIS OF CONSOLIDATION

The accompanying consolidated
financial statements include the accounts of the Company, and its wholly owned
subsidiaries, (Tsingda Technology, and Tsingda Management), and Tsingda Century
and its subsidiaries, Tsingda Network and Tsingda Century Training School. All
intercompany balances and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of
consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. Significant items subject to such estimates and assumptions include
the useful lives of fixed assets; the allowance for doubtful accounts; the fair
value determination of financial and equity instruments, the reliability of
deferred tax assets; the recoverability of, intangible asset and property,
plant and equipment; and accruals for income tax uncertainties and other
contingencies. The current economic environment has increased the degree of
uncertainty inherent in those estimates and assumptions.

RISKS AND UNCERTAINTIES

Tsingda Century and Tsingda
Network operate under the authority of business licenses which were granted in
2003, and expire in 2023. Renewal of these licenses will depend on the result
of government inspections which are made

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to ensure environmental laws
are not breached.

The officers of the Company
control through direct ownership of most of the equity interests of the
Company. As a result, insiders will be able to control the outcome of all
matters requiring approval of equity owners and will be able to elect all of
the Company directors.

CASH AND CASH EQUIVALENTS

The Company considers all
cash on hand and in banks, including accounts in book overdraft positions,
certificates of deposit and other highly-liquid investments with original
maturity of three months or less, when purchased, to be cash and cash
equivalents. The Company maintains cash with various banks and trust companies
located in China. Cash accounts are not insured or otherwise protected. Should
any bank or trust company holding cash deposits become insolvent, or if the
Company is otherwise unable to withdraw funds, the Company would lose the cash
on deposit with that particular bank or trust company.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable are
recognized and carried at the invoiced amount less an allowance for
uncollectible accounts, as needed. In establishing the required allowance,
management considers historical losses adjusted to take into account current
market conditions and the customers financial condition, the amount of
receivables in dispute, and the current receivables aging and current payment
patterns. The Company reviews its allowance for doubtful accounts monthly. Past
due balances are reviewed individually for collectability. Account balances are
charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.

ADVANCE TO SUPPLIERS

Advance to suppliers
represents the payments made and recorded in advance for goods and services to
be received. The Company makes advances to suppliers for advertising, printing
and other services and products.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the
Companys financial instruments, which include cash, short term investments,
accounts receivable and other receivables, advances to suppliers, accounts
payable, accrued liabilities, and other liabilities, approximate their fair
values at December 31, 2011 and 2010.

PROPERTY AND EQUIPMENT

Property and equipment are
stated at cost less accumulated depreciation. Depreciation on property and
equipment other than leasehold improvements is calculated on the straight-line
method over the estimated useful lives of the assets as set out below:

|                                |  |                |   |                       |  |          | 
|------------------------------- |  | -------------- | - | --------------------- |  | -------- | 
|                                |  | Residual Value |   | Estimated Useful Life | 
|                                |  |                |   |                       | 
|Office furniture and
 equipment |  |                | 5 | %                     |  | 5
 years | 
|Vehicles                        |  |                | 5 | %                     |  | 5
 years | 

INTANGIBLE ASSETS

Intangibles are the cost of
computerized video lessons delivered both online and offline developed by the
Company and the acquired intangible assets with finite lives consist of
courseware. All costs incurred to establish the technological feasibility of a
computer software product to be sold, leased, or otherwise marketed are charged
to expenses as incurred. Development costs incurred after technological
feasibility of a product has been established

57

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and before product sales
begin are capitalized and amortized over the estimated life of the product,
which thus far has been three years, starting when product sales begin.
Technological feasibility is deemed to have been achieved when all the
planning, designing, coding, and testing activities necessary to establish that
the product can be produced to meet its design specifications have been
completed, including functions, features, and technical performance
requirements. Acquired coursewares with finite lives are carried at cost, less
accumulated amortization and impairment. Amortization of acquired coursewares
is calculated on a straight-line basis over three years.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Impairment
or Disposal of Long-Lived Assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment - Overall,
long-lived assets, such as property, plant and equipment, and purchased
intangible assets subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If circumstances require a long-lived asset or
asset group be tested for possible impairment, the Company first compares
undiscounted cash flows expected to be generated by that asset or asset group
to its carrying value. If the carrying value of the long-lived asset or asset
group is not recoverable on an undiscounted cash flow basis, impairment is
recognized to the extent that the carrying value exceeds its fair value. Fair
value is determined through various valuation techniques including discounted
cash flow models, quoted market values and third-party independent appraisals,
as considered necessary.

CUSTOMER DEPOSITS

The Company required certain
amount of deposits from its customers and franchised locations. The customer
deposits are recorded as a liability when the Company receives it and will be
recognized as revenue after the service is rendered.

REVENUE RECOGNITION

Online Courses

The Company provides online
education programs to its franchisees, agents and individual customers. Revenue
is realized through sales to franchisees and other agents of rights to conduct
education services. The Company authorized the franchised locations to use its
logo, all education programs and products and the Company receives a onetime
licensing fee, annual management fee, and 20% of student generated revenue from
the franchised location by providing them prepaid e-cards of 5 times the cash
amount. All the mentioned fees are revenues or unearned revenues from the sale
of e-cards. Revenue is recognized from each e-card sale as that e-card is used
by a student to purchase online education courses, and is reported net of business
tax. For example, if 10% of the value of an e-card is used, the Company
recognizes such 10% as revenue and the remaining value of the e-card is not
recognized as revenue until used by the student. The opening of cards is
tracked by our IT system automatically and the revenue is proportionally
recognized based on the progress of the e-cards usage.

Virtual Internet Classroom

The Company sold prepaid
e-cards to the customers. Revenue is recognized from each e-card sale as that
e-card is used by a student to purchase online education courses, and is
reported net of business tax. For example, if 10% of the value of an e-card is
used, the Company recognizes such 10% as revenue and the remaining value of the
e-card is not recognized as revenue until used by the student. The opening of
cards is tracked by our IT system automatically and the revenue is
proportionally recognized based on the progress of the e-cards usage.

Sales of Materials and Publications

The Company started the sales
of self-branded reference books and materials from August 2010. The revenue is
recognized upon the products are delivered to the customers.

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Offline courses

Offline tutorial courses are
provided by Tsingda Century Training School (Training School or referred as
Huanggang Experimental School) and by the Company owned learning centers. The
revenue is recognized based on the progress of courses the students completed
during the period.

ADVERTISING

Advertising is included in
selling expenses for financial reporting. The Company incurred advertising
costs of $4,442,589 and $3,150,215 for the years ended December 31, 2011 and
2010, respectively.

INCOME TAXES

Income taxes are accounted
for under the asset and liability method pursuant to ASC 740 Income Taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and tax loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the consolidated statements of income in
the period that includes the enactment date. A valuation allowance is provided
to reduce the amount of deferred tax assets if it is considered more likely
than not that some portion or all of the deferred tax assets will not be
realized.

ASC 740-10-25 clarifies the
accounting for uncertain tax positions and requires that an entity recognizes
in the consolidated financial statements the impact of a tax position, if that
position is more likely than not of being sustained upon examination, based on
the technical merits of the position. Recognized income tax positions are
measured at the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are reflected in the period in
which the change in judgment occurs. The Company has elected to classify
interest and penalties related to unrecognized tax benefits, if and when
required, as a component of income tax expense in the consolidated statements
of income.

OTHER TAXES

The Company generates its
income in China where Business Tax, Income Tax, City Construction and
Development Tax, and Education Surcharge taxes are applicable.

EARNINGS PER SHARE

Basic earnings per share are
computed by dividing net income by weighted average number of shares of common
stock outstanding during each period. Diluted earnings per share is computed by
dividing net income by the weighted average number of shares of common stock,
common stock equivalents and potentially dilutive securities outstanding during
each period

The Companys board of
directors approved a three-for-one reverse stock split (the Reverse Stock
Split) of the Companys outstanding common stock on October 19, 2010.
References to shares in the consolidated financial statements and the
accompanying notes, including, but not limited to, the number of shares and per
share amounts, have been adjusted to reflect the Reverse Stock Split on a
retroactive basis.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

The financial position and
results of operations of the Companys subsidiaries in the PRC are measured
using the Chinese currency Renminbi as the functional currency, while the
Companys reporting currency is the US dollar. Balance sheet accounts with
exception of equity of the subsidiaries are translated at the prevailing
exchange rate in

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effect at each period end,
income statement accounts are translated at the average rate of exchange during
the period, and equity accounts were stated at their historical exchange rate.
Exchange gains or losses arising from foreign currency transactions are
included in the determination of net income (loss) for the respective periods.
Translation adjustments are included in the accumulated other comprehensive
income in the consolidated statements of shareholders equity and comprehensive
income.

COMPREHENSIVE INCOME

The Company has adopted
ASC220, Reporting Comprehensive Income, which establishes standards for
reporting and displaying comprehensive income, its components, and accumulated
balances in a full-set of general-purpose financial statements. The Companys
accumulated other comprehensive income represents the accumulated balance of
foreign currency translation adjustments.

FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820 Fair Value
Measurements and Disclosures, adopted January 1, 2008, defines fair value,
establishes a three-level valuation hierarchy for disclosures of fair value
measurement and enhances disclosure requirements for fair value measures. The
carrying amounts reported in the balance sheets for current receivables and
payables qualify as financial instruments. Management concluded the carrying
values are a reasonable estimate of fair value because of the short period of
time between the origination of such instruments and their expected realization
and if applicable, their stated interest rate approximates current rates
available. The three levels are defined as follows:

| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 1 - inputs to the
 valuation methodology are quoted prices (unadjusted) for identical assets or
 liabilities in active markets.                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                       
| |  | Level 2 - inputs to the
 valuation methodology include quoted prices for similar assets and
 liabilities in active markets, and inputs that are observable for the assets
 or liability, either directly or indirectly, for substantially the full term
 of the financial instruments.
| |   |                                                                                                                                                                                                                                                                                       
| |  | Level 3 - inputs to the
 valuation methodology are unobservable and significant to the fair value.                                                                                                                                                                                    

It is managements opinion
that as of December 31, 2010 and 2009, the estimated fair values of the
financial instruments were not materially different from their carrying values
as presented on the balance sheet. This is attributed to the short maturities
of the instruments and that interest rates on the borrowings approximate those
that would have been available for loans of similar remaining maturity and risk
profile at respective balance sheet dates. The carrying amounts of short-term
loans approximate their fair values because the applicable interest rates
approximate current market rates.

RELATED PARTIES

A party is considered to be
related to the Company if the party directly or indirectly or through one or
more intermediaries, controls, is controlled by, or is under common control
with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the
Company and its management and other parties with which the Company may deal if
one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be
prevented from fully pursuing its own separate interests. A party which can
significantly influence the management or operating policies of the transacting
parties or if it has an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the
transacting parties might be prevented from fully pursuing its own separate interests
is also a related party.

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PRODUCTS WARRANTIES

Refunds to students who
withdraw from offline tutorial courses are rarely made and are made only at the
discretion of the Company. For this reason and, since revenue is recognized
only as services are provided, no provision is needed for possible withdrawals.

SEGMENT REPORTING

The Company uses the
management approach in determining reportable operating segments. The
management approach considers the internal organization and reporting used by
the Companys chief operating decision maker for making operating decisions and
assessing performance as the source for determining the Companys reportable
segments. The Companys chief operating decision maker has been identified as
the chief executive officer of the Company who reviews financial information of
separate operating segments based on US GAAP. The chief operating decision
maker now reviews results analyzed by service line. This analysis is only
presented at the revenue level with no allocation of direct or indirect costs.
Consequently, the Company has determined that it has only one operating
segment.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Management believes that none
of the recently adopted accounting pronouncements will have a material effect
on the Company financial position, results of operations, or cash flows.

In December 2009, the FASB
codified Consolidations  Improvements to Financial Reporting by Enterprises
Involved with VIEs (ASU 2009-17), guidance which was issued by the FASB in
June 2009. The amendments in this Accounting Standards Update 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 the power to direct the activities of a variable interest entity that most
significantly impact the entitys economic performance and has (1) the
obligation to absorb losses of the entity or (2) the right to receive benefits
from the entity. An approach that is expected to be primarily qualitative will
be more effective for identifying which reporting entity has a controlling
financial interest in a variable interest entity. The adoption of this standard
will have no material impact on the Companys consolidated financial
statements.

In May 2011, the FASB issued
ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to  Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs. The guidance in ASU 2011-04 changes the wording used to
describe the requirements in U.S. GAAP for measuring fair value and for
disclosing information about fair value measurements, including clarification
of the FASBs intent about the application of existing fair value and
disclosure requirements and changing a particular principle or requirement for
measuring fair value or for disclosing information about fair value
measurements. The amendments in this ASU should be applied prospectively and
are effective for interim and annual periods beginning after December 15, 2011.
Early adoption by public entities is not permitted. The adoption of this
guidance is not expected to have a material impact on the Companys financial
position or results of operations.

In June 2011, the FASB issued
ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. The guidance in ASU 2011-05 applies to both annual and
interim financial statements and eliminates the option for reporting entities
to present the components of other comprehensive income as part of the
statement of changes in stockholders equity. This ASU also requires
consecutive presentation of the statement of net income and other comprehensive
income. Finally, this ASU requires an entity to present reclassification
adjustments on the face of the financial statements from other comprehensive
income to net income. The amendments in this ASU should be applied
retrospectively and are effective for fiscal year, and interim periods within
those years, beginning after December 15, 2011. Early adoption is permitted.
The adoption of this guidance is not expected to have a material impact on the
Companys financial position or results of operations.

RECENT FINANCING

Our primary uses of cash have
been for selling and marketing expenses and employee compensation. The main
sources of cash flow have been revenues derived from franchisees and from our
Company-owned locations. The

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Company currently generates
its cash flow through operations which it believes will be sufficient to
sustain current level of operations for at least the next twelve months.

The Company anticipates that
expenditures through December, 2012 will consist primarily of establishment of
new Company-owned learning centers, advertising and promotions, and other
expenditures for general corporate purposes, including salaries and costs
associated with further development of our content and product offerings.

The Company does not have any
bank loans and is not expected to have any in the next twelve months. This
income estimate does not include any potential outside funding.

EMPLOYEE INCENTIVE PLAN

On April 29, 2011, the
Company adopted the 2011 Equity Incentive Plan (the Plan) pursuant to which
the Board of Directors may grant ordinary shares and stock options to its
employees. The Company granted 900,000 ordinary shares to three executives for
no cost and granted one executive 100,000 non-qualified stock options to
purchase 100,000 of the Companys ordinary shares at an exercise price of $2
per share. The stock options vest over a term of 5 years. The fair value of the
ordinary shares was estimated on the date of issuance. The calculated fair
value of the options was $0.63 per share. The amount of compensation cost
recognized for the options granted was $8,465 and recorded in the general and
administrative expenses for the year ended December 31, 2011. The amount of
compensation cost recognized for the shares issued were $1,440,000 and $0, and
were recorded in the general and administrative expenses for the years ended
December 31, 2011 and 2010, respectively.

ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting
company as defined by Regulation S-K and as such, are not providing the
information contained in this item pursuant to Regulation S-K.

ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

Reference is made to pages
F-1 through F-24 comprising a portion of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of controls and procedures

As of the end of the period
covered by this Annual Report, the Companys management, with the participation
of the Companys Chief Executive Officer and Chief Financial Officer (the
Certifying Officers), conducted evaluations of the Companys disclosure
controls and procedures. As defined under Sections 13a-15(e) and 15d-15(e) of
the Securities Exchange Act of 1934, as amended (the Exchange Act), the term
disclosure controls and procedures means controls and other procedures of an
issuer that are designed to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Commissions rules and forms. Disclosure controls and procedures include
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the issuers
management, including the Certifying Officers, to allow timely decisions
regarding required disclosures. Based on this evaluation, the Certifying
Officers have concluded that the Companys disclosure controls and procedures
were not effective to ensure that material information is recorded, processed,
summarized and reported by management of the Company on a timely basis in order
to comply with the Companys

62

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disclosure obligations under
the Exchange Act and the rules and regulations promulgated thereunder. The
Chief Executive Officers and Chief Financial Officers conclusion regarding
the Companys disclosure controls and procedures is based solely on
managements conclusion that there is a material weakness in the Companys
internal control over financial reporting.

Managements Report on Internal Controls Over Financial
Reporting

Our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), are responsible for establishing
and maintaining adequate internal control over financial reporting, as such
term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended
(the Exchange Act).

Internal control over
financial reporting is promulgated under the Exchange Act as a process designed
by, or under the supervision of, our CEO and CFO and effected by our board of
directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:

| |   |                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pertain to the maintenance
 of records that in reasonable detail accurately and fairly reflect the
 transactions and dispositions of our assets;                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                          
| |  | Provide reasonable
 assurance that transactions are recorded as necessary to permit preparation
 of financial statements in accordance with generally accepted accounting
 principles, and that our receipts and expenditures are being made only in
 accordance with authorizations of our management and directors; and
| |   |                                                                                                                                                                                                                                                                                                                          
| |  | Provide reasonable
 assurance regarding prevention or timely detection of unauthorized
 acquisition or disposition of our assets that could have a material effect on
 the financial statements.                                                                                                                         

Readers are cautioned that
internal control over financial reporting, no matter how well designed, has
inherent limitations and may not prevent or detect misstatements. Therefore,
even effective internal control over financial reporting can only provide
reasonable assurance with respect to the financial statement preparation and
presentation.

Our management, under the
supervision and with the participation of our CEO and CFO, has evaluated the
effectiveness of our disclosure controls and procedures and internal controls
over financial reporting as defined in Exchange Act Rules 13a-15(e) and (f) and
15d-15(e) and (f) as of the end of the period covered by this Report based upon
the framework in Internal ControlIntegrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on such
evaluation, our management has made an assessment that there is the following
material weakness in our internal control over financial reporting as of
December 31, 2011:

Currently, none of our
employees, including our Chief Financial Officer, who is responsible for
preparing and supervising the preparation of our financial statements, have any
formal training in U.S. GAAP and SEC rules and regulations. In that regard, we
rely exclusively on our independent accountants and our outside counsel for
advice with respect to U.S. GAAP and SEC rules and regulations.

Changes in internal control over financial reporting

No
significant changes were made in our internal control over financial reporting
during the Companys fourth quarter of 2010 that have materially affected, or
are reasonably likely to materially affect, the Companys internal control over
financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

63

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PART III

ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE

MANAGEMENT

Directors and Executive Officers

The following table sets
forth the name, age, and position of our executive officers and directors.
Executive officers are elected annually by our Board of Directors. Each
executive officer holds his office until he resigns, is removed by the Board,
or his successor is elected and qualified. Directors are elected annually by
our stockholders at the annual meeting. Each director holds his office until
his successor is elected and qualified or his earlier resignation or removal.

|               |  |     |  |                                                                           
|-------------- |  | --- |  | --------------------------------------------------------------------------
|NAME           |  | AGE |  | POSITION                                                                  
|               |  |     |  |                                                                           
|Zhang Hui      |  | 45  |  | Chairman of the Board of
 Directors, Chief Executive Officer and President
|Liu Juntao     |  | 49  |  | Executive Vice President
 and Director                                    
|Kang Chungmai  |  | 41  |  | Secretary and Chief
 Financial Officer                                    
|Norm Klein*    |  | 61  |  | Director                                                                  
|David Bolocan* |  | 47  |  | Director                                                                  
|Bi Cheng       |  | 54  |  | Director                                                                  

* Mr. Norm Klein and Mr.
David Bolocan resigned from the board of directors as of December 19, 2012.

Zhang Hui established Tsingda Education in 2003, and has been its chairman, chief
executive officer since its inception. From 1999 to 2003, he was vice president
of Singapore Holding Group, during when he has integrated management methods
and cultural diversity under different background efficiently, and then setting
up a new branch for Singapore Holding Group-Holding Technology (Shenzhen) Co.,
Ltd. From 1995 to 1999, Mr. Zhang worked as the newsroom director and vice
chief editor of China technology information magazine, successfully hatching
the publication of the best choice of Chinese excellently expertise, Chinese
diathesis education, Chinese innovation education and China education research.
He graduated from Wuhan University of Technology in 1989.

Liu Juntao has been the executive vice-president of Tsingda Education since its
inception. Prior to his employ with Tsingda, he had over 10 years of
administrative work for government. He also spent 5 years in private industry
in the PRC where worked in product development, market exploiting and customer
service. Mr. Liu graduated from Huazhong Agriculture University in 1983.

Kang Chungmai has been the chief financial officer and secretary of Tsingda Education
since January 2010. From 2004 to 2007, he worked as managing director in
Zero2IPO Group in Beijing a financial consulting firm. From 2007 to 2010, Mr.
Kang worked as the managing partner of Deal Bed Capital, a consulting company.
From 1999 to 2002, he served as CFO in Optoma Electronics (the largest TFT-LCD
backlight and DLP projector producer in the world). From 1996 to 1999, he
served as financial manager in Far Eastern Department Stores (the largest chain
of department stores in the Greater China Region) based in Taipei. He had broad
experiences in general financial management, debt and equity financing, foreign
exchange hedging, offshore holding structure design, and investment evaluation.
Mr. Kang holds his master degree in International Finance from the University
of Westminster, London, UK in 1996. He also expects to receive the PhD degree
in Management from the University of Edinburgh, Edinburgh, Scotland in 2010.

Norm Klein, director, has over twenty years of experience working in manufacturing
and process controls with major companies. Since 2001, Mr. Klein has acted as
the Chief Financial Officer, Chief Operating Officer, and Investor Relations
Officer for Eastbridge Investment Group Corporation [OTCBB: EBIG], a consulting
firm. Prior

64

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to that, Mr. Klein worked
with corporations such as Clorox, Honeywell, Dreyers Ice Cream, and Ingersol
Rand Corporation, where Mr. Klein provided consulting expertise in strategic
planning, financial management, marketing and selling, manufacturing and
process controls. Mr. Klein holds a Bachelors Degree in Mechanical Engineering
from Rose Hulman Institute and a Masters Degree in Business Administration from
the University of Iowa.

David Bolocan, director, is a retail banking and marketing executive who has held
positions at Sun Trust, Washington Mutual, JPM Chase and Bank of America. Since
2008, Mr. Bolocan has been a consumer banking products executive at Sun Trust.
Previously, Mr. Bolocan was a consumer banking products executive at Washington
Mutual (2007 to 2008) and JP Morgan Chase (2006 to 2007). From 2001 to 2006,
Mr. Bolocan was an Executive Vice President at Bank of America, and its
predecessor, MBNA. Mr. Bolocan is the author of ten books on popular business
software packages. Mr. Bolocan holds a Master Degree in management sciences
from the Massachusetts Institute of Technology and a Bachelors Degree in
Computer Science and Economics from Harvard University.

Bi Cheng director, has been a professor and doctoral advisor at Peking
University since 2004. Mr. Bi is also a researcher in the China National
Institute for Educational Research and a member of the Academic Committee and
vice principal of the China Principal Development School. During his career,
Mr. Bi has hosted and participated in more than 40 state level projects,
published twelve scholarly treatises, compiled educational documents and
dictionaries, and released over 200 thesis papers. Mr. Bi received his Ph.D.
from the Education Department of Beijing Normal University in 1988.

We believe that Zhang Hui, as
chairman and chief executive officer, and Liu Juntao as executive vice
president of our business since its inception in 2003, are each qualified to
and should be a director of Tsingda eEDU Corporation. Mr. Zhang and Mr. Liu
have both been instrumental in establishing Tsingda Education and overseeing
its operations. We also believe Mr. Klein, Mr. Bolocan and Mr. Bi are each
qualified and should be on our board of directors. Mr. Klein and Mr. Bolocan
bring to the Company valuable expertise and knowledge of United States
corporate governance, and Mr. Bi is a respected academic in the field of
education that would contribute to the Boards diversity.

Directors are elected until
their successors are duly elected and qualified.

There are no family
relationships among our directors or officers.

To the best of our knowledge,
none of our directors or executive officers, including Nautilus Global Partners
and Mid-Ocean Consulting who were promoters of the Company from the time of our
incorporation to the time of its merger with Tsingda Technology, and Eastbridge
Investment Group Corporation, who is a promoter of the Company, has been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws, except for matters that were dismissed
without sanction or settlement. Except as set forth in our discussion below in
Certain Relationships and Related Transactions, none of our directors,
director nominees or executive officers has been involved in any transactions
with us or any of our directors, executive officers, affiliates or associates
which are required to be disclosed pursuant to the rules and regulations of the
SEC.

Code of Ethics

We currently do not have a
code of ethics that applies to our officers, employees and directors, including
our Chief Executive Officer and Chief Financial Officer, however, we intend to
adopt one in the near future.

Compliance with Section 16(a) of the Exchange Act

During the
fiscal year ended December 31, 2011, not all the directors and officers have
filed, on a timely basis, reports required by section 16(a) of the Exchange
Act.

65

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ITEM 11.
EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

The following
table sets forth information concerning all cash and non-cash compensation
awarded to, earned by or paid to the named persons for services rendered in all
capacities during the noted periods. No other executive officer received total
annual salary and bonus compensation in excess of $100,000.

SUMMARY COMPENSATION TABLE

|                                |  |      |      |             |   |            |  |                    |   |                     |   |                              |  |            |   |  |  |   |  |   |         | 
|------------------------------- |  | ---- | ---- | ----------- | - | ---------- |  | ------------------ | - | ------------------- | - | ---------------------------- |  | ---------- | - |  |  | - |  | - | ------- | 
|Name and
 Principal
 Position   |  | Year |      | Salary
 ($) |   | Bonus
 ($) |  | Stock
 Awards
 ($) |   | Option
 Awards
 ($) |   | All Other
 Compensation
 ($) |  | Total
 ($) |  
|                                |  |      |      |             |   |            |  |                    |   |                     |   |                              |  |            |  
|Zhang Hui(1)                    |  |      | 2010 |             | $ | 55,385     |  |                    | 0 |                     |   | 0                            |  |            | 0 |  |  | 0 |  | $ | 55,385  | 
|Chairman, President, and        |  |      | 2011 |             | $ | 55,385     |  |                    | 0 |                     |   | 0                            |  |            | 0 |  |  | 0 |  |   | 55,385  | 
|Chief Executive Officer         |  |      |      |             |   |            |  |                    |   |                     |   |                              |  |            |   |  |  |   |  |   |         | 
|                                |  |      |      |             |   |            |  |                    |   |                     |   |                              |  |            |   |  |  |   |  |   |         | 
|Kang Chungmai(1)                |  |      | 2010 |             | $ | 46,225     |  |                    | 0 |                     |   | 0                            |  |            | 0 |  |  | 0 |  | $ | 46,225  | 
|Chief Financial Officer         |  |      | 2011 |             | $ | 46,225     |  |                    | 0 |                     | $ | 480,000                      |  |            | 0 |  |  | 0 |  | $ | 526,225 | 
|                                |  |      |      |             |   |            |  |                    |   |                     |   |                              |  |            |   |  |  |   |  |   |         | 
|Joseph Rozelle(2)               |  |      | 2010 |             |   | 0          |  |                    | 0 |                     |   | 0                            |  |            | 0 |  |  | 0 |  |   | 0       | 
|Former President and Chief      |  |      | 2011 |             |   | 0          |  |                    | 0 |                     |   | 0                            |  |            | 0 |  |  | 0 |  |   | 0       | 
|Financial Officer and Secretary |  |      |      |             |   |            |  |                    |   |                     |   |                              |  |            |   |  |  |   |  |   |         | 
|                                |  |      |      |             |   |            |  |                    |   |                     |   |                              |  |            |   |  |  |   |  |   |         | 
|Karl Brenza(3)                  |  |      | 2010 |             |   | 0          |  |                    | 0 |                     |   | 0                            |  |            | 0 |  |  | 0 |  |   | 0       | 
|Former Chief Executive Officer  |  |      | 2011 |             |   | 0          |  |                    | 0 |                     |   | 0                            |  |            | 0 |  |  | 0 |  |   | 0       | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On May 24,
 2010, we acquired Tsingda Technology in a reverse acquisition transaction
 that was structured as a share exchange and in connection with that
 transaction, Mr. Zhang Hui became our Chief Executive Officer and President
 and Kang Chungmai became our Chief Financial Officer. Prior to the effective
 date of the reverse acquisition, Mr. Zhang and Mr. Kang held the same
 positions with Tsingda Education, respectively. The annual compensation shown
 in this table includes the amounts Mr. Zhang received from Tsingda Education
 prior to the consummation of the reverse acquisition. Mr. Kang was hired by
 Tsingda Education in January 2010 and his annual salary is approximately
 $46,225. In addition, on April 29, 2011, the Company adopted the 2011 Equity
 Incentive Plan, pursuant to which the Board of Directors may grant ordinary
 shares and stock options to its employees. During the fiscal year 2011, the
 Company granted 300,000 Ordinary Shares to Mr. Kang for no cost and it was
 valued at $1.60 per share according to the closing price of the most recent
 equity transaction.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(2) | Mr. Joseph
 Rozelle resigned from the offices of President and Chief Financial Officer on
 May 20, 2010, and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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|    |                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------
|    | resigned as
 Secretary on May 24, 2010.                                                                                   
|    |                                                                                                                           
|(3) | Mr. Karl
 Brenza was appointed as Chief Executive Officer on May 20, 2010, and resigned
 from such office on May 24, 2010.

Employment Agreements.

Except as
noted below, there are no agreements or understandings for any of our executive
officers or directors to resign at the request of another person and no officer
or director is acting on behalf of nor will any of them act at the direction of
any other person. On January 1, 2010, we entered into an employment agreement
with Mr. Zhang, our President and Chairman. Pursuant to the agreement, Mr.
Zhang has agreed to work exclusively for the Company during the term and will
receive a monthly salary of approximately $4,400. The agreement expires on
December 31, 2019.

Grants of Plan-Based Awards

On April 29,
2011, the Company adopted the 2011 Equity Incentive Plan (the Plan) pursuant
to which the Board of Directors may grant ordinary shares and stock options to
its employees. The Company granted 900,000 ordinary shares to three executives
for no cost and granted one executive 100,000 non-qualified stock options to
purchase 100,000 of the Companys ordinary shares at an exercise price of $2
per share. The stock options vest over a term of 5 years. The fair value of the
ordinary shares was estimated on the date of issuance. The calculated fair
value of the options was $0.63 per share. The amount of compensation cost
recognized for the options granted was $8,465 and recorded in the general and
administrative expenses for the year ended December 31, 2011. The amount of
compensation cost recognized for the shares issued were $1,440,000 and $0, and
were recorded in the general and administrative expenses for the years ended
December 31, 2011 and 2010, respectively.

Outstanding Equity Awards at Fiscal Year End

The Company
granted one executive 100,000 non-qualified stock options to purchase 100,000
of the Companys ordinary shares at an exercise price of $2 per share. The
stock options vest over a term of 5 years. The calculated fair value of the
options was $0.63 per share.

Option Exercises and Stock Vested

No options to
purchase our capital stock were exercised by any of our named executive
officers during the fiscal year ended December 31, 2011 and no shares of
restricted stock vested.

Pension Benefits

No named
executive officers received or held pension benefits during the fiscal year
ended December 31, 2011.

Nonqualified Deferred Compensation

No
nonqualified deferred compensation was offered or issued to any named executive
officer during the fiscal year ended December 31, 2011.

Potential Payments Upon Termination or Change
in Control

Our executive
officers are not entitled to severance payments upon the termination of their
employment agreements or following a change in control.

67

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Compensation of Directors

No member of
our Board of Directors received any compensation for his services as a director
during the fiscal year ended December 31, 2011.

Compensation Committee Interlocks and Insider
Participation

During the
fiscal year 2011 we did not have a standing compensation committee. Our Board
of Directors was responsible for the functions that would otherwise be handled
by the compensation committee. All directors participated in deliberations
concerning executive officer compensation, including directors who were also
executive officers, however, none of our executive officers received any
compensation during the last fiscal year. None of our executive officers has
served on the Board of Directors or compensation committee (or other committee
serving an equivalent function) of any other entity, any of whose executive
officers served on our Board or Compensation Committee.

ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following
table sets forth certain information, as of the date hereof, with respect to
the beneficial ownership of the outstanding Ordinary Shares by (i) any holder
of more than five percent (5%); (ii) each of our executive officers and
directors; and (iii) our directors and executive officers as a group. Except as
otherwise indicated, each of the stockholders listed below has sole voting and
investment power over the shares beneficially owned. Unless otherwise stated,
the address of the stockholders listed below is No. 39, Block 74, Lugu Rd.,
Shinjingshan District, Beijing.

|                                                         |  |                                                     |            |                      |  |       |  
|-------------------------------------------------------- |  | --------------------------------------------------- | ---------- | -------------------- |  | ----- | -
|Name and Address of
 Beneficial Owner                    |  | Number of
 Ordinary
 Shares
 Beneficially
 Owned(1) |            | Percent
 Of Class(2) | 
|                                                         |  |                                                     |            |                      | 
|                                                         |  | Officers and 
 Directors                            |            |                      |  |      
|Zhang Hui (3)
 President and Chairman                    |  |                                                     | 11,422,706 |                      |  | 31.9  | %
|Liu Juntao(3)
 Executive Vice President and Director     |  |                                                     | 11,422,706 |                      |  | 31.9  | %
|Kang Changmai (4)
 Chief Financial Officer and Secretary |  |                                                     | 300,000    |                      |  | 0.84  | %
|Norm Klein (5)*                                          |  |                                                     | 1,579,740  |                      |  | 4.2   | %
|                                                         |  |                                                     |            |                      |  |       |  
|David Bolocan *Director                                  |  |                                                     | 0          |                      |  | 0     |  
|Bi Cheng 
 Director                                      |  |                                                     | 0          |                      |  | 0     |  
|All officers and directors as a group (3
 persons)       |  |                                                     | 12,772,706 |                      |  | 35.72 | %
|                                                         |  |                                                     |            |                      |  |       |  
|5% or greater shareholders                              
|Yangyi Yu                                                |  |                                                     | 2,193,750  |                      |  | 6.14  | %
|                                                         |  |                                                     |            |                      |  |       |  
|Tsing Da Century Education Technology Co.,
 Ltd. (3)     |  |                                                     | 11,422,706 |                      |  | 31.9  | %

* Mr. Norm
Klein and Mr. David Bolocan resigned from the board of directors as of December
19, 2012.

|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | Beneficial ownership
 is determined in accordance with the rules of the SEC and generally includes
 voting or

68

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|    |                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | investment
 power with respect to securities. Each of the beneficial owners listed above
 has ownership of, and voting power and investment power with respect to, our
 Ordinary Shares. For each beneficial owner above, any options exercisable
 within 60 days have been included in the denominator.                                                                                    
|(2) | Based on
 35,754,862 Ordinary Shares issued and outstanding as of the date hereof.                                                                                                                                                                                                                                                                                                          
|(3) | Tsing Da
 Century Education Technology Co., Ltd., a Belize corporation, is the record
 owner of such shares. Mr. Zhang, our Chairman and President, and Mr. Liu, our
 Executive Vice President and Director, own 81.7% and 18.3%, respectively, of
 this entity. Accordingly, both Mr. Zhang and Mr. Liu may be deemed to be the
 beneficial owner of shares owned by such reporting person.
|(4) | Includes
 300,000 Ordinary Shares granted to Mr. Kang under the 2011 Equity Incentive
 Plan.                                                                                                                                                                                                                                                                                                
|(5) | Includes
 1,579,740 Ordinary Shares held by EastBridge Investment Group Corp, of which
 Norm Klein is Chief Operating Officer, Chief Financial Officer and Investor
 Relations Officer. Address of the person is: 8040 E. Morgan Trail Unit 18,
 Scottsdale, Arizona 85258                                                                                                                  

ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

Promoters and certain control persons.

On March 12,
2010, Tsingda Education entered into an agreement with Maxim Group, LLC
(Maxim), a FINRA registered broker dealer, to act as a placement agent on a
best efforts basis in connection with a proposed private placement offering of
Tsingda Education and its affiliates and subsidiaries. Under the Agreement,
Maxim is entitled to receive 8% of the gross proceeds of the offering and stock
purchase warrants equal to eight percent of the number of securities sold in
the offering. The term of the warrants is five years, although not exercisable
for the initial six months, and are exercisable at 110% of the per share
offering price. We are required to register the Maxim warrants. Tsingda
Education also is obligated to pay reasonable fees and expenses of Maxim not to
exceed $50,000. We also agreed to indemnify Maxim against certain liabilities,
including liabilities under the Securities Act. As a result of the September
16, 2010 financing, we paid Maxim as full compensation under the agreement,
cash commissions of $411,000 (or 4.3% of the proceeds from the offering) and
issued a stock purchase warrant to acquire 364,500 Ordinary Shares. The warrant
term is five years and is exercisable at any time after six months from closing
at an exercise price is $1.76. In addition, we reimbursed Maxim for $25,000 as
its reasonable out of pocket expenses.

On May 17,
2010, we issued an aggregate of 915,086 Ordinary Shares (adjusted to reflect
the 3 for 1 reverse split) to MJR Holdings, Inc., Christopher Fiore, Clifford
Teller and Karl Brenza, our former Chief Executive Officer, for an aggregate
purchase price of $30,000. The forgoing parties are affiliates of Maxim.

Pursuant to
the Tsingda transaction, and as described elsewhere herein, on May 24, 2010,
the Company issued 244,022.78 preferred shares of Compass to the Tsingda
shareholders in exchange for 100% of the outstanding shares of Tsingda
Technology. The Company also issued 2,079,740 Ordinary Shares to Eastbridge
Investment Group Corporation in exchange for certain considerations provided by
Eastbridge Investment Group Corporation, who is a promoter of the Company.

Tsingda Transactions

Tsingda
Technology owns 100% of the issued and outstanding capital stock of Beijing
Tsingda Century Management Consulting Ltd. (Tsingda Management), a wholly
foreign owned enterprise incorporated under the laws of the Peoples Republic
of China (PRC). On April 26, 2010, Tsingda Management entered into a series
of contractual agreements with Beijing Tsingda Century Investment Consultant of
Education Co. Ltd (Tsingda Education), a company incorporated under the laws
of the PRC, and its shareholders, in which Tsingda Management assumed
management of the business activities of Tsingda Education and has the right to
appoint all executives and senior management and the members of the board of
directors. The contractual arrangements are comprised of a Consulting Services
Agreement, Operating Agreement, Equity Pledge Agreement, and Option Agreement,
through which Tsingda Management has the right to advise, consult, manage and
operate Tsingda Education for a quarterly fee in the amount of 100% of Tsingda
Educations quarterly, after tax net profits. Additionally, Tsingda Educations
Shareholders have pledged their rights, titles and equity interest in Tsingda
Education as security for Tsingda Management to collect consulting and services
fees provided to Tsingda

69

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Education
through an Equity Pledge Agreement. In order to further reinforce Tsingda Managements
rights to control and operate Tsingda Education, Tsingda Educations
shareholders have granted Tsingda Management the exclusive right and option to
acquire all of their equity interests in Tsingda Education through an Option
Agreement.

Advances were
made during 2008 and 2009 to Mr. Zhang Hui, our chief executive officer and to
Mr. Liu Juntao, our executive vice president, both of whom are equity
shareholders of Tsing Da Century Education Technology Co., Ltd., a Belize
corporation, which is the Companys largest shareholder. The outstanding
balance of such advances was $1,996,821 and $186,747 respectively at December
31, 2008. Additional advances of $299,734 and $6,584 were made during 2009 and
repayments of $1,836,257 and $177,864 were received, leaving balances of
$460,716 and $15,468 at December 31, 2009. As of March 31, 2010, all advances
were paid back to Tsingda Education.

Other than
employment, none of the following persons has any direct or indirect material
interest in any transaction to which we are a party since our last fiscal year
or in any proposed transaction to which we are proposed to be a party:

|    |                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | Any of our
 directors or officers;                                                                                                                                                                          
|(B) | Any proposed
 nominee for election as our director;                                                                                                                                                         
|(C) | Any person
 who beneficially owns, directly or indirectly, shares carrying more than 10%
 of the voting rights attached to our Ordinary Shares; or                                                          
|(D) | Any relative
 or spouse of any of the foregoing persons, or any relative of such spouse,
 who has the same house as such person or who is a director or officer of any
 parent or subsidiary of our company.

ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES

The following
table sets forth fees billed to us by our independent registered public
accounting firms during the fiscal years ended December 31, 2011 and December
31, 2010 for: (i) services rendered for the audit of our annual financial
statements and the review of our quarterly financial statements; (ii) services
by our independent registered public accounting firms that are reasonably
related to the performance of the audit or review of our financial statements
and that are not reported as Audit Fees; (iii) services rendered in connection
with tax compliance, tax advice and tax planning; and (iv) all other fees for
services rendered.

|                    |  |                    |         |                    |   |         | 
|------------------- |  | ------------------ | ------- | ------------------ | - | ------- | 
|                    |  | December
 31, 2011 |         | December
 31, 2010 |  
|                    |  |                    |         |                    |  
|                    |  |                    |         |                    |  
|                    |  |                    |         |                    |   |         | 
|Audit Fees          |  | $                  | 189,402 |                    | $ | 60,000  | 
|Audit
 Related Fees |  |                    |        |                    |   | 46,000  | 
|Tax Fees            |  |                    |        |                    |   | 4,500   | 
|All Other
 Fees     |  |                    |        |                    |   |        | 
|                    |  |                    |         |                    |   |         | 
|                    |  |                    |         |                    |   |         | 
|                    |  | $                  | 189,402 |                    | $ | 110,500 | 

Audit
Committee Policies

The Board of
Directors is solely responsible for the approval in advance of all audit and
permitted non-audit services to be provided by the independent auditors
(including the fees and other terms thereof), subject to the de minimus
exceptions for non-audit services provided by Section 10A(i)(1)(B) of the
Exchange Act, which services are subsequently approved by the Board of
Directors prior to the completion of the audit. None of the fees listed above
are for services rendered pursuant to such de minimus exceptions.

70

---



Part IV

ITEM 15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES

EXHIBIT INDEX

|              |  |                                                                                                                                                                                                                                                          
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 
 No. |  | Description                                                                                                                                                                                                                                              
|              |  |                                                                                                                                                                                                                                                          
|              |  |                                                                                                                                                                                                                                                          
|3.1           |  | Memorandum
 and Articles of Association of the Company.(1)                                                                                                                                                                                               
|3.2           |  | Amended
 Memorandum of Association of the Company.(2)                                                                                                                                                                                                    
|3.3           |  | Memorandum
 of and Articles of Association of Tsing Da Century Education Technology Co.
 Ltd.(3)                                                                                                                                                         
|4.1           |  | Form of
 Warrant.(5)                                                                                                                                                                                                                                     
|4.2           |  | Form of
 Placement Agent Warrant.(5)                                                                                                                                                                                                                     
|5.1           |  | Opinion of
 Shu Jin Law Firm (7)                                                                                                                                                                                                                         
|10.1          |  | Consulting
 Services Agreement dated April 26, 2010(3)                                                                                                                                                                                                   
|10.2          |  | Operating
 Agreement dated April 26, 2010(3)                                                                                                                                                                                                             
|10.3          |  | Option
 Agreement dated April 26, 2010(3)                                                                                                                                                                                                                
|10.4          |  | Voting
 Rights Proxy Agreement dated April 26, 2010(3)                                                                                                                                                                                                   
|10.5          |  | Equity
 Pledge Agreement dated April 26, 2010(3)                                                                                                                                                                                                         
|10.6          |  | Share
 Exchange Agreement dated May 24, 2010 by and among Compass Acquisition
 Corporation and its controlling shareholders, and Tsing Da Century Education
 Technology Co. Ltd. and its shareholders (4)                                                
|10.7          |  | Securities
 Purchase Agreement dated September 16, 2010 by and among the Company and
 certain investors.(5)                                                                                                                                              
|10.8          |  | Registration
 Rights Agreement dated September 16, 2010 by and among the Company and
 certain investors.(5)                                                                                                                                              
|10.10         |  | Holdback
 Escrow Agreement dated September 16, 2010, by and among the Company, Zhong
 Hui Rong (Fujian) Fund, Ltd. and Collateral Agents, LLC.(5)                                                                                                        
|10.11         |  | Six Month
 Lock-Up Agreement dated September 16, 2010 by and among the Company and
 certain shareholders.(5)                                                                                                                                             
|10.12         |  | Initial
 Shareholder Lock-Up Agreement dated September 16, 2010 by and among the
 Company and certain shareholders.(5)                                                                                                                                   
|10.13         |  | Initial
 Shareholder Lock-Up Agreement dated September 16, 2010 by and among the
 Company and Eastbridge Investment Group Corp.(5)                                                                                                                       
|10.14         |  | Founding
 Shareholder Lock-Up Agreement dated September 16, 2010 by and between the
 Company and Tsingda Century Education Technology Co. Ltd.(5)                                                                                                        
|10.15         |  | Securities
 Escrow Agreement dated September 16, 2010 by and among the Company, Maxim
 Group, LLC, Tsing Da Century Technology Co. Ltd., and Collateral Agents,
 LLC.(5)                                                                                 
|10.16         |  | Agreement
 dated March 12, 2010 by and between Maxim Group, LLC and Beijing Tsingda
 Century Investment Consultant of Education Co., Ltd.(5)                                                                                                             
|10.17         |  | Translation
 of Form of Franchise Agreement.(6)                                                                                                                                                                                                          
|10.18         |  | Translation
 of Employment Agreement with Mr. Zhang.(6)                                                                                                                                                                                                  
|10.19         |  | Services
 Agreement by and between the Company and Eastbridge Investment Group
 Corporation dated May 17, 2010.(9)                                                                                                                                       
|10.20         |  | Securities
 Purchase Agreement, dated as of July 12, 2011 between the Company and AMI
 Corporation (10)                                                                                                                                                  
|10.21         |  | Investment
 Agreement dated August 10, 2011 by and among Tsing Da Century Education
 Technology Co. Ltd (Tsingda Education) and Beijing Yiying Angel Education
 Consulting Co., Ltd. (Yiying Angel) and Ms. Yitong Chen, the owner of
 Yiying Angel.*
|10.22         |  | Supplementary
 Agreement to the Investment Agreement dated August 10, 2011 by and among
 Tsingda Education, Yiying Angel and Ms. Yitong Chen*                                                                                                            

71

---



|        |  |                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.23   |  | Co-operation
 Agreement dated November 1, 2011 by and between Tsingda Education and Beijing
 ShangXue Educational Technology Co. (Shangxue)*                            
|10.24   |  | Investment
 Agreement dated August 5, 2011 by and between Tsingda Education and Mr.
 Guozhen Zhou, founder of Asia Outstanding Students Admissions Union Ltd.
 (AOSA). *
|10.25   |  | Supplementary
 Agreement to the Investment Agreement dated August 5, 2011 by and between
 Tsingda Education and Mr. Guozhen Zhou. *                                       
|10.26   |  | Form of
 Franchise Agreement by and between Tsingda Education and franchisees of
 Tsingda learning centers.*                                                              
|21.1    |  | List of
 Subsidiaries.(6)                                                                                                                                                 
|23.1    |  | Consent of
 Malone Bailey LLP *                                                                                                                                           
|31.1    |  | Certification
 of Registrants Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
 of the Securities Exchange Act of 1934. *                                    
|31.2    |  | Certification
 of Registrants Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
 of the Securities Exchange Act of 1934. *                                    
|32.1    |  | Certification
 of Registrants Chief Executive Officer pursuant to Rule 13a-14(b)/15d-14(b)
 of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. *         
|32.2    |  | Certification
 of Registrants Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b)
 of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. *         
|99.1    |  | Index of
 Tsingda Courses (8)                                                                                                                                             
|99.2    |  | Addresses of
 Company-owned learning centers (7)                                                                                                                          
|        |  |                                                                                                                                                                           
|101.INS |  | XBRL
 Instance Document **                                                                                                                                                
|101.SCH |  | XBRL
 Taxonomy Extension Schema Document **                                                                                                                               
|101.CAL |  | XBRL
 Taxonomy Extension Calculation Linkbase Document **                                                                                                                 
|101.LAB |  | XBRL
 Taxonomy Extension Labels Linkbase Document **                                                                                                                      
|101.PRE |  | XBRL
 Taxonomy Extension Presentation Linkbase Document **                                                                                                                
|101.DEF |  | XBRL
 Taxonomy Extension Definitions Linkbase Document **                                                                                                                 

|                                                                                                                                           
|-------------------------------------------------------------------------------------------------------------------------------------------
|(1)
 Incorporated herein by reference to the Form 10 Registration Statement filed
 on December 4, 2006.                                    
|(2)
 Incorporated herein by reference to the Form 10-Q Quarterly Report filed on
 May 15, 2008.                                            
|(3)
 Incorporated herein by reference to the Form 8-K Current Report filed on May
 28, 2010.                                               
|(4)
 Incorporated by reference to the Form 8-K/A Current Report filed on June 3,
 2010.                                                    
|(5)
 Incorporated by reference to the Form 8-K Current Report filed on September
 23 2010.                                                 
|(6)
 Incorporated herein by reference to the Registration Statement on Form S-1
 (Registration No. 333-169877) filed on October 12, 2010.  
|(7)
 Incorporated herein by reference to the Registration Statement on Form S-1/A
 filed on December 28, 2010.                             
|(8)
 Incorporated herein by reference to the Registration Statement on Form S-1/A
 (Registration No. 333-169877) filed on December 3, 2010.
|(9)
 Incorporated herein by reference to the Registration Statement on Form S-1/A
 (Registration No. 333-170885) filed on January 4, 2011. 
|(10)
 Incorporated herein by reference to the Current Report on Form 8-K filed on
 July 26, 2011                                           
|* Filed
 Herewith                                                                                                                          
|**
 previously included in the Annual Report on Form 10-K for fiscal year ended
 on December 31, 2011 filed on March 30, 2012              

72

---



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board
of Directors and Shareholders of
Tsingda eEDU Corporation
Cayman Islands

We have
audited the accompanying consolidated balance sheets of Tsingda eEDU
Corporation and its Subsidiaries (the Company) as of December 31, 2011 and
2010, and the related consolidated statements of operations and comprehensive
income, shareholders equity, and cash flows for the years then ended. In
connection with our audit for the consolidated financial statements, we have also
audited the condensed parent company financial statements for the year ended
December 31, 2011 and 2010. These consolidated financial statements and
condensed parent company financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted
our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2011 and 2010, and the results of its operations and cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related condensed parent
company financial statements, when considered in relation to the consolidated
financial statements taken a whole, presents fairly, in all material aspects,
the information set forth therein.

|                      
|----------------------
|/s/
 MaloneBailey, LLP
|www.malonebailey.com  
|Houston,
 Texas       
|March 30,
 2012       

73

---



TSINGDA EEDU CORPORATION
Consolidated Balance Sheets
(Stated in US dollars)

|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | ------------------ | - | ---------- | 
|                                                                                                                                                                                      |  | December 31,
 2011 |            | December 31,
 2010 |  
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|ASSETS                                                                                                                                                                                |  |                    |            |                    |   |            | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|Current assets                                                                                                                                                                        |  |                    |            |                    |   |            | 
|Cash and cash equivalents                                                                                                                                                             |  | $                  | 3,162,560  |                    | $ | 4,086,214  | 
|Accounts receivable, net                                                                                                                                                              |  |                    | 16,971,480 |                    |   | 6,555,936  | 
|Advances to suppliers                                                                                                                                                                 |  |                    | 12,166,014 |                    |   | 8,488,751  | 
|Other receivables                                                                                                                                                                     |  |                    | 1,409,259  |                    |   | 1,103,083  | 
|Receivable from escrow account                                                                                                                                                        |  |                    | 100,000    |                    |   | 520,000    | 
|Due from the related party                                                                                                                                                            |  |                    | 3,000,000  |                    |   | 37,749     | 
|Inventory                                                                                                                                                                             |  |                    | 321,628    |                    |   |           | 
|Deferred tax assets                                                                                                                                                                   |  |                    | 370,786    |                    |   | 382,758    | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|Total Current Assets                                                                                                                                                                  |  |                    | 37,501,727 |                    |   | 21,174,491 | 
|Advances for leasehold improvements                                                                                                                                                   |  |                    | 2,456,522  |                    |   | 6,604,628  | 
|Prepayment for investment and acquisition                                                                                                                                             |  |                    | 3,760,000  |                    |   |           | 
|Property and equipment, net                                                                                                                                                           |  |                    | 16,634,974 |                    |   | 10,652,830 | 
|Intangible assets, net                                                                                                                                                                |  |                    | 12,800,645 |                    |   | 5,021,983  | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|TOTAL ASSETS                                                                                                                                                                          |  | $                  | 73,153,868 |                    | $ | 43,453,932 | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|LIABILITIES & SHAREHOLDERS EQUITY                                                                                                                                                    |  |                    |            |                    |   |            | 
|Current Liabilities                                                                                                                                                                   |  |                    |            |                    |   |            | 
|Accounts payable                                                                                                                                                                      |  |                    | 1,252,404  |                    |   | 305,165    | 
|Customer deposit                                                                                                                                                                      |  |                    | 3,032,264  |                    |   | 1,642,642  | 
|Taxes payable                                                                                                                                                                         |  |                    | 9,688,065  |                    |   | 5,070,919  | 
|Accrued and other liabilities                                                                                                                                                         |  |                    | 454,785    |                    |   | 222,512    | 
|Deferred revenue                                                                                                                                                                      |  |                    | 2,471,916  |                    |   | 2,551,722  | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|Total Current Liabilities                                                                                                                                                             |  |                    | 16,899,434 |                    |   | 9,792,960  | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|SHAREHOLDERS EQUITY                                                                                                                                                                  |  |                    |            |                    |   |            | 
|Preferred stock: 781,250 shares of $.000128
 par value authorized; None shares issued and outstanding                                                                                 |  | $                  |           |                    | $ |           | 
|Common stock (par value $0.000384 per
 share; 100,000,000 shares authorized; 35,754,862 and 33,729,862 shares issued
 and outstanding as of December 31, 2011 and 2010, respectively) |  |                    | 13,730     |                    |   | 12,952     | 
|Additional paid in capital                                                                                                                                                            |  |                    | 21,068,967 |                    |   | 13,523,180 | 
|Statutory reserves                                                                                                                                                                    |  |                    | 2,398,464  |                    |   | 2,398,464  | 
|Retained earnings                                                                                                                                                                     |  |                    | 29,935,343 |                    |   | 16,762,941 | 
|Accumulated other comprehensive income                                                                                                                                                |  |                    | 2,837,930  |                    |   | 963,435    | 
|TOTAL SHAREHOLDERS EQUITY                                                                                                                                                            |  |                    | 56,254,434 |                    |   | 33,660,972 | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                            |  | $                  | 73,153,868 |                    | $ | 43,453,932 | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 

The accompanying notes are an integral part of
these financial statements.

74

---



TSINGDA EEDU CORPORATION
Consolidated Statements of Operations and Comprehensive Income
(Stated in US dollars)

|                                           |  |                                  |            |      |   |            |  
|------------------------------------------ |  | -------------------------------- | ---------- | ---- | - | ---------- | -
|                                           |  | For the Years Ended December 31, |           
|                                           |  |                                  |           
|                                           |  | 2011                             |            | 2010 |  
|                                           |  |                                  |            |      |   |            |  
|                                           |  |                                  |            |      |   |            |  
|Revenue                                    |  | $                                | 45,155,225 |      | $ | 27,447,545 |  
|                                           |  |                                  |            |      |   |            |  
|Cost of revenue                            |  |                                  | 12,470,337 |      |   | 6,011,094  |  
|                                           |  |                                  |            |      |   |            |  
|Gross profit                               |  |                                  | 32,684,888 |      |   | 21,436,451 |  
|                                           |  |                                  |            |      |   |            |  
|Operating expenses                         |  |                                  |            |      |   |            |  
|Selling expenses                           |  |                                  | 10,526,913 |      |   | 6,199,618  |  
|General and administrative expenses        |  |                                  | 6,601,251  |      |   | 3,205,802  |  
|                                           |  |                                  |            |      |   |            |  
|Total operating expenses                   |  |                                  | 17,128,164 |      |   | 9,405,420  |  
|                                           |  |                                  |            |      |   |            |  
|Income from operations                     |  |                                  | 15,556,724 |      |   | 12,031,031 |  
|Interest income                            |  |                                  | 1,338      |      |   | 31,102     |  
|Realized gain from short-term investment   |  |                                  |           |      |   | 73,861     |  
|Other expense                              |  |                                  | (47,903    | )    |   | (257       | )
|                                           |  |                                  |            |      |   |            |  
|Income before income tax                   |  |                                  | 15,510,159 |      |   | 12,135,737 |  
|                                           |  |                                  |            |      |   |            |  
|Income tax expenses                        |  |                                  | 2,337,757  |      |   | 1,834,541  |  
|                                           |  |                                  |            |      |   |            |  
|Net income                                 |  | $                                | 13,172,402 |      | $ | 10,301,196 |  
|                                           |  |                                  |            |      |   |            |  
|Other comprehensive income                 |  |                                  |            |      |   |            |  
|Foreign currency translation adjustments   |  |                                  | 1,874,495  |      |   | 721,997    |  
|                                           |  |                                  |            |      |   |            |  
|                                           |  |                                  |            |      |   |            |  
|Total comprehensive income                 |  | $                                | 15,046,897 |      | $ | 11,023,193 |  
|                                           |  |                                  |            |      |   |            |  
|                                           |  |                                  |            |      |   |            |  
|Weighted average number of shares, basic   |  |                                  | 35,077,602 |      |   | 28,242,518 |  
|Weighted average number of shares, diluted |  |                                  | 35,918,939 |      |   | 28,242,518 |  
|Earnings per share,                        |  |                                  |            |      |   |            |  
|-Basic                                     |  | $                                | 0.38       |      | $ | 0.36       |  
|-Diluted                                   |  | $                                | 0.37       |      | $ | 0.36       |  

The accompanying notes are an integral part
of these financial statements.

75

---



TSINGDA EEDU CORPORATION
Consolidated Statement of Shareholders Equity
(Stated in US dollars)

|                                                                                              |  |              |            |        |   |                              |  |                                           |            |   |                    |           |                              |   |         |  |   |            |   |   |            |  
|--------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ------ | - | ---------------------------- |  | ----------------------------------------- | ---------- | - | ------------------ | --------- | ---------------------------- | - | ------- |  | - | ---------- | - | - | ---------- | -
|                                                                                              |  | Common Stock |            |        |   |                              |  | Accumulated
 Other
 Comprehensive
 Income |            |   |                    |           |                             
|                                                                                              |  | Shares       |            | Amount |   | Additional
 Paid-in
 Capital |  | Statutory
 Reserve                        |            |   | Retained
 Earnings |           | Total
 Shareholders
 Equity |  
|Balance as of December 31, 2009                                                               |  |              | 24,402,278 |        | $ | 9,370                        |  | $                                         | 4,400,435  |   | $                  | 1,329,032 |                              | $ | 241,438 |  | $ | 7,531,177  |   | $ | 13,511,452 |  
|Issuance of 332,759 shares in connection
 with the share exchange transaction on May 24, 2010 |  |              | 332,759    |        |   | 128                          |  |                                           |           |   |                    |          |                              |   |        |  |   |           |   |   | 128        |  
|Issuance of 915,085 shares to Maxim Group
 on May 17, 2010                                    |  |              | 915,085    |        |   | 351                          |  |                                           | 29,649     |   |                    |          |                              |   |        |  |   |           |   |   | 30,000     |  
|Issuance of 2,079,740 shares to Eastbridge
 Investment Corporation on May 17, 2010            |  |              | 2,079,740  |        |   | 799                          |  |                                           |           |   |                    |          |                              |   |        |  |   |           |   |   | 799        |  
|Issuance of 6,000,000 shares on September
 16, 2010                                           |  |              | 6,000,000  |        |   | 2,304                        |  |                                           | 9,597,696  |   |                    |          |                              |   |        |  |   |           |   |   | 9,600,000  |  
|Stock issuance cost related to the private
 placement on September 16, 2010                   |  |              |           |        |   |                             |  |                                           | (504,600   | ) |                    |          |                              |   |        |  |   |            |   |   | (504,600   | )
|Net income for the year                                                                       |  |              |           |        |   |                             |  |                                           |           |   |                    |          |                              |   |        |  |   | 10,301,196 |   |   | 10,301,196 |  
|Allocation of retained earnings to
 statutory reserve                                         |  |              |           |        |   |                             |  |                                           |           |   |                    | 1,069,432 |                              |   |        |  |   | (1,069,432 | ) |   |           |  
|Foreign currency translation adjustment                                                       |  |              |           |        |   |                             |  |                                           |           |   |                    |          |                              |   | 721,997 |  |   |           |   |   | 721,997    |  
|                                                                                              |  |              |            |        |   |                              |  |                                           |            |   |                    |           |                              |   |         |  |   |            |   |   |            |  
|                                                                                              |  |              |            |        |   |                              |  |                                           |            |   |                    |           |                              |   |         |  |   |            |   |   |            |  
|Balance as of December 31, 2010                                                               |  |              | 33,729,862 |        | $ | 12,952                       |  | $                                         | 13,523,180 |   | $                  | 2,398,464 |                              | $ | 963,435 |  | $ | 16,762,941 |   | $ | 33,660,972 |  
|                                                                                              |  |              |            |        |   |                              |  |                                           |            |   |                    |           |                              |   |         |  |   |            |   |   |            |  

The accompanying notes are an integral part
of these financial statements.

76

---



Tsingda eEDU Corporation
Consolidated Statement of Shareholders Equity
(Stated in US dollars)

|                                                                       |  |               |            |        |   |                             |   |                                          |            |   |                    |                              |  |   |           |  |   |            |  |   |            |  
|---------------------------------------------------------------------- |  | ------------- | ---------- | ------ | - | --------------------------- | - | ---------------------------------------- | ---------- | - | ------------------ | ---------------------------- |  | - | --------- |  | - | ---------- |  | - | ---------- | -
|                                                                       |  | Common Stock  |            |        |   |                             |   | Accumulated Other
 Comprehensive
 Income |            |   |                    | Total
 Shareholders
 Equity | 
|                                                                       |  | No. of Shares |            | Amount |   | Additional Paid-in
 Capital |   | Statutory
 Reserve                       |            |   | Retained
 Earnings |                              | 
|                                                                       |  |               |            |        |   |                             |   |                                          |            |   |                    |                              |  |   |          
|Balance as of December 31, 2010                                        |  |               | 33,729,862 |        | $ | 12,952                      |   | $                                        | 13,523,180 |   | $                  | 2,398,464                    |  | $ | 963,435   |  | $ | 16,762,941 |  | $ | 33,660,972 |  
|Net income for year ended December 31, 2011                            |  |               |           |        |   |                            |   |                                          |           |   |                    |                             |  |   |          |  |   | 13,172,402 |  |   | 13,172,402 |  
|Issuance of 900,000 shares to the
 management on April 29, 2011        |  |               | 900,000    |        |   | 346                         |   |                                          | 1,439,654  |   |                    |                             |  |   |          |  |   |           |  |   | 1,440,000  |  
|Stock based compensation cost                                          |  |               |           |        |   |                            |   |                                          | 8,465      |   |                    |                             |  |   |          |  |   |           |  |   | 8,465      |  
|Foreign currency translation adjustment                                |  |               |           |        |   |                            |   |                                          |           |   |                    |                             |  |   | 1,874,495 |  |   |           |  |   | 1,874,495  |  
|Private placement on July 12, 2011                                     |  |               | 3,000,000  |        |   | 1,152                       |   |                                          | 13,678,848 |   |                    |                             |  |   |          |  |   |           |  |   | 13,680,000 |  
|Stock issuance cost related to the private
 placement on July 12, 2011 |  |               |           |        |   |                            |   |                                          | (1,394,400 | ) |                    |                             |  |   |          |  |   |           |  |   | (1,394,400 | )
|Shares repurchased and retired on August
 21, 2011                     |  |               | (1,875,000 | )      |   | (720                        | ) |                                          | (6,186,780 | ) |                    |                             |  |   |          |  |   |           |  |   | (6,187,500 | )
|                                                                       |  |               |            |        |   |                             |   |                                          |            |   |                    |                              |  |   |           |  |   |            |  |   |            |  
|Balance as of December 31, 2011                                        |  |               | 35,754,862 |        | $ | 13,730                      |   | $                                        | 21,068,967 |   | $                  | 2,398,464                    |  | $ | 2,837,930 |  | $ | 29,935,343 |  | $ | 56,254,434 |  
|                                                                       |  |               |            |        |   |                             |   |                                          |            |   |                    |                              |  |   |           |  |   |            |  |   |            |  

The accompanying notes are an integrated part
of these unaudited consolidated financial statements

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TSINGDA EEDU CORPORATION
Consolidated Statements of Cash Flows
(Stated in US dollars)

|                                                                                   |  |                                 |             |      |   |             |  
|---------------------------------------------------------------------------------- |  | ------------------------------- | ----------- | ---- | - | ----------- | -
|                                                                                   |  | For the years ended December 31 |            
|                                                                                   |  |                                 |            
|                                                                                   |  | 2011                            |             | 2010 |  
|                                                                                   |  |                                 |             |      |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                               |  |                                 |             |      |   |             |  
|Net income                                                                         |  | $                               | 13,172,402  |      | $ | 10,301,196  |  
|                                                                                   |  |                                 |             |      |   |             |  
|Adjustments to reconcile net income to net
 cash provided by operating activities: |  |                                 |             |      |   |             |  
|Depreciation and amortization                                                      |  |                                 | 6,362,354   |      |   | 2,356,930   |  
|Share-based compensation costs                                                     |  |                                 | 1,448,465   |      |   |            |  
|Deferred tax assets                                                                |  |                                 | 31,520      |      |   | (222,237    | )
|Changes in operating assets and
 liabilities:                                      |  |                                 |             |      |   |             |  
|Accounts receivable                                                                |  |                                 | (10,080,719 | )    |   | (2,196,217  | )
|Advances to suppliers                                                              |  |                                 | (3,243,725  | )    |   | (4,488,039  | )
|Other receivables                                                                  |  |                                 | (223,282    | )    |   | (689,354    | )
|Inventories                                                                        |  |                                 | (321,628    | )    |   | 41,817      |  
|Accounts payable                                                                   |  |                                 | 931,654     |      |   | 267,110     |  
|Customer deposit                                                                   |  |                                 | 1,305,729   |      |   | 1,364,028   |  
|Accrued and other liabilities                                                      |  |                                 | 220,909     |      |   | (276,039    | )
|Deferred revenue                                                                   |  |                                 | (204,915    | )    |   | 1,449,454   |  
|Taxes payable                                                                      |  |                                 | 4,358,164   |      |   | 3,063,977   |  
|                                                                                   |  |                                 |             |      |   |             |  
|CASH PROVIDED BY OPERATING ACTIVITIES                                              |  |                                 | 13,756,928  |      |   | 10,972,626  |  
|                                                                                   |  |                                 |             |      |   |             |  
|                                                                                   |  |                                 |             |      |   |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                               |  |                                 |             |      |   |             |  
|Purchase of property, plant and equipment                                          |  |                                 | (8,516,217  | )    |   | (8,673,220  | )
|Sales of property, plant and equipment                                             |  |                                 | 66,657      |      |   |            |  
|Addition of intangible assets                                                      |  |                                 | (10,767,007 | )    |   | (4,006,992  | )
|Payments for leasehold improvements not
 completed                                 |  |                                 | 4,374,136   |      |   | (6,461,403  | )
|Cash payment for acquisition deposit                                               |  |                                 | (2,760,000  | )    |   |            |  
|Cash payment for equity investment deposit                                         |  |                                 | (1,000,000  | )    |   |            |  
|Cash received for short-term investment
 matured                                   |  |                                 |            |      |   | 2,068,100   |  
|Advances/loans to related parties                                                  |  |                                 | (3,018,228  | )    |   |            |  
|Collection of advances/loan to related
 parties                                    |  |                                 | 134,691     |      |   | 443,419     |  
|                                                                                   |  |                                 |             |      |   |             |  
|CASH USED IN INVESTING ACTIVITIES                                                  |  |                                 | (21,485,968 | )    |   | (16,630,096 | )
|                                                                                   |  |                                 |             |      |   |             |  
|                                                                                   |  |                                 |             |      |   |             |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                               |  |                                 |             |      |   |             |  
|Proceeds from stock issuance                                                       |  |                                 | 13,680,000  |      |   | 9,630,927   |  
|Cash paid to repurchase shares                                                     |  |                                 | (6,187,500  | )    |   |            |  
|Payment for stock issuance cost                                                    |  |                                 | (1,394,400  | )    |   | (504,600    | )
|Payment in the escrow account                                                      |  |                                 |            |      |   | (520,000    | )
|Cash collection from the escrow account                                            |  |                                 | 420,000     |      |   |            |  
|                                                                                   |  |                                 |             |      |   |             |  
|CASH PROVIDED BY FINANCING ACTIVITIES                                              |  |                                 | 6,518,100   |      |   | 8,606,327   |  
|                                                                                   |  |                                 |             |      |   |             |  
|Effect of exchange rate changes on cash and
 cash equivalents                      |  |                                 | 287,286     |      |   | 678,712     |  
|                                                                                   |  |                                 |             |      |   |             |  
|NET INCREASE (DECREASE) IN CASH                                                    |  |                                 | (923,654    | )    |   | 3,627,569   |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF
 YEAR                                    |  | $                               | 4,086,214   |      | $ | 458,645     |  
|                                                                                   |  |                                 |             |      |   |             |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                           |  | $                               | 3,162,560   |      | $ | 4,086,214   |  
|                                                                                   |  |                                 |             |      |   |             |  
|                                                                                   |  |                                 |             |      |   |             |  
|Supplementary Disclosures for Cash Flow
 Information:                              |  |                                 |             |      |   |             |  
|Income taxes paid                                                                  |  | $                               | 163,107     |      | $ | 138,709     |  
|                                                                                   |  |                                 |             |      |   |             |  

The accompanying notes are an integral part
of these financial statements.

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2011

NOTE 1- ORGANIZATION AND BUSINESS OPERATIONS

Tsingda
Century Investment Consultant of Education Co., Ltd. (Tsingda Century) was
incorporated on October 23, 2003, in Beijing, the Peoples Republic of China
(the PRC). Beijing Tsingda Century Network Technology Co., Ltd. (Tsingda
Network), the wholly owned subsidiary of Tsingda Century was incorporated in
the PRC on February 14, 2004. Tsingda Century and its subsidiary provide high
quality offline and online educational services for students ranging from six
to eighteen years of age in the PRC. Tsingda eEDU Corporation (Tsingda eEDU
or the Company, formerly Compass Acquisition Corporation) was incorporated
in the Cayman Islands on September 27, 2006. The Company was originally
organized as a blank check company to identify and acquire a target company
or business seeking the advantages of being a publicly held corporation.

Tsing Da
Century Education Technology Co., Ltd. (Tsingda Technology) was incorporated
on December 11, 2009, in the British Virgin Islands, to serve as the
intermediate holding company.

Tsingda
Century Beijing Management Consulting Co., Ltd. (Tsingda Management) was
incorporated on November 26, 2007 and was serving as the wholly owned foreign
enterprise (WOFE) of Tsingda Technology.

On April 22,
2010, Tsingda Century Training School (Tsingda School) was incorporated in
Beijing, the PRC, and it is a wholly owned subsidiary of Tsingda Century.

On September
23, 2011, Family Baby Kindergarten (Family Baby) was incorporated in Beijing,
the PRC, and it is a wholly owned subsidiary of Tsingda Century.

As part of the
restructuring, on April 26, 2010, Tsingda Management entered into a series of
agreements with Tsingda Century and its shareholders, including an Operating
Agreement, Proxy Agreement, Consulting Services Agreement, Equity Pledge
Agreement and Option Agreement, which entitled Tsingda Management to receive
substantially all of the economic benefits of Tsingda Century in consideration
for consulting services provided by Tsingda Management to Tsingda Century. An
Option Agreement allows Tsingda Management to acquire the shares of Tsingda
Century when permitted by the PRC laws. The Proxy Agreement provides Tsingda
Management with the voting rights of Tsingda Centurys shareholder and Equity
Pledge Agreement pledges the shares in Tsingda Century to Tsingda Management
without transferring legal ownership in Tsingda Century to Tsingda Management.
Under the Consulting Services Agreement, Tsingda Management is the exclusive
service provider, to Tsingda Century, for services, including general business
operation, human resources, business development and Tsingda Century is
obligated to make regular payments for such services provided. Under the
Operating Agreement, Tsingda Century shall not conduct any transactions which
may materially affect the assets, obligations, rights or the operations,
without the written consent of Tsingda Management and Tsingda Century accepted
Tsingda Managements corporate policy provide by Tsingda Management in
connection with Tsingda Centurys daily operations, financial management and
the employment and dismissal of Tsingda Centurys employees. Through those
agreements, Tsingda Management has the power to direct the activities that most
significantly impact the economic performance of Tsingda Century and Tsingda
Century became a variable interest entity (VIE) and is included in the
consolidated group.

As all of the
companies are under common control, this structure has been accounted for as a
reorganization of entities under common control and the financial statements
have been prepared as if the reorganization had occurred retroactively.

On May 24,
2010, the Company and its controlling shareholders entered into a share
exchange agreement (the Agreement) with Tsingda Technology and all of the
shareholders of Tsingda Technology. Under the Agreement, the Company acquired
100% of the outstanding equity interests of Tsingda Technology in exchange for
244,022.78 preferred shares of the Company. Each such share of preferred stock
was convertible into 100 ordinary shares of the

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Company at
such time as the number of authorized ordinary shares is increased. The
transaction was closed in May 2010 and was accounted for as a reverse merger
with a shell company and a recapitalization of Tsingda Technology. Tsingda eEDU
Corporation is the accounting acquiree. Tsingda Tecknology is the accounting
acquirer and the surviving entity

On November
15, 2010, the Companys shareholders approved the change of the Companys name
from Compass Acquisition Corporation to Tsingda eEDU Corporation and the
name change is effective immediately following the shareholders approval.

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued) 
For the years ended December 31, 2010 and 2011

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

BASIS OF PRESENTATION

The
accompanying consolidated financial statements have been prepared in accordance
with U.S, Generally Accepted Accounting Principles (US GAAP).The Companys
functional currency is the Chinese Renminbi (RMB); however the accompanying
financial statements have been translated and presented in United States
Dollars ($).

BASIS OF CONSOLIDATION

The
accompanying consolidated financial statements include the accounts of the
Company, and its wholly owned subsidiaries, (Tsingda Technology, and Tsingda
Management), and Tsingda Century and its subsidiaries, Tsingda Network and
Tsingda Century Training School. All intercompany balances and transactions
have been eliminated in consolidation.

USE OF ESTIMATES

The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. Significant items subject to such estimates and assumptions include
the useful lives of fixed assets; the allowance for doubtful accounts; the fair
value determination of financial and equity instruments, the reliability of
deferred tax assets; the recoverability of, intangible asset and property,
plant and equipment; and accruals for income tax uncertainties and other
contingencies. The current economic environment has increased the degree of
uncertainty inherent in those estimates and assumptions.

RISKS AND UNCERTAINTIES

Tsingda
Century and Tsingda Network operate under the authority of business licenses
which were granted in 2003, and expire in 2023. Renewal of these licenses will
depend on the result of government inspections which are made to ensure
environmental laws are not breached.

The officers
of the Company control through direct ownership of most of the equity interests
of the Company. As a result, insiders will be able to control the outcome of
all matters requiring approval of equity owners and will be able to elect all
of the Company directors.

CASH AND CASH EQUIVALENTS

The Company
considers all cash on hand and in banks, including accounts in book overdraft
positions, certificates of deposit and other highly-liquid investments with
original maturity of three months or less, when purchased, to be cash and cash
equivalents. The Company maintains cash with various banks and trust companies
located in China. Cash accounts are not insured or otherwise protected. Should
any bank or trust company holding cash deposits become insolvent, or if the
Company is otherwise unable to withdraw funds, the Company would lose the cash
on deposit with that particular bank or trust company.

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ACCOUNTS RECEIVABLE AND ALLOWANCE FOR
DOUBTFUL ACCOUNTS

Accounts
receivable are recognized and carried at the invoiced amount less an allowance
for uncollectible accounts, as needed. In establishing the required allowance,
management considers historical losses adjusted to take into account current
market conditions and the customers financial condition, the amount of
receivables in dispute, and the current receivables aging and current payment
patterns. The Company reviews its allowance for doubtful accounts monthly. Past
due balances are reviewed individually for collectability. Account balances are
charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.

ADVANCE TO SUPPLIERS

Advance to
suppliers represents the payments made and recorded in advance for goods and
services to be received. The Company makes advances to suppliers for advertising,
printing and other services and products.

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued) 
For the years ended December 31, 2010 and 2011

FAIRE VALUE OF FINANCIAL INSTRUMENTS

The carrying
amounts of the Companys financial instruments, which include cash, short term
investments, accounts receivable and other receivables, advances to suppliers,
accounts payable, accrued liabilities, and other liabilities, approximate their
fair values at December 31, 2011 and 2010.

PROPERTY AND EQUIPMENT

Property and
equipment are stated at cost less accumulated depreciation. Depreciation on
property and equipment other than leasehold improvements is calculated on the
straight-line method over the estimated useful lives of the assets as set out
below:

|                                |                |   |  |                       | 
|------------------------------- | -------------- | - |  | --------------------- | 
|                                | Residual Value |   |  | Estimated Useful Life | 
|                                |                |   |  |                       | 
|Office
 furniture and equipment | 5              | % |  | 5 years               | 
|Vehicles                        | 5              | % |  | 5 years               | 

INTANGIBLE ASSETS

Intangibles
are the cost of computerized video lessons delivered both online and offline
developed by the Company and the acquired intangible assets with finite lives
consist of courseware. All costs incurred to establish the technological
feasibility of a computer software product to be sold, leased, or otherwise
marketed are charged to expenses as incurred. Development costs incurred after
technological feasibility of a product has been established and before product
sales begin are capitalized and amortized over the estimated life of the
product, which thus far has been three years, starting when product sales
begin. Technological feasibility is deemed to have been achieved when all the
planning, designing, coding, and testing activities necessary to establish that
the product can be produced to meet its design specifications have been completed,
including functions, features, and technical performance requirements. Acquired
coursewares with finite lives are carried at cost, less accumulated
amortization and impairment. Amortization of acquired coursewares is calculated
on a straight-line basis over three years.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance
with Impairment or Disposal of Long-Lived Assets Subsections of FASB ASC
Subtopic 360-10, Property, Plant, and
Equipment - Overall, long-lived assets, such as property, plant and
equipment, and purchased intangible assets subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If circumstances
require a long-lived asset or asset group be tested for possible impairment,
the Company first compares undiscounted cash flows expected to be generated by
that asset or asset group to its carrying value. If the carrying value of the
long-lived asset or asset group is not recoverable on an undiscounted cash flow
basis, impairment is recognized to the extent that the carrying value exceeds
its fair value. Fair value is determined through various valuation techniques
including discounted cash flow models, quoted market values and third-party independent
appraisals, as considered necessary.

CUSTOMER DEPOSITS

The Company
required certain amount of deposits from its customers and franchised
locations. The customer deposits are recorded as a liability when the Company
receives it and will be recognized as revenue after the service is rendered.

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued) 
For the years ended December 31, 2010 and 2011

REVENUE RECOGNITION

Online Courses

The Company
provides online education programs to its franchisees, agents and individual
customers. Revenue is realized through sales to franchisees and other agents of
rights to conduct education services. The Company authorized the franchised
locations to use its logo, all education programs and products and the Company
receives a onetime licensing fee, annual management fee, and 20% of student
generated revenue from the franchised location by providing them prepaid
e-cards of 5 times the cash amount. All the mentioned fees are revenues or unearned
revenues from the sale of e-cards. Revenue is recognized from each e-card sale
as that e-card is used by a student to purchase online education courses, and
is reported net of business tax. For example, if 10% of the value of an e-card
is used, the Company recognizes such 10% as revenue and the remaining value of
the e-card is not recognized as revenue until used by the student. The opening
of cards is tracked by our IT system automatically and the revenue is
proportionally recognized based on the progress of the e-cards usage.

Virtual Internet Classroom

The Company
sold prepaid e-cards to the customers. Revenue is recognized from each e-card
sale as that e-card is used by a student to purchase online education courses,
and is reported net of business tax. For example, if 10% of the value of an
e-card is used, the Company recognizes such 10% as revenue and the remaining
value of the e-card is not recognized as revenue until used by the student. The
opening of cards is tracked by our IT system automatically and the revenue is
proportionally recognized based on the progress of the e-cards usage.

Sales of Materials and Publications

The Company
started the sales of self-branded reference books and materials from August
2010. The revenue is recognized when the products are delivered to the
customers.

Offline courses

Offline
tutorial courses are provided by Tsingda Century Training School (Tsingda
School or referred as Huanggang Experimental School) and by the Company
owned learning centers. The revenue is recognized based on the progress of
courses the students completed during the year

ADVERTISING

The Company
expenses advertising costs as incurred. Advertising is included in selling
expenses for financial reporting. The Company incurred advertising costs of
$4,442,589 and $3,150,215 for the years ended December 31, 2011 and 2010,
respectively.

INCOME TAXES

Income taxes
are accounted for under the asset and liability method pursuant to ASC 740
Income Taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and tax loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the consolidated
statements of income in the period that includes the enactment date. A
valuation allowance is provided to reduce the amount of

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deferred tax
assets if it is considered more likely than not that some portion or all of the
deferred tax assets will not be realized.

ASC 740-10-25
clarifies the accounting for uncertain tax positions and requires that an
entity recognizes in the consolidated financial statements the impact of a tax
position, if that position is more likely than not of being sustained upon
examination, based on the technical merits of the position. Recognized income
tax positions are measured at the largest amount that is greater than 50%
likely of being realized. Changes in recognition or measurement are reflected
in the period in which the change in judgment occurs. The Company has elected
to classify interest and penalties related to unrecognized tax benefits, if and
when required, as a component of income tax expense in the consolidated
statements of income.

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued)
For the years ended December 31, 2010 and 2011

OTHER TAXES

The Company
generates its income in China where Business Tax, Income Tax, City Construction
and Development Tax, and Education Surcharge taxes are applicable.

EARNINGS PER SHARE

Basic earnings
per share are computed by dividing net income by weighted average number of
shares of common stock outstanding during each period. Diluted earnings per
share is computed by dividing net income by the weighted average number of
shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during each period.

The Companys
board of directors approved a three-for-one reverse stock split (the Reverse
Stock Split) of the Companys outstanding common stock on October 19, 2010.
References to shares in the consolidated financial statements and the
accompanying notes, including, but not limited to, the number of shares and per
share amounts, have been adjusted to reflect the Reverse Stock Split on a
retroactive basis.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

The financial
position and results of operations of the Companys subsidiaries in the PRC are
measured using the Chinese currency Renminbi as the functional currency, while
the Companys reporting currency is the US dollar. Balance sheet accounts with
exception of equity of the subsidiaries are translated at the prevailing
exchange rate in effect at each period end, income statement accounts are translated
at the average rate of exchange during the period, and equity accounts were
stated at their historical exchange rate. Exchange gains or losses arising from
foreign currency transactions are included in the determination of net income
(loss) for the respective periods. Translation adjustments are included in the
accumulated other comprehensive income in the consolidated statements of
shareholders equity and comprehensive income.

COMPREHENSIVE INCOME

The Company
has adopted ASC220, Reporting Comprehensive Income, which establishes standards
for reporting and displaying comprehensive income, its components, and
accumulated balances in a full-set of general-purpose financial statements. The
Companys accumulated other comprehensive income represents the accumulated
balance of foreign currency translation adjustments.

FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820 Fair
Value Measurements and Disclosures, adopted January 1, 2008, defines fair
value, establishes a three-level valuation hierarchy for disclosures of fair
value measurement and enhances disclosure requirements for fair value measures.
The carrying amounts reported in the balance sheets for current receivables and
payables qualify as financial instruments. Management concluded the carrying
values are a reasonable estimate of fair value because of the short period of
time between the origination of such instruments and their expected realization
and if applicable, their stated interest rate approximates current rates
available. The three levels are defined as follows:

| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 1 -
 inputs to the valuation methodology are quoted prices (unadjusted) for
 identical assets or liabilities in active markets.                                                                                      
| |   |                                                                                                                                                                                                                            
| |  | Level 2 -
 inputs to the valuation methodology include quoted prices for similar assets
 and liabilities in active markets, and inputs that are observable for the
 assets or liability, either directly or indirectly, for

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| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |   | substantially
 the full term of the financial instruments.                                         
| |   |                                                                                                    
| |  | Level 3 -
 inputs to the valuation methodology are unobservable and significant to the
 fair value.

It is
managements opinion that as of December 31, 2011 and 2010, the estimated fair
values of the financial instruments were not materially different from their
carrying values as presented on the balance sheet. This is attributed to the
short maturities of the instruments and that interest rates on the borrowings
approximate those that would have been available for loans of similar remaining
maturity and risk profile at respective balance sheet dates. The carrying
amounts of short-term loans approximate their fair values because the
applicable interest rates approximate current market rates.

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued) 
For the years ended December 31, 2010 and 2011

RELATED PARTIES

A party is
considered to be related to the Company if the party directly or indirectly or
through one or more intermediaries, controls, is controlled by, or is under
common control with the Company. Related parties also include principal owners
of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the
Company may deal if one party controls or can significantly influence the
management or operating policies of the other to an extent that one of the
transacting parties might be prevented from fully pursuing its own separate
interests. A party which can significantly influence the management or
operating policies of the transacting parties or if it has an ownership
interest in one of the transacting parties and can significantly influence the
other to an extent that one or more of the transacting parties might be
prevented from fully pursuing its own separate interests is also a related party.

PRODUCTS WARRANTIES

Refunds to
students who withdraw from offline tutorial courses are rarely made and are
made only at the discretion of the Company. For this reason and, since revenue
is recognized only as services are provided, no provision is needed for
possible withdrawals.

SEGMENT REPORTING

The Company uses the
management approach in determining reportable operating segments. The
management approach considers the internal organization and reporting used by
the Companys chief operating decision maker for making operating decisions and
assessing performance as the source for determining the Companys reportable
segments. The Companys chief operating decision maker has been identified as
the chief executive officer of the Company who reviews financial information of
separate operating segments based on US GAAP. The chief operating decision
maker now reviews results analyzed by service line. This analysis is only
presented at the revenue level with no allocation of direct or indirect costs.
Consequently, the Company has determined that it has only one operating
segment.

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued)
For the years ended December 31, 2010 and 2011

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Management
believes that none of the recently adopted accounting pronouncements will have
a material effect on the Company financial position, results of operations, or
cash flows.

In December
2009, the FASB codified Consolidations  Improvements to Financial Reporting
by Enterprises Involved with VIEs (ASU 2009-17), guidance which was issued by
the FASB in June 2009. The amendments in this Accounting Standards Update
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 the power to direct the activities of a variable interest
entity that most significantly impact the entitys economic performance and has
(1) the obligation to absorb losses of the entity or (2) the right to
receive benefits from the entity. An approach that is expected to be primarily
qualitative will be more effective for identifying which reporting entity has a
controlling financial interest in a variable interest entity. The adoption of
this standard will have no material impact on the Companys consolidated
financial statements.

In May 2011,
the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments
to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRS. The guidance in ASU 2011-04 changes the wording used to describe
the requirements in U.S. GAAP for measuring fair value and for disclosing
information about fair value measurements, including clarification of the
FASBs intent about the application of existing fair value and disclosure
requirements and changing a particular principle or requirement for measuring
fair value or for disclosing information about fair value measurements. The
amendments in this ASU should be applied prospectively and are effective for
interim and annual periods beginning after December 15, 2011. Early adoption by
public entities is not permitted. The adoption of this guidance is not expected
to have a material impact on the Companys financial position or results of
operations.

In June 2011,
the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation
of Comprehensive Income. The guidance in ASU 2011-05 applies to both annual and
interim financial statements and eliminates the option for reporting entities
to present the components of other comprehensive income as part of the
statement of changes in stockholders equity. This ASU also requires
consecutive presentation of the statement of net income and other comprehensive
income. Finally, this ASU requires an entity to present reclassification
adjustments on the face of the financial statements from other comprehensive
income to net income. The amendments in this ASU should be applied
retrospectively and are effective for fiscal year, and interim periods within
those years, beginning after December 15, 2011. Early adoption is permitted.
The adoption of this guidance is not expected to have a material impact on the
Companys financial position or results of operations.

NOTE 3  ACCOUNTS RECEIVABLE

As of December
31, 2011 and 2010, accounts receivable consisted of the following:

|                                 |  |                    |            |                    |   |           | 
|-------------------------------- |  | ------------------ | ---------- | ------------------ | - | --------- | 
|                                 |  | December 31,
 2011 |            | December 31,
 2010 |  
|                                 |  |                    |            |                    |  
|                                 |  |                    |            |                    |   |           | 
|Accounts
 receivable             |  | $                  | 16,971,480 |                    | $ | 6,555,936 | 
|Allowance
 for doubtful accounts |  |                    |           |                    |   |          | 
|                                 |  |                    |            |                    |   |           | 
|Accounts receivable, net         |  | $                  | 16,971,480 |                    | $ | 6,555,936 | 
|                                 |  |                    |            |                    |   |           | 

89

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued)
For the years ended December 31, 2010 and 2011

The change in
the allowance for doubtful accounts is as follows:

|                              |  |                    |   |                    |   |          |  
|----------------------------- |  | ------------------ | - | ------------------ | - | -------- | -
|                              |  | December 31,
 2011 |   | December 31,
 2010 |  
|                              |  |                    |   |                    |  
|                              |  |                    |   |                    |   |          |  
|Beginning balance             |  | $                  |  |                    | $ | 301,001  |  
|Provision
 during the period  |  |                    |  |                    |   |         |  
|Collection
 during the period |  |                    |  |                    |   | (301,001 | )
|                              |  |                    |   |                    |   |          |  
|Ending balance                |  | $                  |  |                    | $ |         |  
|                              |  |                    |   |                    |   |          |  

NOTE 4 - ADVANCES TO SUPPLIERS

Advances to
suppliers represent amounts prepaid for advertising, network, rent, store
construction and decoration:

|                                      |  |                    |            |                    |   |           | 
|------------------------------------- |  | ------------------ | ---------- | ------------------ | - | --------- | 
|                                      |  | December 31,
 2011 |            | December 31,
 2010 |  
|                                      |  |                    |            |                    |  
|Advance for
 advertising and printing |  | $                  | 7,233,400  |                    | $ | 3,466,970 | 
|Advance for
 network service          |  |                    | 1,794,569  |                    |   | 2,304,492 | 
|Others                                |  |                    | 3,138,045  |                    |   | 2,717,289 | 
|                                      |  |                    |            |                    |   |           | 
|Total                                 |  | $                  | 12,166,014 |                    | $ | 8,488,751 | 
|                                      |  |                    |            |                    |   |           | 

NOTE 5 - PREPAYMENTS FOR INVESTMENTS AND
ACQUISITION

On August 10,
2011, the Company entered into a definitive Shares Investment Agreement (the
Acquisition Agreement) with Beijing Yiying Angel Education Consulting Co.,
Ltd. (Yiying Angel) and Ms. Yitong Chen, the owner of Yiying Angel, to
acquire 70% of the equity interest of Yiying Angel for consideration of
$2,800,000 and 200,000 Company options to purchase ordinary shares at an
exercise price of $5 per share to be granted to Ms. Yitong Chen. As of December
31, 2011, the Company paid $2,760,000 as the deposit and the options have not
been granted.

On November 1,
2011, the Company entered into a cooperation agreement with Beijing ShangXue
Educational Technology Co. (Shangxue) to purchase 80% of the equity interest
of Shangxue for $1,800,000. As of December 31, 2011, the Company has paid
$1,000,000 as the deposit.

|                                                 |  |                    |           |                    |   |   | 
|------------------------------------------------ |  | ------------------ | --------- | ------------------ | - | - | 
|                                                 |  | December 31,
 2011 |           | December 31,
 2010 |  
|                                                 |  |                    |           |                    |  
|                                                 |  |                    |           |                    |   |   | 
|Prepayment
 for acquisition of Yiying Angel      |  | $                  | 2,760,000 |                    | $ |  | 
|Prepayment
 for investment in ShangXue Education |  |                    | 1,000,000 |                    |   |  | 
|                                                 |  |                    |           |                    |   |   | 
|                                                 |  |                    |           |                    |   |   | 
|Total                                            |  | $                  | 3,760,000 |                    | $ |  | 
|                                                 |  |                    |           |                    |   |   | 

90

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TSINGDA EEDU CORPORATION
Notes to the Consolidated Financial Statements (Continued)
For the years ended December 31, 2010 and 2011

NOTE 7- PROPERTYAND EQUIPMENT, NET

Property and
equipment at December 31, 2011 and 2010 consisted of the following:

|                                  |  |                    |            |                    |   |            |  
|--------------------------------- |  | ------------------ | ---------- | ------------------ | - | ---------- | -
|                                  |  | December 31,
 2011 |            | December 31,
 2010 |  
|                                  |  |                    |            |                    |  
|                                  |  |                    |            |                    |   |            |  
|Office
 furniture                 |  | $                  | 16,569     |                    | $ | 7,595      |  
|Office
 equipment                 |  |                    | 6,764,868  |                    |   | 3,710,405  |  
|Vehicles                          |  |                    | 126,558    |                    |   | 143,017    |  
|Leasehold
 improvement            |  |                    | 10,798,811 |                    |   | 1,152,683  |  
|Construction
 in progress         |  |                    | 2,925,436  |                    |   | 6,844,359  |  
|                                  |  |                    |            |                    |   |            |  
|Total
property and equipment      |  |                    | 20,632,242 |                    |   | 11,858,059 |  
|                                  |  |                    |            |                    |   |            |  
|                                  |  |                    |            |                    |   |            |  
|Accumulated
 depreciation         |  |                    | (3,997,268 | )                  |   | (1,205,229 | )
|                                  |  |                    |            |                    |   |            |  
|                                  |  |                    |            |                    |   |            |  
|Total
property and equipment, net |  | $                  | 16,634,974 |                    | $ | 10,652,830 |  
|                                  |  |                    |            |                    |   |            |  

Depreciation
expense for the years ended December 31, 2011 and 2010 were allocated to the
following expense items respectively:

|                            |  |                    |           |                    |   |         | 
|--------------------------- |  | ------------------ | --------- | ------------------ | - | ------- | 
|                            |  | December 31,
 2011 |           | December 31,
 2010 |  
|                            |  |                    |           |                    |  
|                            |  |                    |           |                    |   |         | 
|Cost of
 goods sold         |  | $                  | 1,743,671 |                    | $ | 101,880 | 
|Selling
 expense            |  |                    | 13,715    |                    |   | 1,399   | 
|General and
 administrative |  |                    | 919,766   |                    |   | 643,321 | 
|                           
|                            |  |                    |           |                    |   |         | 
|Total                       |  | $                  | 2,677,152 |                    | $ | 746,600 | 
|                            |  |                    |           |                    |   |         | 

NOTE 8  INTANGIBLE ASSETS, NET

Intangible
assets at December 31, 2011 and 2010 consisted of the following:

|                           |  |                    |            |                    |   |            |  
|-------------------------- |  | ------------------ | ---------- | ------------------ | - | ---------- | -
|                           |  | December 31,
 2011 |            | December 31,
 2010 |  
|                           |  |                    |            |                    |  
|                           |  |                    |            |                    |   |            |  
|Self-developed
 courseware |  | $                  | 579,021    |                    | $ | 379,435    |  
|Purchased
 courseware      |  |                    | 17,686,864 |                    |   | 6,507,896  |  
|Management
 software       |  |                    | 933,403    |                    |   | 874,610    |  
|Purchased
 technology      |  |                    | 158,707    |                    |   | 150,996    |  
|                           |  |                    |            |                    |   |            |  
|Intangible
assets, total   |  |                    | 19,357,995 |                    |   | 7,912,937  |  
|Accumulated
 amortization  |  |                    | (6,557,350 | )                  |   | (2,890,954 | )
|                           |  |                    |            |                    |   |            |  
|Intangible
assets, net     |  | $                  | 12,800,645 |                    | $ | 5,021,983  |  
|                           |  |                    |            |                    |   |            |  

91

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The
amortization expenses for the years ended December 31, 2011 and 2010 were $
3,431,450 and $1,610,330 respectively.

NOTE 9  DUE FROM THE RELATED PARTY

On August 5,
2011, the Company entered into a definitive Investment Agreement (the
Investment Agreement) with Mr. Guozhen Zhou, an executive of the Company (the
Vice President of the Company) and also the founder of Asia Outstanding
Students Admissions Union Ltd. (AOSA), a Company registered in British
Columbia, Canada. Under the Investment Agreement, Tsingda agreed to pay Mr.
Zhou $3,000,000, to acquire 55% of the total outstanding equity interests of
AOSA. As of December 31, 2011, the Company paid $3,000,000 to Mr. Gouzhen Zhou.
As of March 30, 2012, $2,900,000 has been paid back by Mr. Gouzhen Zhou since
the transaction has not been closed.

92

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued)
For the years ended December 31, 2010 and 2011

NOTE 10  PRIVATE PLACEMENT

On September
16, 2010, the Company entered into a Securities Purchase Agreement (Securities
Purchase Agreement) with certain investors (Investors) pursuant to which the
Company completed an offering (Offering) of units (Units) for total gross
proceeds of $9,600,000. Each Unit is priced at $1.60 and consists of one (1)
ordinary share, par value $0.000384 per share (Ordinary Shares), and a Series
A Stock Purchase Warrant (Warrants) to purchase 0.35 of one Ordinary Share.
The initial Warrant exercise price is $2.08 per share on a post split basis. An
aggregate of 6,000,000 units were sold, resulted in the sale of 6,000,000
Ordinary Shares and Warrants to purchase 2,100,000 Ordinary Shares at $2.08 per
share.

In connection
with this private placement, the Company held back and placed in an escrow
account an aggregate amount of $520,000, pursuant to the agreement entered with
the lead purchaser of the Offering. As of December 31, 2011 and 2010, the
receivable from escrow account is $100,000 and $520,000.

On July 12,
2011, the Company entered into a definitive Securities Purchase Agreement (the
Agreement) with AMI Corporation (AMI or the Purchaser). Under this
Agreement, the Company sold 3,000,000 ordinary shares to the Purchaser at the
price of $4.56 per share receiving total cash proceeds of $13,680,000. As part
of the private placement, the Company paid a consulting service fee of
$1,394,400, which is accounted for as a stock issuance cost and the payment was
directly deducted from the cash proceeds received from the private placement.

NOTE 11  SHAREHOLDERS EQUITY

On May 17,
2010, the Company issued 915,085 ordinary shares (adjusted to reflect the 3 for
1 reverse split) for $30,000 in cash to a group associated with the firm that
is the placement agent of a private placement offering of Company equity
securities, which offering is described in the following paragraphs. Also on
May 17, 2010, the Company issued 2,079,740 ordinary shares (adjusted to reflect
the 3 for 1 reverse split) to Eastbridge Investment Group Corporation, in
return for services. The value of these shares, $1,477,000, was charged to
expense prior to the reverse merger.

On May 24,
2010, the Company and its controlling shareholders entered into a share
exchange agreement (the Agreement) with Tsingda Technology and all of the
shareholders of Tsingda Technology. Under the Agreement, the Company acquired
100% of the outstanding equity interests of Tsingda Technology in exchange for
244,022.78 preferred shares of the Company. Each such share of preferred stock
was convertible into 100 ordinary shares of the Company at such time as the
number of authorized ordinary shares is increased. The transaction was closed
in May 2010 and was accounted for as a reverse merger with a shell company and
a recapitalization of Tsingda Technology. Tsingda eEDU Corporation is the accounting
acquiree. Tsingda Technology is the accounting acquirer and the surviving
entity.

On November
15, 2010, the Companys shareholders approved a three-for-one reverse split of
the Companys issued and outstanding Ordinary Shares (and to increase the
amount of the Companys authorized Ordinary Shares from thirty-nine million
sixty-two thousand five hundred shares (39,062,500); to one hundred million
(100,000,000) shares.

As result of
the reverse split and increase in share capital, the par value of the Companys
Ordinary Shares change from US$0.000128 per share to US$0.000384 per share and
the Companys total number of authorized Ordinary Shares authorized increased
to 100,000,000 Ordinary Shares. At the same time, all the preferred stock
automatically converted to ordinary shares at the ratio of one share of
preferred stock to 100 ordinary shares.

All ordinary
share data has been retroactively restated for the periods presented to reflect
the Reverse Stock Split.

93

---



On August 21,
2011, the Company entered into a Share Purchase Agreement (the Repurchase
Agreement) with ZHR Fund, one of the Companys original shareholders, to buy
back 1,875,000 ordinary shares of the Company held by ZHR Fund at the price of
$3.30 per share, and the total cash payment is $6,187,500. On the same day, the
Company cancelled such repurchased shares. As of December 31, 2011, the number
of the Companys outstanding ordinary shares is 35,754,862. Concurrent with the
Repurchase Agreement, 656,250 outstanding warrants issued to ZHR Fund were
cancelled.

94

---



TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued)
For the years ended December 31, 2010 and 2011

NOTE 12  SHARE BASED COMPENSATION

On April 29,
2011, the Company adopted the 2011 Equity Incentive Plan (the Plan) pursuant
to which the Board of Directors may grant ordinary shares and stock options to
its employees. The Company granted 900,000 ordinary shares to three executives
for no cost and granted one executive 100,000 non-qualified stock options to
purchase 100,000 of the Companys ordinary shares at an exercise price of $2
per share. The stock options vest over a term of 5 years.

The fair value
of the ordinary shares was estimated on the date of issuance. The amount of
compensation cost recognized for the shares issued were $1,440,000 and $0, and
were recorded in the general and administrative expenses for the years ended
December 31, 2011 and 2010, respectively.

The Company
uses the Black-Sholes option-pricing model to estimate the fair value of its
stock options. The fair value of stock options was estimated on the date of
grant. Valuation assumptions used in the Black-Sholes option-pricing model for
stock options granted include (1) discount rate of 2.13% based upon United States
5- year Treasury yields in effect at the time of the grant; (2) expected term
of 5 years; (3) expected volatility of 51% and (4) zero expected dividends. The
calculated fair value of the options was $0.63 per share. No stock options were
exercised during the year ended December 31, 2011. The amount of compensation
cost recognized for the options granted were $8,465 and $0, and were recorded
in the general and administrative expenses, for the year ended December 31,
2011 and 2010, respectively.

No income tax
benefit was recognized in the income statement for the shares and stock options
as such compensation expenses were recorded and incurred by Tsingda eEDU
Corporation, a Cayman Island incorporated entity.

NOTE 13 - STATUTORY RESERVE

In accordance
with the relevant laws and regulations of the PRC, the Companys PRC
subsidiaries are required to transfer 10% of their respective after tax profit,
as determined in accordance with PRC accounting standards and regulations, to a
general reserve fund until the balance of the fund reaches 50% of the
registered capital of the respective subsidiary. The transfer to this general
reserve fund must be made before distribution of dividends can be made. As of
December 31, 2011, the registered capitals of Tsingda Century and Tsingda
Network are $4,421,156 and $588,235, respectively, and both companies have made
the required allocations to the general reserves. As of December 31, 2011 and
2010, the PRC subsidiaries had appropriated $1,955,454 and $1,955,454,
respectively to the general reserve funds, which are restricted from being
distributed to the Company. General reserve funds are restricted for set off
against losses, expansion of production and operation or increase in registered
capital of the respective company. These reserves are therefore not available
for distribution except in liquidation.

Further, the
PRC subsidiaries may, at the discretion of the enterprise, make appropriations
to a staff welfare and bonus reserve in accordance with the relevant laws and
regulations in the PRC. The appropriation to staff welfare and bonus reserve is
recognized as an expense as it is a current liability to the employees. For the
years ended December 31, 2011 and 2010, the PRC subsidiaries had made
appropriations to the staff welfare and bonus reserve of $443,010 and $443,010,
respectively.

95

---



TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued)
For the years ended December 31, 2010 and 2011

NOTE 14 - INCOME TAXES

The Company is
incorporated in the Cayman Islands, and is not subject to tax on income or
capital gain under the current laws of the Cayman Islands. In addition, upon
payment of dividends by the Company to its shareholders, no Cayman Islands
withholding tax is imposed. The Companys other subsidiaries are subject to
income tax as described below.

British Virgin
Islands (BVI)

Under the
current laws of BVI, our BVI subsidiaries are not subject to tax on income or
capital gain. In addition, payments of dividends by our BVI subsidiaries to
their shareholders are not subject to withholding tax in the BVI.

PRC

Prior to
January 1, 2008, the Company was governed by the previous Income Tax Law (the
Previous Tax Law) of China. Under the Previous Tax Law, the Companys PRC
subsidiaries, Tsingda Management, Tsingda Century and Tsingda network, were
entitled various preferential tax treatments.

On March 16,
2007, the National Peoples Congress passed the new Enterprise Income Tax law
(the new EIT law) which imposes a single income tax rate of 25% for most
domestic enterprises and foreign investment enterprises. The new EIT law was
effective as of January 1, 2008. The new EIT law provides a five-year
transition period from its effective date for those enterprises which were
established before March 16, 2007 and which were entitled to a preferential
lower tax rate under the then effective tax laws or regulations, as well as
grandfathering tax holidays. Further, according to the new EIT law, entities
that qualify as High and New Technology Enterprises are entitled to the
preferential EIT rate of 15%. Tsingda Century has received approval for the
status as a High and New Technology Enterprises. The status is valid for
three years starting from June 2009 and will be renewed after evaluation by relevant
government authorities every three years. Further, on December 26, 2007, the
PRC government passed the detailed implementing rules which allow enterprises
to continue to enjoy their unexpired tax holiday under the previous income tax
laws and rules. As a result, under the new EIT law, Tsingda Centurys tax rate
are 15% for the calendar years from 2010 to 2012 and subject to renewal of the
status of High and New Technology Enterprises after calendar year 2012; and
Tsingda Network and Tsingda Schools tax rates are 25%. Tsingda Managements
tax rates are 22% and 24% for 2010 and 2011 and 25% thereafter. For the year
ended December 31, 2010 and 2009, Tsingda Management, Tsingda Network and
Tsingda School did not generate any taxable income.

The new EIT
Law also provides that an enterprise established under the laws of foreign
countries or regions but whose de facto management body is located in the PRC
be treated as a resident enterprise for PRC tax purposes and consequently be
subject to the PRC income tax at the rate of 25% for its worldwide income. The
Implementing Rules of the new EIT Law merely defines the location of the de
facto management body as the place where the exercising, in substance, of the
overall management and control of the production and business operation,
personnel, accounting, properties, etc., of a non-PRC company is located. On
April 22, 2009, the PRC State Administration of Taxation further issued a
notice entitled Notice Regarding Recognizing Offshore-Established Enterprises
Controlled by PRC Shareholders as Resident Enterprises Based on Their Place of
Effective Management. Under this notice, a foreign company controlled by a PRC
company or a group of PRC companies shall be deemed as a PRC resident
enterprise, if (i) the senior management and the core management departments in
charge of its daily operations mainly function in the PRC; (ii) its financial
decisions and human resource decisions are subject to decisions or approvals of
persons or institutions in the PRC; (iii) its major assets, accounting books,
company seals, minutes and files of board meetings and shareholders meetings
are located or kept in the PRC; and (iv) more than half of the directors or
senior management personnel with voting rights reside in the PRC. Based on a
review of surrounding facts and circumstances, the Company does not believe
that it is likely that its operations outside of the

96

---



PRC should be
considered a resident enterprise for PRC tax purposes. However, due to limited
guidance and implementation history of the new EIT Law, should the Company be
treated as a resident enterprise for PRC tax purposes, the Company will be
subject to PRC tax on worldwide income at a uniform tax rate of 25% retroactive
to January 1, 2008.

The new EIT
Law also imposes a withholding income tax of 10% on dividends distributed by a
foreign invested enterprise to its immediate holding company outside of China,
if such immediate holding company is considered as a non-resident enterprise
without any establishment or place within China or if the received dividends
have no connection with the establishment or place of such immediate holding
company within China, unless such immediate holding companys jurisdiction of
incorporation has a tax treaty with China that provides for a different
withholding arrangement. Such withholding income tax was exempted under the
previous income tax regulations. The Cayman Islands, where the Company is
incorporated, does not have such tax treaty with China.

97

---



TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued)
For the years ended December 31, 2010 and 2011

The provision
for taxes on earnings consisted of:

|                                  |  |                    |           |                    |   |           | 
|--------------------------------- |  | ------------------ | --------- | ------------------ | - | --------- | 
|                                  |  | December 31,
 2011 |           | December 31,
 2010 |  
|                                  |  |                    |           |                    |   |           | 
|PRC
 Enterprise Income Tax        |  | $                  | 2,337,757 |                    | $ | 1,834,541 | 
|United
 States Federal Income Tax |  |                    |          |                    |   |          | 
|                                  |  |                    |           |                    |   |           | 
|Income tax, net                   |  | $                  | 2,337,757 |                    | $ | 1,834,541 | 
|                                  |  |                    |           |                    |   |           | 

Income tax
expense, which is all incurred in the PRC, consists of:

|                                      |  |                    |           |                    |   |           |  
|------------------------------------- |  | ------------------ | --------- | ------------------ | - | --------- | -
|                                      |  | December 31,
 2011 |           | December 31,
 2010 |  
|                                      |  |                    |           |                    |   |           |  
|Current
 income tax expense           |  | $                  | 2,325,784 |                    | $ | 2,061,609 |  
|Deferred
 income tax expense(benefit) |  |                    | 11,973    |                    |   | (227,068  | )
|                                      |  |                    |           |                    |   |           |  
|Income tax, net                       |  | $                  | 2,337,757 |                    | $ | 1,834,541 |  
|                                      |  |                    |           |                    |   |           |  

A
reconciliation between the income tax computed at the U.S. statutory rate and
the Companys provision for income tax is as follows:

|                                        |  |                    |     |                    |  |     |  
|--------------------------------------- |  | ------------------ | --- | ------------------ |  | --- | -
|                                        |  | December 31,
 2011 |     | December 31,
 2010 | 
|                                        |  |                    |     |                    |  |     |  
|U.S. Federal
 income tax statutory rate |  |                    | 35  | %                  |  | 35  | %
|PRC
 Statutory rate (25%) difference    |  |                    | -10 | %                  |  | -10 | %
|Preferential
 tax rate                  |  |                    | -10 | %                  |  | -10 | %
|                                        |  |                    |     |                    |  |     |  
|Effective tax rate                      |  |                    | 15  | %                  |  | 15  | %
|                                        |  |                    |     |                    |  |     |  

The tax effect
of temporary differences that gives rise to significant portions of the
deferred income tax assets are presented below:

|                           |  |                    |         |                    |   |         | 
|-------------------------- |  | ------------------ | ------- | ------------------ | - | ------- | 
|                           |  | December 31,
 2011 |         | December 31,
 2010 |  
|                           |  |                    |         |                    |   |         | 
|Deferred tax assets:       |  |                    |         |                    |   |         | 
|Deferred revenue           |  | $                  | 370,786 |                    | $ | 382,758 | 
|                           |  |                    |         |                    |   |         | 
|Deferred tax assets, total |  | $                  | 370,786 |                    | $ | 382,758 | 
|                           |  |                    |         |                    |   |         | 

98

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Accounting for Uncertainty in Income Taxes

The Company
adopted the provisions of Accounting for Uncertainty in Income Taxes on January
1, 2007. The provisions clarify the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance with the
standard Accounting for Income Taxes, and prescribes a recognition threshold
and measurement process for financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The provisions of
Accounting for Uncertainty in Income Taxes also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.

Based on the
Companys evaluation, the Company has concluded that there are no significant
uncertain tax positions requiring recognition in its financial statements.

The Company
may from time to time be assessed interest or penalties by major tax
jurisdictions. In the event it receives an assessment for interest and/or
penalties, it will be classified in the financial statements as tax expense.

99

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued)
For the years ended December 31, 2010 and 2011

NOTE 15  EARNINGS PER SHARE

Basic earnings
per share (EPS) excludes the dilutive effect of common stock equivalents and
is computed by dividing net income by the weighted-average number of common
shares outstanding during the period. Diluted EPS includes the dilutive effect
of common stock equivalents, which consists primarily of stock options and
warrants, and is computed using the weighted-average number of common stock and
common stock equivalents outstanding during the period.

The following
table is a reconciliation of basic and diluted EPS for the years ended
December, 2011 and 2010:

|                                                                                                      |  |                          |            |      |   |            | 
|----------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | ---- | - | ---------- | 
|                                                                                                      |  | Years Ended December 31, |           
|                                                                                                      |  |                          |           
|                                                                                                      |  | 2011                     |            | 2010 |  
|                                                                                                      |  |                          |            |      |  
|Numerator:                                                                                            |  |                          |            |      |   |            | 
|Net income
 attributable to Tsingda eEDU                                                              |  | $                        | 13,172,402 |      | $ | 10,301,196 | 
|Denominator:                                                                                          |  |                          |            |      |   |            | 
|Weighted
 average common shares outstanding                                                           |  |                          | 35,077,602 |      |   | 28,242,518 | 
|Dilutive
 effect of common stock equivalents                                                          |  |                          | 841,337    |      |   |           | 
|                                                                                                      |  |                          |            |      |   |            | 
|Adjusted weighted-average common shares
 outstanding, assuming conversion of common stock equivalents |  |                          | 35,918,939 |      |   | 28,242,518 | 
|                                                                                                      |  |                          |            |      |   |            | 
|Basic net
 income attributable to Tsingda eEDU per common share                                       |  | $                        | 0.38       |      | $ | 0.36       | 
|                                                                                                      |  |                          |            |      |   |            | 
|Diluted net
 income attributable to Tsingda eEDU per common share                                     |  | $                        | 0.37       |      | $ | 0.36       | 
|                                                                                                      |  |                          |            |      |   |            | 

NOTE 16 - COMMITMENTS AND CONTINGECIES

Lease Obligations

The Company
has entered into multiple lease agreements for the lease of premises for
company directly owned learning centers. As of December 31, 2011, the Companys
commitments for minimum lease payments under these un-revocable operating
leases for the next five years are as follows:

|                         |  |              |            | 
|------------------------ |  | ------------ | ---------- | 
|Year ending December 31, |  | Payments Due |           
|2012                     |  | $            | 5,429,450  | 
|2013                     |  |              | 5,565,316  | 
|2014                     |  |              | 5,564,823  | 
|2015 and
 there after    |  |              | 5,232,700  | 
|                         |  |              |            | 
|Total                    |  | $            | 21,792,289 | 
|                         |  |              |            | 

100

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Tax issues

The tax
authority of the PRC Government conducts periodic and ad hoc tax filing reviews
on business enterprises operating in the PRC after those enterprises had
completed their relevant tax filings, hence the Companys tax filings may not
be finalized. It is therefore uncertain as to whether the PRC tax authority may
take different views about the Companys tax filings which may lead to
additional tax liabilities.

NOTE 17 - CONCENTRATIONS

For the years
ended December 31, 2011 and 2010, no individual customers contributed more than
10% of the Companys revenue.

For the years
ended December 31, 2011 and 2010, no purchase (net of VAT) from any individual
vendor accounted for more than 10% of the total net purchases of the Company.

NOTE 18  OPERATING RISKS

Lack of Insurance

The Company
could be exposed to liabilities or other claims for which the Company would
have no insurance protection. The Company does not currently maintain any
business interruption insurance, products liability insurance, or any other
comprehensive insurance policy except for property insurance policies with limited
coverage. As a result, the Company may incur uninsured liabilities and losses
as a result of the conduct of its business. There can be no guarantee that the
Company will be able to obtain additional insurance coverage in the future, and
even if it can obtain additional coverage, the Company may not carry sufficient
insurance coverage to satisfy potential claims. Should uninsured losses occur,
any purchasers of the Companys common stock could lose their entire
investments.

Country risk

The Company has
significant operating risk in the PRC. The operating results of the Company may
be adversely affected by changes in the political and social conditions in the
PRC and by changes in Chinese government policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation, among other things. The Company can
give no assurance that those changes in political and other conditions will not
result in have a material adverse effect upon the Companys business and
financial condition.

Exchange risk

The Company
cannot guarantee the Renminbi and US dollar exchange rate will remain steady,
therefore the Company could post the same profit for two comparable periods and
post higher or lower profit depending on exchange rate of Renminbi and US
dollar. The exchange rate could fluctuate depending on changes in the political
and economic environments without notice.

101

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TSINGDA EEDU CORPORATION
Notes to the Consolidated Financial Statements (Continued)
for the years ended December 31, 2010 and 2011

Credit Risk

Financial
instruments which potentially subject the Company to concentrations of credit
risk consist of cash, short term investments, accounts receivable and advances
to suppliers. However, all of the assets of Tsingda Century, Tsingda Network
and Tsingda Century Training School, are located in the PRC and cash balances
are on deposit at financial institutions in the PRC, the currency of which is
not free trading. Foreign exchange transactions are required to be conducted
through institutions authorized by the Chinese government and there is no
guarantee that Chinese currency can be converted to U.S. or other currencies.

NOTE 19 - CONDENSED PARENT COMPANY FINANCIAL
INFORMATION

Basis of Presentation

The condensed
parent company financial statements have been prepared in accordance with Rule
12-04, Schedule I of Regulation S-X, as the restricted net assets of the
subsidiaries of Tsingda eEDU Corporation exceed 25% of the consolidated net
assets of Tsingda eEDU Corporation. The ability of the Companys Chinese
operating subsidiaries to pay dividends may be restricted due to the foreign
exchange control policies and availability of cash balances of the Chinese
operating subsidiaries. Because substantially all of the Companys operations
are conducted in China and a substantial majority of its revenues are generated
in China, a majority of the Companys revenue being earned and currency
received are denominated in Renminbi (RMB). RMB is subject to the exchange
control regulation in China, and, as a result, the Company may be unable to
distribute any dividends outside of China due to PRC exchange control
regulations that restrict its ability to convert RMB into US Dollars.

The condensed
parent company financial statements have been prepared using the same
accounting principles and policies described in the notes to the consolidated
financial statements, with the only exception being that the parent company
accounts for its subsidiaries using the equity method. Refer to the
consolidated financial statements and notes presented above for additional
information and disclosures with respect to these financial statements.

102

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued)
for the years ended December 31, 2010 and 2011

|                                       
|---------------------------------------
|TSINGDA EEDU CORPORATION               
|Condensed Parent Company Balance Sheets
|(Stated in US dollars)                 

|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | ------------------ | - | ---------- | 
|                                                                                                                                                                                      |  | December 31,
 2011 |            | December 31,
 2010 |  
|                                                                                                                                                                                      |  |                    |            |                    |  
|ASSETS                                                                                                                                                                                |  |                    |            |                    |   |            | 
|Current
 assets                                                                                                                                                                       |  |                    |            |                    |   |            | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|Receivable from escrow account                                                                                                                                                        |  | $                  | 100,000    |                    | $ | 520,479    | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|Investment in subsidiaries                                                                                                                                                            |  |                    | 56,154,434 |                    |   | 33,140,493 | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|TOTAL ASSETS                                                                                                                                                                          |  |                    | 56,254,434 |                    |   | 33,660,972 | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|SHAREHOLDERS EQUITY                                                                                                                                                                  |  |                    |            |                    |   |            | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|Preferred stock: 781,250 shares of $.000128
 par value authorized; None shares issued and outstanding                                                                                 |  |                    |            |                    |   |            | 
|Common Stock (par value $0.000384 per
 share; 100,000,000 shares authorized; 35,754,862 and 33,729,862 shares issued
 and outstanding as of December 31, 2011 and 2010, respectively) |  | $                  | 13,730     |                    | $ | 12,952     | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|Additional paid in capital                                                                                                                                                            |  |                    | 21,068,967 |                    |   | 13,523,180 | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|Statutory reserve                                                                                                                                                                     |  |                    | 2,398,464  |                    |   | 2,398,464  | 
|Accumulated other comprehensive income                                                                                                                                                |  |                    | 2,837,930  |                    |   | 963,435    | 
|Retained earnings                                                                                                                                                                     |  |                    | 29,935,343 |                    |   | 16,762,941 | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|TOTAL SHAREHOLDERS EQUITY                                                                                                                                                            |  |                    | 56,254,434 |                    |   | 33,660,972 | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                            |  | $                  | 56,254,434 |                    | $ | 33,660,972 | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 

103

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TSINGDA EEDU CORPORATION 
Notes to the Consolidated Financial Statements (Continued)
for the years ended December 31, 2010 and 2011

|                                                 
|-------------------------------------------------
|TSINGDA EEDU CORPORATION                         
|Condensed Parent Company Statements of Operations
|(Stated in US dollars)                           

|                                                |  |                                  |            |      |   |            | 
|----------------------------------------------- |  | -------------------------------- | ---------- | ---- | - | ---------- | 
|                                                |  | For the Years Ended December 31, |           
|                                                |  |                                  |           
|                                                |  | 2011                             |            | 2010 |  
|                                                |  |                                  |            |      |  
|Operating Expenses                              |  |                                  |            |      |   |            | 
|General and administrative expenses             |  |                                  | 1,722,531  |      |   | 10,475     | 
|                                                |  |                                  |            |      |   |            | 
|Total expenses                                  |  |                                  | 1,722,531  |      |   | 10,475     | 
|Other income                                    |  |                                  | (892       | )    |   | 62         | 
|Equity in undistributed income of
 subsidiaries |  |                                  | 13,172,402 |      |   | 10,301,196 | 
|                                                |  |                                  |            |      |   |            | 
|Net income                                      |  | $                                | 11,448,979 |      | $ | 10,290,783 | 
|                                                |  |                                  |            |      |   |            | 

|                                                 
|-------------------------------------------------
|Condensed Parent Company Statements of Cash Flows
|(Stated in US Dollars)                           

|                                                |  |                                 |             |      |   |             |  
|----------------------------------------------- |  | ------------------------------- | ----------- | ---- | - | ----------- | -
|                                                |  | For the years ended December 31 |            
|                                                |  |                                 |            
|                                                |  | 2011                            |             | 2010 |  
|                                                |  |                                 |             |      |  
|                                                |  |                                 |             |      |   |             |  
|CASH FLOWS FROM OPERATING ACTIVITIES            |  |                                 |             |      |   |             |  
|                                                |  |                                 |             |      |   |             |  
|Net income                                      |  | $                               | 11,448,979  |      | $ | 10,290,783  |  
|Share-based compensation cost                   |  |                                 | (1,448,465  | )    |   |            |  
|Other income                                    |  |                                 |            |      |   | (479        | )
|Equity in undistributed income of
 subsidiaries |  |                                 | (13,172,402 | )    |   | (10,301,196 | )
|                                                |  |                                 |             |      |   |             |  
|CASH USED IN OPERATING ACTIVITIES               |  |                                 | (3,171,888  | )    |   | (10,892     | )
|                                                |  |                                 |             |      |   |             |  
|                                                |  |                                 |             |      |   |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES            |  |                                 |             |      |   |             |  
|Investment in subsidiaries                      |  |                                 | (3,346,212  | )    |   | (8,595,435  | )
|                                                |  |                                 |             |      |   |             |  
|CASH USED IN INVESTING ACTIVITIES               |  |                                 | (3,346,212  | )    |   | (8,595,435  | )
|                                                |  |                                 |             |      |   |             |  
|                                                |  |                                 |             |      |   |             |  
|CASH FLOWS FROM FINANCING ACTIVITIES            |  |                                 |             |      |   |             |  
|Proceeds from issuance of shares                |  |                                 | 13,680,000  |      |   | 9,630,927   |  
|Payments for Shares Repurchase                  |  |                                 | (6,187,500  | )    |   |            |  
|Payment for stock issuance cost                 |  |                                 | (1,394,400  | )    |   | (504,600    | )
|Payment in escrow accounts                      |  |                                 |            |      |   | (520,000    | )
|Cash release from escrow accounts               |  |                                 | 420,000     |      |   |            |  
|                                                |  |                                 |             |      |   |             |  
|CASH PROVIDED BY FINANCING ACTIVITIES           |  |                                 | 6,518,100   |      |   | 8,606,327   |  
|                                                |  |                                 |             |      |   |             |  
|                                                |  |                                 |             |      |   |             |  
|NET INCREASE (DECREASE) IN CASH                 |  |                                 |            |      |   |            |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF
 YEAR |  | $                               |            |      | $ |            |  
|                                                |  |                                 |             |      |   |             |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR        |  | $                               |            |      | $ |            |  
|                                                |  |                                 |             |      |   |             |  

104

---



SIGNATURES

Pursuant to
the requirements of Section 13 or 15(d) 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.

|                        |                                                                                          
|----------------------- | -----------------------------------------------------------------------------------------
|Date:
 February 4, 2013 | /s/ Zhang
 Hui                                                                           
|                        |                                                                                          
|                        | Zhang Hui                                                                                
|                        | Chief
 Executive Officer ((Principal Executive Officer)                                  
|                        |                                                                                          
|                        | /s/ Kang
 Chungmai                                                                       
|                        |                                                                                          
|                        | Kang
 Chungmai                                                                           
|                        | Chief
 Financial Officer ((Principal Financial Officer and Principal Accounting
 Officer)

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

|                   |  |                                                    |  |                  
|------------------ |  | -------------------------------------------------- |  | -----------------
|Signature          |  | Title                                              |  | Date             
|                   |  |                                                    |  |                  
|                   |  |                                                    |  |                  
|/s/ Zhang
 Hui     |  | Chief
 Executive Officerand Chairman
 of the Board |  | February 4,
 2013
|                   |  |                                                    |  |                  
|Zhang Hui          |  |                                                    |  |                  
|                   |  |                                                    |  |                  
|/s/ Kang
 Chungmai |  | Chief
 Financial Officer andSecretary              |  | February 4,
 2013
|                   |  |                                                    |  |                  
|Kang
 Chungmai     |  |                                                    |  |                  
|                   |  |                                                    |  |                  
|/s/ Liu
 Juntao    |  | Executive
 Vice President andDirector              |  | February 4,
 2013
|                   |  |                                                    |  |                  
|Liu Juntao         |  |                                                    |  |                  
|                   |  |                                                    |  |                  
|/s/ Bi Cheng       |  | Director                                           |  | February 4,
 2013
|                   |  |                                                    |  |                  
|Bi Cheng           |  |                                                    |  |                  

105

---