|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington,
 D.C. 20549           
|                                  
|                                  
|FORM
 10-K/A                      
|Amendment No. 3                   
|                                  

|   |                                                                                           
|-- | ------------------------------------------------------------------------------------------
|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             |  | (IRS
 Employer         
|of
 incorporation or organization)        |  | Identification
 number)
|                                          |  |                        
|No. 39, Block 74, Lugu Rd.,               |  | 101105                 
|Shinjingshan District, Beijing, PR China  |  |                        
|(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

1

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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

2

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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 November 6, 2012 and
December 3, 2012 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.




3

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TABLE OF CONTENTS

|         |  |                                                                                                               |  |   
|-------- |  | ------------------------------------------------------------------------------------------------------------- |  | --
|         |  | PART I                                                                                                        |  |   
|Item 1.  |  | Business                                                                                                      |  | 1 
|Item 1A. |  | Risk Factors                                                                                                  |  | 29
|Item 1B. |  | Unresolved Staff Comments                                                                                     |  | 43
|Item 2.  |  | Properties                                                                                                    |  | 43
|Item 3.  |  | Legal Proceedings                                                                                             |  | 44
|         |  |                                                                                                               |  |   
|         |  | PART II                                                                                                       |  |   
|Item 5.  |  | Market For Registrants Common Equity, Related Stockholder
 Matters and Issuer Purchases of Equity Securities |  | 45
|Item 6.  |  | Selected Financial Data                                                                                       |  | 45
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and
 Results of Operations                        |  | 46
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 64
|Item 8.  |  | Financial Statements and Supplementary Data                                                                   |  | 64
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and
 Financial Disclosure                         |  | 64
|Item 9A. |  | Controls and Procedures                                                                                       |  | 64
|Item 9B. |  | Other Information                                                                                             |  | 65
|         |  |                                                                                                               |  |   
|         |  | PART III                                                                                                      |  |   
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                                        |  | 66
|Item 11. |  | Executive Compensation                                                                                        |  | 68
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management
 and Related Stockholder Matters               |  | 70
|Item 13. |  | Certain Relationships and Related Transactions                                                                |  | 71
|Item 14. |  | Principal Accounting Fees and Services                                                                        |  | 72
|         |  |                                                                                                               |  |   
|         |  | PART IV                                                                                                       |  |   
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                    |  | 73

4

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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:

(FLOW CHART)

*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.

4

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(BAR CHAT)

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 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.

5

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Our
educational model is depicted below:

(FLOW CHART)

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.

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.

6

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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.

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                                  

7

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|          |  |                                                                                                                                
|--------- |  | -------------------------------------------------------------------------------------------------------------------------------
|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.

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

8

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(FLOW CHART)

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:

9

---



(MAP)

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.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ○ | Diverse
 Teaching Disciplines. For any subject in our
 curriculum, students can select presentations from numerous teachers,
 including renowned teachers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

10

---



| |   |                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ○ | 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 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

11

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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.

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.

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:

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---



|                          |  |                        
|------------------------- |  | -----------------------
|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

13

---



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:

(FLOW CHART)

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ○ | 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                                                                                                                                                

14

---



| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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.

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:

15

---



|                              |  |   |             | 
|----------------------------- |  | - | ----------- | 
|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     | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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

16

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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.

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.

17

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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.

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 the Decision 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 the Education Law
of China, The Law for Promoting Private Education (2003), The Implementation
Rules for the Law for Promoting Private Education (2004) and the Regulations on
Chinese-Foreign Cooperation in Operating Schools. These regulations are
summarized below.

18

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Education Law
of China

The Education
Law of China, or the Education Law, was enacted on March 18, 1995. The
Education 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 system of education certificates. The Education 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)

The Law 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

19

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promulgated by the relevant
authorities. We have received a legal opinion from our PRC counsel stating that
we are not a private school.

Regulations on Chinese-Foreign Cooperation in
Operating Schools

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

We are not
subject to the Regulations on Chinese-Foreign Cooperation in Operating Schools
and its Implementing Rules. The
Regulations on Operating Chinese-Foreign Schools and its Implementing 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 the Notice 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 the Decisions 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 the Regulations 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

20

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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 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 the Agreement
on Trade Related Aspects of Intellectual Property Rights, or TRIPS, upon its
accession to the World Trade Organization in December 2001.

Copyright. The
National Peoples Congress amended its Copyright Law in 2001 to widen the scope
of works and rights that are eligible for copyright protection. The amended
Copyright 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. The
Chinese 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 the Measures for Administration of Domain Names for the
Chinese Internet, or the Domain Name Measures. The Domain 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 the Implementing 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 issued Certain 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:

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| |   |                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 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 the Measures 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 new Measures
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 the Regulations 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

22

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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 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

23

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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 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

24

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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 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 the Stock 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

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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.

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.

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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.

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

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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:

| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | 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.                                 

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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

33

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requirements
described in the Government Regulations section. 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.

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

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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.

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.

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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 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

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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.

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.

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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 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

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

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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 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

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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 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

41

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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:

| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | actual or
 anticipated fluctuations in our quarterly operating results;
| |  | changes in
 financial estimates by securities research analysts;       

42

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| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

ITEM 2. PROPERTIES & INTELLECTUAL
PROPERTY

43

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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.

PART II

44

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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.

ITEM 6. SELECTED FINANCIAL DATA

45

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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.

46

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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

47

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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 | 

48

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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 | 

49

---



|        |  |   |           |  |   |         |  |   |            |  |   |           |  |   |           |  |   |        |  |   |            | 
|------- |  | - | --------- |  | - | ------- |  | - | ---------- |  | - | --------- |  | - | --------- |  | - | ------ |  | - | ---------- | 
|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 | 

|                                     |  |                |           |                          |   |                                                |  |                                                                 |            |                                    |   |           |  |       |           |  |   |           |  |   |            | 
|------------------------------------ |  | -------------- | --------- | ------------------------ | - | ---------------------------------------------- |  | --------------------------------------------------------------- | ---------- | ---------------------------------- | - | --------- |  | ----- | --------- |  | - | --------- |  | - | ---------- | 
|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    |  |  | HuanggangExperimental
 School |         |  | Family BabyClub |  
|        |  |  |                               |         |  |                 |  
|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

50

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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.

51

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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       |  

52

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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.

53

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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.

54

---



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.

55

---



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

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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

64

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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.

65

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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, 2013.
|                                                                                                      

Zhang Huiestablished
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

66

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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.

67

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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 Chief Executive
 Officer          |  | 2011 |  | $           | 55,385 |            | 0 |                    |   | 0                   |  | 0                            |  | 0          |  |   | 55,385  | 
|                                                           |  |      |  |             |        |            |   |                    |   |                     |  |                              |  |            |  |   |         | 
|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 Financial Officer and Secretary |  | 2011 |  |             | 0      |            | 0 |                    |   | 0                   |  | 0                            |  | 0          |  |   | 0       | 
|                                                           |  |      |  |             |        |            |   |                    |   |                     |  |                              |  |            |  |   |         | 
|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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

68

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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.

Compensation of Directors

69

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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, 2013.




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

70

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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

71

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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.

72

---



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)                                                                                                                                         
|10.10         |  | Securities
 Purchase Agreement, dated as of July 12, 2011 between the Company and AMI
 Corporation (10)                                                                                                                                                    
|10.11         |  | 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.***
|10.12         |  | Supplementary
 Agreement to the Investment Agreement dated August 10, 2011 by and among
 Tsingda Education, Yiying Angel and Ms. Yitong Chen***                                                                                                            
|             

73

---



|        |  |                                                                                                                                                                             
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|10.13   |  | Co-operation
 Agreement dated November 1, 2011 by and between Tsingda Education and Beijing
 ShangXue Educational Technology Co. (Shangxue)***                            
|10.14   |  | Investment
 Agreement dated August 5, 2011 by and between Tsingda Education and Mr.
 Guozhen Zhou, founder of Asia Outstanding Students Admissions Union Ltd.
 (AOSA). ***
|10.15   |  | Supplementary
 Agreement to the Investment Agreement dated August 5, 2011 by and between
 Tsingda Education and Mr. Guozhen Zhou. ***                                       
|10.16   |  | 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                     
|***
 previously included in Amendment No. 1 to the Annual Report on Form 10-K for
 fiscal year ended on December 31, 2011, filed on March 30, 2012
|                                                                                                                                                  

74

---



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

F-1

---



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.

F-2

---



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.

F-3

---



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

|                                                                                                               |  |              |            |                              |   |        |                    |                                           |            |                    |                              |           |  |   |         |  |   |            |   |   |            |  
|-------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---------------------------- | - | ------ | ------------------ | ----------------------------------------- | ---------- | ------------------ | ---------------------------- | --------- |  | - | ------- |  | - | ---------- | - | - | ---------- | -
|                                                                                                               |  |              |            |                              |   |        |                    | Accumulated
 Other
 Comprehensive
 Income |            |                    |                              |           | 
|                                                                                                               |  | Common Stock |            | Additional
 Paid-in
 Capital |   |        |                    |                                           |            |                    | Total
 Shareholders
 Equity |          
|                                                                                                               |  | Shares       |            | Amount                       |   |        | Statutory
 Reserve |                                           |            | Retained
 Earnings |                              |          
|                                                                                                               |  |              |            |                              |   |        |                    |                                           |            |                    |                              |           |  |   |         |  |   |            |   |   |            |  
|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.

F-4

---



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 ofDecember31, 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

F-5

---



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    | )

F-6

---



|                                                              |  |   |           |   |   |           |  
|------------------------------------------------------------- |  | - | --------- | - | - | --------- | -
|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.

F-7

---



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

F-8

---



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.

F-9

---



TSINGDA EEDU CORPORATIONNotes 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.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

F-10

---



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.

F-11

---



TSINGDA EEDU CORPORATIONNotes 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.

F-12

---



TSINGDA EEDU CORPORATIONNotes 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

F-13

---



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.

F-14

---



TSINGDA EEDU CORPORATIONNotes 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

F-15

---



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.

F-16

---



TSINGDA EEDU CORPORATIONNotes 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.

F-17

---



TSINGDA EEDU CORPORATIONNotes 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 | 
|                                 |  |                     |            |                    |   |           | 

F-18

---



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 |                    | $ |  | 
|                                                 |  |                    |           |                    |   |   | 



F-19

---



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   | 
|                           |  |                    |            |                    |   |           | 

F-20

---



|                          |  |   |            |   |   |            |  
|------------------------- |  | - | ---------- | - | - | ---------- | -
|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  |  
|                          |  |   |            |   |   |            |  

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.

F-21

---



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.

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.

F-22

---



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.

F-23

---



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 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.

F-24

---



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 | 
|                           |  |                    |         |                    |   |         | 

F-25

---



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.

F-26

---



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 | 
|                         |  |              |            | 

F-27

---



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.

F-28

---



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.

F-29

---



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 | 
|                                                                                                                                                                                      |  |                    |            |                    |   |            | 

F-30

---



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                       |  |                                 |             |      |   |             |  

F-31

---



|                                               |  |   |            |   |   |           |  
|---------------------------------------------- |  | - | ---------- | - | - | --------- | -
|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       |  | $ |           |   | $ |          |  
|                                               |  |   |            |   |   |           |  

F-31

---



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:
 January 16, 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 Officer      |  | January 16,
 2013
|                   |  | and Chairman of the Board     |  |                  
|Zhang Hui          |  |                               |  |                  
|                   |  |                               |  |                  
|/s/ Kang
 Chungmai |  | Chief
 Financial Officer and  |  | January 16,
 2013
|                   |  | Secretary                     |  |                  
|Kang
 Chungmai     |  |                               |  |                  
|                   |  |                               |  |                  
|/s/ Liu
 Juntao    |  | Executive
 Vice President and |  | January 16,
 2013
|                   |  | Director                      |  |                  
|Liu Juntao         |  |                               |  |                  
|                   |  |                               |  |                  
|/s/ Bi Cheng       |  | Director                      |  | January 16,
 2013
|                   |  |                               |  |                  
|Bi Cheng           |  |                               |  |                  



---