UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2009

or

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

Commission File Number: 000-50550

CHINACAST EDUCATION CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

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

Suite 3316, 33/F, One IFC
1 Harbour View Street,
Central, Hong Kong
(Address of Principal Executive Offices)

(852) 2811 2389
(Registrant’s Telephone Number, Including Area Code)

10/F Xu Jie Mansion
No. 29, Nommofang Road
Beijing, 100020, People’s Republic of China

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

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

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

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

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

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

     There were 35,768,251 shares of the Company’s common stock, par value $0.0001 per share, outstanding as of August 7, 2009.

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION		3
Item 1 . Financial Statements (unaudited)		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Quantitative and Qualitative Disclosures About Market Risk		20
Item 4. Controls and Procedures		20
PART II — OTHER INFORMATION		21
Item 1. Legal Proceedings		21
Item 1A. Risk Factors		21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3. Defaults Upon Senior Securities		21
Item 4. Submission of Matters To a Vote of Security Holders		21
Item 5. Other Information		21
Item 6. Exhibits		21

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share-related data)

							As of
	As of June 30,						December 31,
	2009			2009			2008
	US$			RMB			RMB
	(Note 1)						(Note 1)
Assets
Current assets:
Cash and cash equivalents		19,508			132,652			220,131
Term deposits		74,515			506,700			369,000
Accounts receivable		6,827			46,423			32,581
Inventory		207			1,409			1,419
Prepaid expenses and other current assets		1188			8,077			8,987
Amounts due from related parties		278			1,888			2,488
Total current assets		102,523			697,149			634,606
Non-current deposits		596			4,050			686
Property and equipment, net		39,400			267,919			283,982
Land use rights, net		17,717			120,475			121,783
Acquired intangible assets, net		3,404			23,149			31,330
Long-term investments		683			4,647			5,224
Non-current advances to a related party		14,827			100,825			110,217
Goodwill		45,784			311,333			311,331
Total assets		224,934			1,529,547			1,499,159
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable		2,026			13,775			11,467
Accrued expenses and other current liabilities		16,297			110,824			132,807
Deferred revenues		3,396			23,092			84,372
Amount due to related party		162			1,100			1,127
Income taxes payable		8,785			59,739			50,594
Current portion of long-term bank borrowings		11,529			78,400			20,000
Current portion of capital lease obligation		185			1,255			1,191
Other borrowings		1,681			11,430			1,097
Total current liabilities		44,061			299,615			302,655
Non-current liabilities:
Long-term bank borrowings		4,412			30,000			58,400
Capital lease obligation, net of current portion		188			1,279			1,323
Deferred tax liabilities		2,909			19,778			21,030
Unrecognized tax benefits		7,114			48,376			44,612
Total non-current liabilities		14,623			99,433			125,365
Total liabilities		58,684			399,048			428,020
Commitments and contingencies (Note 13)
Shareholders’ equity:
Ordinary shares (US$0.0001 par value; 100,000,000 shares authorized; 35,768,251 and 35,648,251 shares issued and outstanding)		4			27			27
Additional paid-in capital		140,892			958,064			948,352
Statutory reserve		4,134			28,117			28,117
Accumulated other comprehensive loss		(911	)		(6,198	)		(5,462	)
Retained earnings		14,854			101,005			55,526
Total ChinaCast Education Corporation shareholders’ equity		158,973			1,081,015			1,026,560
Noncontrolling interest		7,277			49,484			44,579
Total shareholders’ equity		166,250			1,130,499			1,071,139
Total liabilities and shareholders’ equity		224,934			1,529,547			1,499,159

See notes to unaudited condensed consolidated financial statements.

3

CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except share-related data)

	For the three months ended June 30,									For the six months ended June 30,
	2009			2009			2008			2009			2009			2008
	US$			RMB			RMB			US$			RMB			RMB
	(Note 1)						(Note 1)			(Note 1)						(Note 1)
Revenues:
Service		10,998			74,784			70,808			21,889			148,846			111,013
Equipment		190			1,293			3,115			613			4,169			22,404
		11,188			76,077			73,923			22,502			153,015			133,417
Cost of revenues:
Service		(4,143	)		(28,170	)		(30,496	)		(8,251	)		(56,111	)		(42,482	)
Equipment		(189	)		(1,288	)		(3,090	)		(607	)		(4,126	)		(22,195	)
		(4,332	)		(29,458	)		(33,586	)		(8,858	)		(60,237	)		(64,677	)
Gross profit		6,856			46,619			40,337			13,644			92,778			68,740
Operating (expenses) income:
Selling and marketing expenses (including share-based compensation of RMB266 and RMB111 for the three months ended June 30 for 2009 and 2008, respectively, share-based compensation of RMB1,106 and RMB1,392 for the six months ended June 30 for 2009 and 2008, respectively)		(123	)		(838	)		(882	)		(400	)		(2,721	)		(4,369	)
General and administrative expenses (including share-based compensation of RMB2,868 and RMB2,130 for the three months ended June 30 for 2009 and 2008, respectively, share-based compensation of RMB8,606 and RMB9,964 for the six months ended June 30 for 2009 and 2008, respectively)		(1,944	)		(13,215	)		(12,183	)		(4,583	)		(31,159	)		(30,399	)
Foreign exchange gain (loss)		(8	)		(53	)		(186	)		17			116			(651	)
Management service fee		343			2,329			1,993			485			3,296			2,791
Other operating income		—			2			—			75			507			—
Total operating expenses, net		(1,732	)		(11,775	)		(11,258	)		(4,406	)		(29,961	)		(32,628	)
Income from operations		5,124			34,844			29,079			9,238			62,817			36,112
Interest income		364			2,477			5,721			704			4,789			11,573
Interest expense		(252	)		(1,717	)		(182	)		(466	)		(3,170	)		(186	)
Income before provision for income taxes and loss in equity investments		5,236			35,604			34,618			9,476			64,436			47,499
Provision for income taxes		(1,051	)		(7,146	)		(6,009	)		(1,981	)		(13,471	)		(9,868	)
Income before loss in equity investments		4,185			28,458			28,609			7,495			50,965			37,631
Loss in equity investments		(46	)		(311	)		(408	)		(85	)		(577	)		(816	)
Net Income		4,139			28,147			28,201			7,410			50,388			36,815
Less: Net income attributable to noncontrolling interest		(346	)		(2,350	)		(2,457	)		(722	)		(4,909	)		(2,841	)
Net income attributable to ChinaCast Education Corporation		3,793			25,797			25,744			6,688			45,479			33,974
Earnings per share
Net income attributable to ChinaCast Education Corporation per share:
Basic		0.11			0.72			0.94			0.19			1.28			1.24
Diluted		0.11			0.72			0.94			0.19			1.27			1.22
Weighted average shares used in computation:
Basic		35,656,163			35,656,163			27,385,554			35,652,229			35,652,229			27,341,405
Diluted		35,802,327			35,802,327			27,385,554			35,725,311			35,725,311			27,838,906

See notes to unaudited condensed consolidated financial statements.

4

CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (Unaudited)
(In thousands, except share-related data)

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

See notes to unaudited condensed consolidated financial statements.

5

CHINACAST EDUCATION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)

	For the six months ended June 30,
	2009			2009			2008
	US$			RMB			RMB
	(Note 1)						(Note 1)
Cash flows from operating activities:
Net income		7,410			50,388			36,815
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,117			21,193			12,348
Share-based compensation		1,428			9,712			11,356
Gain on disposal of property and equipment		—			3			—
Loss in equity investments		85			577			816
Changes in assets and liabilities:
Accounts receivable		(2,033	)		(13,824	)		(4,586	)
Inventory		1			10			29
Prepaid expenses and other current assets		207			1,410			(2,223	)
Non-current deposits		(54	)		(364	)		1,081
Amounts due from related parties		88			600			1,160
Accounts payable		339			2,308			1,338
Accrued expenses and other current liabilities		922			6,256			(30,176	)
Deferred revenues		(9,012	)		(61,280	)		16,011
Amount due to related party		(4	)		(27	)		—
Income taxes payable		1,345			9,145			7,707
Deferred taxes liabilities		(184	)		(1,252	)		(816	)
Unrecognized tax benefits		553			3,764			(6	)
Net cash provided by operating activities		4,208			28,619			50,854
Cash flows from investing activities:
Advance to related party		(2,941	)		(20,000	)		(149	)
Repayment from advance to related party		4,322			29,392			8,817
Purchase of subsidiaries, net of cash acquired		—			—			(413,657	)
Purchase of property and equipment		(3,697	)		(25,142	)		(3,536	)
Term deposits		(20,250	)		(137,700	)		223,372
Net cash used in investing activities		(22,566	)		(153,450	)		(185,153	)
Cash flows from financing activities:
Other borrowings raised		1,522			10,350			1,680
Other borrowing raised from related party		74			500			—
Repayment of other borrowings		(76	)		(517	)		—
Bank borrowings raised		4,412			30,000			—
Guarantee deposit paid		(441	)		(3,000	)		—
Exercise of warrants		—			—			14,064
Repayment of capital lease obligation		3			20			(32	)
Net cash provided by financing activities		5,494			37,353			15,712
Effect of foreign exchange rate changes		—			(1)			(224	)
Net decrease in cash and cash equivalents		(12,864	)		(87,479	)		(118,811	)
Cash and cash equivalents at beginning of the period		32,372			220,131			138,610
Cash and cash equivalents at end of the period		19,508			132,652			19,799

See notes to unaudited condensed consolidated financial statements.

6

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share-related data)

1. BASIS OF PREPARATION

The accompanying unaudited condensed consolidated financial statements of ChinaCast Education Corporation (“CEC”, formerly Great Wall Acquisition Corporation (“Great Wall”)) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“US GAAP”) for complete financial statements and should be read in conjunction with the audited financial statements included in CEC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

In the opinion of the management of CEC, the accompanying unaudited condensed consolidated financial statements are prepared on the same basis as the audited financial statements and these unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results of the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results expected for any subsequent interim period or for CEC’s fiscal year ending December 31, 2009.

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

Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been using the same accounting policies used in the preparation of the audited financial statements included in CEC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, except for the following additional accounting policies:

(1) Adoption of Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51”.

Effective January 1, 2009, the Company adopted SFAS 160. The adoption did not impact the condensed consolidated financial statements for the three and six month periods ended June 30, 2009, except for the presentation and disclosure requirements affecting all periods presented including (a) the noncontrolling interest has been reclassified to equity, (b) consolidated net income or loss has been adjusted to include the net income or loss attributable to the noncontrolling interest, (c) consolidated comprehensive income or loss has been adjusted to include the comprehensive income or loss attributable to the noncontrolling interest and (d) for each reporting period the Company must present a reconciliation at the beginning and end of the period of the carrying amount of total equity and equity attributable to the Company and the noncontrolling interest.

(2) Adoption of SFAS No. 141(R), “Business Combinations”.

Effective January 1, 2009, the Company adopted SFAS 141(R). The adoption of SFAS No. 141(R) did not have a significant effect on the Company’s consolidated financial statements for the three and six month periods ended June 30, 2009.

Convenience Translation

Amounts in United States dollars (“US$”) are presented solely for the convenience of readers and an exchange rate of RMB6.8 to US$1 was applied as of June 30, 2009. Such translation should not be construed to be the amounts that would have been reported under US GAAP.

The Share Exchange Transaction

On December 22, 2006, Great Wall consummated the voluntary conditional offer (the “Offer”) made in Singapore to acquire all of the outstanding ordinary shares of ChinaCast Communication Holdings Limited (“ChinaCast”). Pursuant to the terms of the Offer, ChinaCast shareholders had the option to receive either shares of CEC or a cash payment for each ChinaCast share tendered. On January 18, 2007, the closing date of the Offer, total shares acquired were 80.27%. Since Great Wall was not an operating company and the shareholders of ChinaCast control the combined company after the above transaction consummated on December 22, 2006 (the “Share Exchange Transaction”), the Share Exchange Transaction was accounted for as a recapitalization in which ChinaCast was the accounting acquirer. The cash consideration paid as part of the Offer was accounted for as a capital distribution. The remaining outstanding ordinary shares of ChinaCast not acquired by Great Wall were reported as minority interest.

During the year ended December 31, 2007, CEC acquired additional shares by issuing shares of CEC and cash amount to RMB5,793 to certain original ChinaCast shareholders and, as of July 11, 2007, CEC increased its holdings to 100% of the outstanding ordinary shares of ChinaCast. The 19.73% of the additional shares acquired were accounted for on the same basis as the Share Exchange Transaction.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On April 9, 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FAS 107-1 and APB 28-1”). FAS 107-1 and APB 28-1 amend FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements of publicly traded companies. FAS 107-1 and APB 28-1 also amend APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. FAS 107-1 and APB 28-1 became effective on April 1, 2009. They do not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FAS 107-1 and APB 28-1 require comparative disclosures only for periods ending after initial adoption. The adoption of FAS 107-1 and APB 28-1 did not have a material effect on the Company’s consolidated financial statements.

On April 9, 2009, the FASB issued Staff Position No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FAS 115-2 and FAS 124-2”). FAS 115-2 and FAS 124-2 amend the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FAS 115-2 and FAS 124-2 do not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FAS 115-2 and FAS 124-2 became effective on April 1, 2009. They do not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FAS 115-2 and FAS 124-2 require comparative disclosures only for periods ending after initial adoption. The adoption of FAS 115-2 and FAS 124-2 did not have a significant effect on the Company’s consolidated financial position or results of operations.

On April 9, 2009, the FASB issued FASB Staff Position No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FAS 157-4”). FAS 157-4 provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased. FAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FAS 157-4 emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FAS 157-4 became effective on April 1, 2009 and is applied prospectively. It does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FAS 157-4 requires comparative disclosures only for periods ending after initial adoption. The adoption of FAS 157-4 did not have a significant effect on the Company’s consolidated financial position or results of operations.

On May 28, 2009, the FASB issued SFAS No. 165, “Subsequent Events”. The objective of SFAS No. 165 is to establish general standards for the accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, SFAS No. 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS No. 165 is effective for interim or annual periods ending after June 15, 2009. The adoption of SFAS No. 165 did not have a significant effect on the Company’s consolidated financial position or results of operations.

On June 12, 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”. SFAS No. 167 is a revision to FIN 46(R) and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS No. 167 retains the scope of FIN 46(R) with the addition of entities previously considered qualifying special-purpose entities, as the concept of these entities was eliminated in SFAS No. 166. The Statement is effective as of the beginning of the first fiscal year that begins after November 15, 2009. The Company is currently evaluating whether the adoption of SFAS No. 167 will have a significant effect on its consolidated financial position or results of operations.

7

3.

ACQUISITION

On April 11, 2008, Yupei Training Information Technology Co., Ltd., the Company’s subsidiary in the People’s Republic of China (the “PRC”), consummated the acquisition of an 80% interest in Hai Lai Education Technology Limited (“Hai Lai”) from Beijing Heng Tai Jufu Investment Limited. Hai Lai holds the entire interest in the Foreign Trade and Business College of Chongqing Normal University (“FTBC”) and Hai Yuen Company Limited (“Hai Yuen”). FTBC is a private college affiliated with Chongqing Normal University. The consideration for the acquisition was RMB480,000, of which RMB475,850 was paid during 2008. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price allocation was as follows:

				Amortization
	RMB			period
Cash		10,343
Other current assets		323
Non-current deposits		523
Property and equipment and land use rights		334,227		4-50 years
Intangible assets:
Customer relationship		40,329		41 months
Goodwill		309,717
Bank and other borrowings		(65,000	)
Other current liabilities		(83,779	)
Deferred tax liabilities		(23,296	)
Long-term bank loans		(20,000	)
Unrecognized tax benefits		(6,837	)
Noncontrolling interest		(16,550	)
Total		480,000

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

The Company believes that the acquisition furthers its strategy of expanding into the post-secondary bricks and mortar education market. The combination of these factors is the rationale for the excess of purchase price over the value of the assets acquired and liabilities assumed.

Pro forma

The following supplemental unaudited pro forma results of operations for the three months and six months ended June 30, 2008 presented the acquisition as if it had occurred on January 1, 2008. The unaudited pro forma results include estimates and assumptions regarding amortization of acquired intangible assets which the Company believes are reasonable. However, pro forma results are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the dates, indicated, or that may result in the future:

	For the three months ended June 30,		For the six months ended June 30,
	2008		2008
	RMB		RMB
Net revenues		76,893		163,713
Net income attributable to holders of o ordinary shares		25,705		31,626
Net income per share — basic		0.72		0.89
Net income per share — diluted		0.72		0.89

4.	NON-CURRENT DEPOSITS
	Non-current deposits consisted of the following:

	As of June 30,		As of December 31,
	2009		2008
	RMB		RMB
Rental deposits		530		166
Utilities deposits		270		270
Guarantee deposit		3,000		—
Other deposits		250		250
Total		4,050		686

Rental deposits represented office rental deposits for the Company’s daily operations. These deposits are classified into non-current deposits since they will not be refunded within one year.

Guarantee deposit represented a deposit placed with Chongqing Education Guarantee Co., Ltd. (“CQEG”), a long-term investment of the Company, which in turn provided guarantee in favor of the relevant bank for the Company’s bank borrowing of RMB30,000.

8

5.	COMPREHENSIVE INCOME
	The components of comprehensive income for the periods presented were as follows:

	For the three months ended June 30,						For the six months ended June 30,
	2009			2008			2009			2008
	RMB			RMB			RMB			RMB
Net income		28,147			28,201			50,388			36,815
Foreign currency translation adjustments		62			(63	)		(740	)		(246	)
Comprehensive income		28,209			28,138			49,648			36,569
Comprehensive income attributable to noncontrolling interest		(2,352	)		(2,457	)		(4,905	)		(2,841	)
Comprehensive income attributable to ChinaCast Education Corporation		25,857			25,681			44,743			33,728

6.	ACQUIRED INTANGIBLE ASSETS, NET
	Acquired intangible assets, net consisted of the following:

	As of June 30,			As of December 31,
	2009			2008
	RMB			RMB
Brand name usage right
Cost		22,532			22,532
Less: Accumulated amortization		(3,294	)		(3,004	)
Less: Impairment loss		(14,500	)		(14,500	)
		4,738			5,028
Customer relationship
Cost		40,329			40,329
Less: Accumulated amortization		(21,918	)		(14,027	)
		18,411			26,302
Acquired intangible assets, net		23,149			31,330

On August 30, 2007, the Company acquired 100% of the outstanding registered capital of Modern English Trademark Limited (“MET”), in exchange for cash of RMB22,532 (US$3,000). MET has no assets or liabilities except for a 10-year exclusive brand name usage right. The acquisition was recorded as an intangible asset, which is being amortized on a straight-line basis over 10 years. In 2008, an impairment loss amounting to RMB14,500 was recorded in relation to this brand name usage right.

For the three and six month periods ended June 30, 2009, the Company recorded amortization expense in respect of the brand name usage right amounting to RMB145 and RMB290, respectively. The Company will record amortization expenses in respect of brand name usage right of RMB290, RMB580, RMB580, RMB580, RMB580, RMB2,128 in 2009, 2010, 2011, 2012, 2013 and 2014 and thereafter, respectively.

On April 11, 2008, the Company acquired a customer relationship through an acquisition (see Note 3). The customer relationship is being amortized using accelerated amortization method over 41 months based on the estimated progression of the students through the respective courses, giving consideration to the revenue and cash flow associated.

For the three and six month periods ended June 30, 2009, the Company recorded amortization expense in respect of the customer relationship amounting to RMB3,945 and RMB7,891, respectively. The Company will record amortization expenses in respect of the customer relationship of RMB6,136, RMB8,767 and RMB3,508 in 2009, 2010 and 2011, respectively.

9

7.	BORROWINGS
	In June 2009, a bank borrowing amounting to RMB30,000 was raised. The bank borrowing carried interests at the benchmark interest rate announced by the People’s Bank of China plus 10% to 20% per annum and was secured by guarantees given by CQEG and by Hai Lai in favor of the relevant bank. In connection with the guarantee given by CQEG, the entitlement to tuition fees from students of FTBC and a deposit of RMB3,000 were pledged to CQEG. RMB10,000 of the borrowing will be repayable on September 30, 2010, the remaining RMB20,000 will be repayable on June 19, 2011 and accordingly the borrowing was classified as a non-current liability.
	A bank borrowing outstanding as of January 1, 2009 amounting to RMB20,000 was repayable in June 2009 under its original terms of the loan agreement. In June 2009, the Company entered into an agreement with the relevant bank that effectively extended the maturity of the borrowing to June 2010 and accordingly the borrowing continued to be classified as a current liability.
	During the six months ended June 30, 2009, an aggregate amount of other borrowings amounting to RMB10,850 was raised. The borrowings carried interest at 6.31% per annum, were unsecured and repayable within one year. Accordingly, the borrowings were classified as a current liability.
8.	STOCK COMPENSATION PLAN
	Under the 2007 Omnibus Securities and Incentive Plan (“2007 Plan”) adopted in May 2007, the Company may grant any awards to eligible participants, including employees, directors or consultants, to purchase up to 2,500,000 ordinary shares.
	On July 11, 2007, the Company granted, under the 2007 Plan, 12,500 restricted shares to its employees at no consideration. The per share fair value of ordinary shares as of the grant date was US$5.65 (RMB42.75).
	On January 11, 2008, the Company granted, under the 2007 Plan, restricted shares to its three directors at no consideration. Each of the three directors was granted 100,000 restricted shares of the Company’s common stock. All of the shares of restricted stock granted to the directors were issued at fair market value based on the closing price on January 11, 2008 of US$6.25 (RMB45.38). For each of the three directors of CEC, 10,000, 30,000 and 60,000 restricted shares were/will be vested on February 9, 2008, February 9, 2009 and February 9, 2010, respectively. On June 25, 2009, 120,000 restricted shares were issued. On January 11, 2008, the Company granted, under the 2007 Plan, 1,200,000 share options on the Company’s common stock to selected employees at no consideration. The exercise price of the share options granted is US$6.30 and the expiry date is January 11, 2018. A total of 401,000, 401,000 and 398,000 share options were/will be vested on March 31, 2008, March 31, 2009 and March 31, 2010, respectively. Upon exercise of these share options, a total of 1,200,000 common stock will be issued. As of June 30, 2009, no restricted shares or share options have been forfeited.
	A summary of the share option activity under 2007 Plan was as follows:

			Weighted
			average
			exercise
	Number		price
	of options		US$
Options outstanding at January 1, 2007 and December 31, 2007
Granted		—		—
Exercised		1,200,000		6.30
Cancelled		—		—
		—		—
Options outstanding at December 31, 2008
		1,200,000		6.30
Granted
Exercised		—		—
Cancelled		—		—
		—		—
Options outstanding at June 30, 2009
		1,200,000		6.30
Options exercisable at June 30, 2009
		802,000		6.30

The per share fair value of options as of January 11, 2008, the grant date was as follows:

Ordinary shares	US$	2.67
	(RMB	19.33	)

The aggregate intrinsic value of share options outstanding and exercisable as of June 30, 2009 was US$1,044 and US$698, respectively.

The weighted average remaining contractual life is 8.5 years as of June 30, 2009.

Total share-based compensation expenses amounting to RMB3,134 and RMB2,241 were recognized for the three month periods ended June 30, 2009 and 2008, respectively. Total share-based compensation expenses amounting to RMB9,712 and RMB11,356 were recognized for the six month periods ended June 30, 2009 and 2008, respectively.

There was RMB9,443 of total unrecognized compensation expense related to nonvested restricted shares and share options as of June 30, 2009.

As of June 30, 2009, no other awards have been granted under the 2007 Plan.

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9.	INCOME TAXES
	On March 16, 2007, the National People’s Congress enacted a new enterprise income tax law, which took effect on January 1, 2008. The new law applies a uniform 25% enterprise income tax rate to both foreign invested enterprises and domestic enterprises. The new law provides a five-year transition period from its effective date for the entitled enterprises which were established before the promulgation date of the new tax law and which were entitled to a preferential tax treatment such as a reduced tax rate or a tax holiday. According to transitional rules published after the new income tax law, one of the Company’s major operating subsidiaries, CCT Shanghai, which was subject to the preferential tax rate of 15%, is now eligible to the phased-in rates: 18% in 2008, 20% in 2009, 22% in 2010, 24% in 2011, 25% in 2012 and thereafter.
	On April 11, 2008, the Company consummated the acquisition of an 80% interest in Hai Lai. Hai Lai holds the entire interest in FTBC and Hai Yuen. Hai Lai was incorporated in the PRC and is subject to PRC income tax rate of 25% since 2008. FTBC and Hai Yuen were incorporated in Chongqing of the PRC and are subject to the preferential tax rate of 15% until 2010 in accordance with the western development preferential policy.
	The Company considers itself to be permanently reinvested with respect to its investment in its foreign subsidiaries. Accordingly, no deferred income tax liability related to the unremitted earnings of its foreign subsidiaries has been included in the Company’s provision for income taxes. Upon distribution of subsidiaries earnings in the form of dividends or otherwise, the Company would be subject to a withholding tax calculated based on 10% of the gross amount of distribution.
	The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” on January 1, 2007. During the six months ended June 30, 2009, the unrecognized tax benefits increased from RMB44,612 to RMB48,376.
10.	NET INCOME ATTRIBUTABLE TO CHINACAST EDUCATION CORPORATION PER SHARE
	Reconciliation of the basic and diluted net income per share is as follows:

	For the three months ended June 30,				For the six months ended June 30,
	2009		2008		2009		2008
Numerator used in basic and diluted net income attributable to ChinaCast Education Corporation per share:
Income attributable to holders of ordinary shares		RMB25,797		RMB25,744		RMB45,479		RMB33,974
Shares (denominator):
Weighted average ordinary shares outstanding used in computing basic net income attributable to ChinaCast Education Corporation per share		35,656,163		27,385,554		35,652,229		27,341,405
Plus:
Incremental ordinary shares from assumed exercises of Underwriter Warrants and restricted shares granted to directors (Note 12)		146,164		—		73,082		497,501
Weighted average ordinary shares outstanding used in computing diluted net income attributable to ChinaCast Education Corporation per share		35,802,327		27,385,554		35,725,311		27,838,906
Net income attributable to ChinaCast Education Corporation per share—basic:		RMB0.72		RMB0.94		RMB1.28		RMB1.24
Net income attributable to ChinaCast Education Corporation per share —diluted:		RMB0.72		RMB0.94		RMB1.27		RMB1.22

The diluted net income attributable to ChinaCast Education Corporation per share calculations for three and six month periods ended June 30, 2009 have not included the outstanding Warrants, UPO, UPO Warrants (see Note 12) or the outstanding employee share options since the effect is anti-dilutive.

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11.

SEGMENT INFORMATION

Since the acquisition of Hai Lai in April 2008, the Company has been organized as two business segments, the E-learning and training service Group (“ELG”), encompassing all the Company’s business operations before the acquisition, and the Traditional University Group (“TUG”), offering bachelor and diploma programs to students in the PRC. The Company follows the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, which establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer. The following were details of the Company’s reportable segments:

	For the three months ended June 30,				For the six months ended June 30,
	2009		2008		2009		2008
	RMB		RMB		RMB		RMB
Revenues from external customers:
ELG		47,433		48,311		94,628		107,805
TUG		28,644		25,612		58,387		25,612
		76,077		73,923		153,015		133,417
Additional analysis of revenues from ELG by product or service:
Service		46,140		45,196		90,459		85,401
Equipment		1,293		3,115		4,169		22,404
		47,433		48,311		94,628		107,805
Additional analysis of revenues from ELG by business lines:
Post secondary education distance learning		26,622		24,049		52,451		46,807
K-12 and content delivery		16,044		17,418		32,263		33,280
Vocational training, enterprise/government training and networking services		4,767		6,844		9,914		27,718
		47,433		48,311		94,628		107,805
Income from operations:
ELG		26,547		22,406		43,602		29,439
TUG		8,297		6,673		19,215		6,673
		34,844		29,079		62,817		36,112

	As of June		As of December
	30, 2009		31, 2008
	RMB		RMB
Segment assets:
ELG		777,481		725,516
TUG		752,066		773,643
		1,529,547		1,499,159

The Company’s revenues and net income are substantially derived from the PRC. Most of the assets and capital expenditure of the Company are employed in the PRC.

There were no customers accounting for 10% or more of total net revenues for the three and six month periods ended June 30, 2009.

Two customers as of June 30, 2009 and four different customers as of December 31, 2008 each accounted for 10% or more of the Company’s accounts receivable balances, representing an aggregate of 23.7% and 55.4% of the Company’s accounts receivable balance at June 30, 2009 and December 31, 2008, respectively.

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12.	WARRANTS AND UNIT PURCHASE OPTIONS
	In March 2004, Great Wall sold 4,515,975 units in its initial public offering. Each unit consists of one share of the Company’s common stock and two redeemable common stock purchase warrants (“Warrants”). Each Warrant will entitle the holder to purchase from the Company one share of common stock at an exercise price of US$5 commencing on the consummation of the Share Exchange Transaction. In no event will the Company be required to net cash settle the warrant exercise.
	In April 2008, 50,100 Warrants had been exercised at an exercise price of US$5.
	In June and July 2008, the Company entered into agreements with Fir Tree Value Master Fund, L.P. and Fir Tree Capital Opportunity Master Fund, L.P. (collectively, “Fir Tree”), Sherleigh Associates Inc. Profit Sharing Plan and Sherleigh Associates Inc. Defined Benefit Pension Plan (collectively, “Sherleigh”) and Capela Overseas Ltd (“Capela”), (Fir Tree, Sherleigh and Capela, collectively, the “Warrantholders”), whereby the Company agreed to reduce the exercise price of the Warrants held by Fir Tree, Sherleigh and Capela from US$5.00 per share to US$4.25 per share. In connection with the reduction in the price of the Warrants, in June 2008, Fir Tree exercised in full an aggregate of 3,007,200 Warrants and Sherleigh exercised in full an aggregate of 411,882 Warrants. In July, Capela exercised in full an aggregate of 94,117 Warrants. As additional consideration for the Warrantholders exercising the Warrants in full as well as for the value of the Warrants, in June 2008 the Company issued 459,924 restricted shares of common stock of the Company to Fir Tree and 62,993 restricted shares of common stock of the Company to Sherleigh. In July, the Company issued 14,394 restricted shares of common stock of the Company to Capela.
	All the outstanding Warrants expired in March 2009.
	In connection with the initial public offering, Great Wall issued, for $100, a “UPO” to the representative of the underwriters to purchase 400,000 units at an exercise price of US$9.90 per unit. In addition, the warrants (“UPO Warrants”) underlying such units are exercisable at US$6.95 per share. In January 2008, the underwriters exercised the UPO to purchase 5,000 units.
	There was no remeasurement required for these assumed Warrants and UPO because such assumption is part of the recapitalization in connection with the Share Exchange Transaction.
	In connection with the share offering which was consummated in October 2008, the Company sold to the underwriter in December 2008, for nominal consideration, an aggregate of 255,000 Underwriter Warrants with a price of US$3.15 per share. The Underwriter Warrants will be exercisable for five years from the closing date of the share offering. There was no remeasurement required for these Underwriter Warrants since they do not provide for a net cash settlement.
	All the outstanding UPO and UPO Warrants expired during the six months ended June 30, 2009. As of June 30, 2009, there were 255,000 Underwriter Warrants outstanding.
13.	CONTINGENCIES

a)

On March 21, 2006, after obtaining the approval of its shareholders, the Company amended its certificate of incorporation, the effect of which was, among other things, to eliminate the provision of the certificate of incorporation that purported to prohibit the amendment of the “business combination” provisions contained therein and to extend the date before which the Company must complete a business combination, to avoid being required to liquidate, from March 23, 2006 to December 31, 2006. Because extending the period during which the Company could consummate a business combination was not contemplated by the initial public offering (“IPO”) prospectus, shareholders may have securities law claims against the Company for rescission (under which a successful claimant would have the right to receive the total amount paid for his or her shares, plus interest and less any income earned on the shares, in exchange for surrender of the shares) or damages (compensation for loss on an investment caused by alleged material misrepresentations or omissions in the sale of the security). Such claims might entitle shareholders asserting them to up to US$6.00 per share of common stock, based on the initial offering price of the public units comprised of stock and warrants, less any amount received from sale of the original warrants purchased with them and plus interest from the date of the IPO. A successful claimant for damages under federal or state law could be awarded an amount to compensate for the decrease in value of his or her shares caused by the alleged violation (including, possibly, punitive damages), together with interest, while retaining the shares. The Company believes the shareholder claims for rescission or damages are remote. As such, the Company has not recorded a liability for such possible rescission. However, the Company cannot definitively predict whether shareholders will bring such claims, how many might bring them or the extent to which they might be successful.

b)

The Company may be subject to claims for rescission or other securities law claims resulting from the failure to disclose that the charter provision purporting to prohibit certain amendments was possibly inconsistent with Delaware’s General Corporation Law. The Company may also be subject to such claims as a result of inaccuracies in other disclosures, as follows: It may be argued that the IPO prospectus misstated the vote required by its charter to approve a business combination by providing that “[w]e will proceed with a business combination only if the public shareholders who own at least a majority of the shares of common stock sold in [that] offering vote in favor [of it] ...,” and that the Exchange Act reports have been inaccurate in describing ChinaCast as a leading provider of e-learning content (as opposed to being primarily a content carrier). On November 13, 2006, the Company filed a Current Report on Form 8-K with the SEC regarding this last item. The Company is unable to predict the likelihood that claims might be made with regard to the foregoing or estimate any amounts for which it might be liable if any such claim was made. As such, the Company has not recorded a liability for such possible rescission.

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

Forward Looking Statements

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

Overview

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

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

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

Critical Accounting Policies

For summary of the critical accounting policies and the significant judgments and estimates made on the part of the management, see item 7 of Form 10-K for the year ended December 31, 2008 filed by the Company on March 16, 2009. The following are accounting policies that were either new or were adopted during the six months ended June 30, 2009.

(1) Adoption of SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51”.

Effective January 1, 2009, we adopted SFAS 160. The adoption did not impact the condensed consolidated financial statements for the quarter ended March 31, 2009, except for the presentation and disclosure requirements affecting all periods presented including (a) the noncontrolling interest has been reclassified to equity, (b) consolidated net income or loss has been adjusted to include the net income or loss attributable to the noncontrolling interest, (c) consolidated comprehensive income or loss has been adjusted to include the comprehensive income or loss attributable to the noncontrolling interest and (d) for each reporting period the Company must present a reconciliation at the beginning and end of the period of the carrying amount of total equity and equity attributable to the Company and the noncontrolling interest.

(2) Adoption of SFAS No. 141(R), “Business Combinations”.

Effective January 1, 2009, the Company adopted SFAS 141(R). The adoption of SFAS No. 141(R) did not have a significant effect on our consolidated financial statements for the six months ended June 30, 2009.

14

Results of Operations

For the purpose of the discussion and analysis of the results of ChinaCast Education Corporation (“CEC”), its subsidiaries, and variable interest entities in this section, the consolidated group is referred to as the “Company”. The satellite operating entity, ChinaCast Company Limited, is referred to as “CCL”. CCL was not accounted for as a consolidated variable interest entity, because the Company was not considered to be the primary beneficiary of CCL. CCL’s registered branch in Beijing is referred to as “CCLBJ.” The US dollar figures presented below were based on the historical exchange rate of 1USD = 6.8RMB at June 30, 2009 for the three months and six months ended June 30, 2009.

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

Three Months Ended June 30, 2009 compared to the Three Months Ended June 30, 2008. The revenue of the Company for the three months and six months ended June 30, 2009 amounted to RMB76.1 million (US$11.2 million) and RMB153.0 million (US$22.5 million), respectively representing an increase of 2.9% and 14.7% over the revenue of the corresponding period in 2008. The increase in revenue for the six months ended June 30, 2009 was mainly due to the acquisition of Hai Lai, which forms the TUG, in the second quarter of 2008.

Revenue of the ELG amounted to RMB47.4 million (US$7.0 million) and RMB94.6 million (US$13.9 million) for the three months and six months ended June 30, 2009, respectively, as compared to revenue of RMB48.3 million and RMB107.8 million of the ELG for the three months and six ended June 30, 2008. Service income, mainly of a recurring nature amounted to RMB46.1 million (US$6.8 million) and RMB90.5 million (US$13.3 million) for the three months and six months ended June 30, 2009, respectively, compared to RMB45.2 million and RMB85.4 million for the same periods in 2008. Equipment sales, mainly project based, amounted to RMB1.3 million (US$0.2 million) and RMB4.2 million (US$0.6 million) for the three months and six months ended June 30, 2009, respectively, against RMB3.1 million and RMB22.4 million for the same periods last year. The following table provides a summary of the ELG’s revenue by business lines:

	Three Months ended
	June 30, 2009				June 30, 2008
(millions)	US$		RMB		RMB
Post secondary education distance learning		3.9		26.6		24.1
K-12 and content delivery		2.4		16.0		17.4
Vocational training, enterprise / government training and networking and English training services		0.7		4.8		6.8
Total ELG revenue		7.0		47.4		48.3

	Six Months ended
	June 30, 2009				June 30, 2008
(millions)	US$		RMB		RMB
Post secondary education distance learning		7.7		52.5		46.8
K-12 and content delivery		4.7		32.2		33.3
Vocational training, enterprise / government training and networking and English training services		1.5		9.9		27.7
Total ELG revenue		13.9		94.6		107.8

Net revenue from post secondary education distance learning services increased from RMB46.8 million in the six months ended June 30, 2008 to RMB52.5 million (US$7.7 million) in six months ended June 30, 2009. Net revenue from post secondary education distance learning services increased from RMB24.1 million in the three months ended June 30, 2008 to RMB26.6 million (US$3.9 million) in three months ended June 30, 2009. The total number of post-secondary students enrolled in courses using the Company’s distance learning platforms including contracts with CCLBJ, increased to 135,000 at June 30, 2009 from 128,000 at June 30, 2008. The increase was due to the continuous growth of students enrolled in distance learning degree courses with the universities.

15

The revenue from the K-12 and content delivery business decreased slightly by approximately 3.0% from RMB33.3 million for the six months ended June 30, 2008 to RMB32.3 million (US$4.8 million) for the six months ended June 30, 2009. The revenue from the K-12 and content delivery business decreased slightly by approximately 8.0% from RMB17.4 million for the three months ended June 30, 2008 to RMB16.0 million (US$2.4 million) for the three months ended June 30, 2009. The number of subscribing schools for K-12 distance learning services has stabilized at 6,500. The decrease in revenue was due to fluctuation in project-based revenues.

Net revenue from vocational and career training services, enterprise government training and networking and English language training services decreased from RMB27.7 million during the six months ended June 30, 2008 to RMB9.9 million (US$1.5 million) during the six months ended June 30, 2009. Net revenue from vocational and career training services, enterprise government training and networking and English language training services decreased from RMB6.8 million during the three months ended June 30, 2008 to RMB4.8 million (US$0.7 million) during the three months ended June 30, 2009. The decrease was mainly due to fluctuations in equipment sales, the nature of which is not recurring. Equipment sales included in the revenue of this business line amounted to RMB1.3 million (US$0.2 million) for the three months ended June 30, 2009, against RMB3.1 million during the same period last year.

TUG was newly established in the second quarter of 2008 after the acquisition of Hai Lai, and its revenue amounted to RMB28.6 million (US$4.2 million) and RMB58.4 million (US$8.6 million) in the three months and six months ended June 30, 2009. TUG generated a revenue of RMB25.6 million for the second quarter of 2008. The increase in revenue in the second quarter of 2009 was a result of the increase in student enrollment. Foreign Trade and Business College of Chongqing Normal University (“FTBC”) had approximately 11,000 students as at June 30, 2008 and generated RMB26.9 million (US$4.0 million) tuition revenue in the second quarter of 2009. Other revenue of TUG, which comprises mainly accommodation and catering revenue, amounted to RMB1.7 million (US$0.3 million).

Cost of sales of the Company decreased by 6.8% from RMB64.7 million during the first half of 2008 to RMB60.3 million (US$8.9 million) during the first half of 2009. Cost of sales of the Company decreased by 12.1% from RMB33.6 million during the second quarter of 2008 to RMB29.5 million (US$4.3 million) during the second quarter of 2009. The decrease was due to the reduction in equipment sales.

ELG’s cost of materials decreased from RMB22.2 million during the first half of 2008 to RMB4.1 million (US$0.6 million) during the first half of 2009. ELG’s cost of materials decreased from RMB3.1 million during the second quarter of 2008 to RMB1.3 million (US$0.2 million) during the second quarter of 2009. The decrease was mainly due to fluctuations in equipment sales. The cost of service for the ELG amounted to RMB18.5 million (US$2.7 million) for the six months ended June 30, 2009, as compared to RMB24.1 million for the same period in 2008. The cost of service for the ELG amounted to RMB9.2 million (US$1.4 million) for the three months ended June 30, 2009, as compared to RMB12.2 million for the same period in 2008. The decrease in the seocnd quarter of 2009 as compared to the same period of 2008 was mainly due to the scale down of the English language training service and a reduction in transponder bandwidth fee.

TUG’s cost of sales amounted to RMB19.0 million (US$2.8 million) and RMB37.7 million (US$5.5 million) for the three and six months ended June 30, 2009, respectively, which comprises payroll to teaching staff, depreciation and amortization of the intangible asset. TUG’s cost of sales amounted to RMB18.3 million (US$2.7 million) for the three months ended June 30, 2008. The increase in the second quarter of 2009 as compared to the same period in 2008 was due to increase in student enrollment.

ELG’s gross profit margin increased by 9.6 percentage points, from 68.4% in the second quarter of 2008 to 78% in the second quarter of 2009. The increase was due to the decrease in equipment sales, which has a low margin and the increase in post secondary distance learning education revenue as well as the scale down of the training service and the reduction in transponder bandwidth fee. TUG’s gross profit margin was 33.6% for the second quarter of 2009 as compared to 28.4% for the same period of 2008. The increase was mainly due to the increase in student enrollment and revenue.

For the six months ended June 30, 2009, the Company received a management service fee of RMB3.3 million (US$0.5 million), as compared to RMB2.8 million during the six months ended June 30, 2008. For the three months ended June 30, 2009, the Company received a management service fee of RMB2.3 million (US$0.3 million), as compared to RMB2.0 million during the three months ended June 30, 2008. The management service fee arose from various agreements with CCL that entitled the Company to the economic benefits of its Beijing Branch — CCLBJ. CCLBJ is in the process of transferring all its outstanding businesses, mainly in post secondary education distance learning, to the Company. The increase in management fee was mainly due to the reduction in expenses in CCLBJ.

Selling and marketing expenses decreased from RMB4.4 million in the first half of 2008 to RMB2.7 million (US$0.4 million) in the first half of 2009. Selling and marketing expenses decreased from RMB0.9 million in the second quarter of 2008 to RMB0.8 million (US$0.1 million) in the second quarter of 2009. The decrease was due to the scale down of the English language training division started in the second quarter of 2008 as described in MD&A in the Form 10-K for the year ended December 31, 2008.

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General and administrative expenses increased slightly by 2.5% to RMB31.2 million (US$4.6 million) in the six months ended June 30, 2009 from RMB30.4 million during the six months ended June 30, 2008. General and administrative expenses increased slightly by 8.5% to RMB13.2 million (US$1.9 million) in the three months ended June 30, 2009 from RMB12.2 million during the three months ended June 30, 2008. The increase was mainly due to the increase in the share-based compensation included in general and administrative expenses, which increased from RMB2.1 million in the second quarter of 2008 to RMB2.9 million (US$0.4 million) in the second quarter of 2009.

The Company has foreign exchange gain of RMB0.1 million (US$0.02 million) for the first half of 2009 compared to a loss of RMB0.7 million during the first half of 2008. The Company has foreign exchange loss of RMB0.05 million (US$0.01 million) for the second quarter of 2009 compared to a loss of RMB0.2 million during the second quarter of 2008. The change was a result of stabilization of the change in the RMB/US exchange rate and the reduction of the Company’s holding in US dollars.

Interest income decreased from RMB11.6 million in the first half of 2008 to RMB4.8 million (US$0.7 million) in the first half of 2009. Interest income decreased from RMB5.7 million in the second quarter of 2008 to RMB2.5 million (US$0.4 million) in the second quarter of 2009. The decrease in the second quarter of 2009 was due to the reduction in interest rate as well as a lower amount of the Company’s term deposits.

Interest expense increased from RMB0.2 million in the first half of 2008 to RMB3.2 million (US$0.5 million) in the first half of 2009. Interest income increased from RMB0.2 million in the second quarter of 2008 to RMB1.7 million (US$0.3 million) in the second quarter of 2009. Interest expense was mainly associated with the loan of the TUG to finance the construction of the campus. A large portion of interest payment in the second quarter of 2008 was capitalized and no interest payment was capitalized in the second quarter of 2009.

Overall, profit before income tax and loss in equity investments increased from RMB34.6 million in the three months ended June 30, 2008 to RMB35.6 million (US$5.2 million) in the three months ended June 30, 2009, an increase of 3.0%. The increase was mainly due the increase in revenue.

The Company recorded a loss in equity investments amounted to RMB0.3 million (US$0.05 million) in the second quarter of 2009 compared to a loss of RMB0.4 million in the second quarter of 2008.

Income taxes increased by 18.7% from RMB6.0 million in the second quarter of 2008 to RMB7.1 million (US$1.0 million) in the second quarter of 2009. The increase was due to the increase in business and a higher tax rate for the ELG.

Noncontrolling interest amounted to RMB2.4 million (US$0.3 million) for the three months ended June 30, 2009 as compared to RMB2.5 million for the three months ended June 30, 2008. The minority interest resulted from the acquisition of Hai Lai, in which there is a 20% minority stake.

Net income attributable to the Company increased by 0.4% to RMB25.8 million (US$3.8 million) in the three months ended June 30, 2009 from RMB25.7 million in the three months ended June 30, 2008.

On March 16, 2007, the National People’s Congress of China enacted a new tax law, under which foreign-invested enterprises and domestic companies will be subject to enterprise income tax at a uniform rate of 25% . The new tax law became effective on January 1, 2008. There is a transition period, during which enterprises may continue to enjoy existing preferential tax treatment or in which their tax rates may be gradually adjusted to 25%. Following the effectiveness of the new tax law, one of the Company’s major operating subsidiaries, CCT Shanghai, which was subject to the preferential tax rate of 15%, is now eligible to the phased-in rates, which is 18% in 2008, 20% in 2009, 22% in 2210, 24% in 2011, 25% in 2012 and thereafter.

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Liquidity and Capital Resources

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

					As of
	As of				December 31,
	June 30, 2009				2008
(millions)	RMB		US$		RMB
Cash and cash equivalents		132.7		19.5		220.1
Term deposits		506.7		74.5		369.0
Subtotal		639.4		94.0		589.1
Accounts receivable		46.4		6.8		32.6
Inventory		1.4		0.2		1.4
Prepaid expenses and other current assets		8.1		1.2		9.0
Total current assets		697.1		102.5		634.6
Non-current advances to a related party		100.8		14.8		110.2
Total assets		1,529.5		224.9		1,499.2

Cash and cash equivalents balances decreased from RMB220.1 million as at December 31, 2008, to RMB132.7 million (US$19.5 million) as at June 30, 2009. The decrease of approximately 39.7% was mainly because of transfer to fixed deposits.

There was net cash generated from operating activities of RMB28.6 million (US$4.2 million) for the six months ended June 30, 2009 as compared to net cash from operating activities of RMB50.9 million for the six months ended June 30, 2008. In the first half of 2009, there was an increase in accounts receivable in the current period which is mainly due to that several universities settled the payments near the end of year 2008 which is earlier than usual. Additionally, a considerable part of the revenue recognized in the current period, in particular the revenue of the TUG, was received in previous periods. Revenue is recognized ratably throughout the periods services are provided, but payments may be received ahead of or behind the revenue being recognized. Payments received before recognition of revenue are recorded as deferred revenue while payments not received at the time goods and service have been provided are recorded as accounts receivable. For revenue related to project sales, the timing of payments depended upon the terms of the contracts.

Net cash used in investment activities in the first six months of 2009 was RMB153.4 million (US$22.6 million), mainly reflecting the transfer from term deposit of RMB137.7 million (US$20.3 million). For the six months ended June 30, 2008, transfer from term deposit amounted to RMB223.4 million to finance the acquisition of Hai Lai.

Net cash provided by financing activities in the first six months of 2009 was RMB37.4 million (US$5.5 million). New loans were obtained to finance the expansion of the capacity of FTBC.

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

Total assets at June 30, 2009 amounted to RMB1,529.5 million (US$224.9 million), an increase of 2.0%, when compared to the total assets amounting to RMB1,499.2 million at December 31, 2008. Total current assets increased by 9.8% to RMB697.1 million at June 30, 2009.

Accounts receivable increased from RMB32.6 million as at December 31, 2008 to RMB46.4 million (US$6.8 million) at June 30, 2009. The increase was due to the seasonal factor in the settlement of accounts receivable by the Company’s customers. Most of the business partners are long term customers and settle their accounts promptly. All accounts receivable are reviewed regularly and provisions have been made for any balances that are disputed or doubtful.

Inventory, mainly made up of satellite transmission and receiving equipment, decreased slightly to RMB1.4 million (US$0.2 million) at June 30, 2009.

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Prepaid expenses and other current assets decreased from RMB9.0 million as at December 31, 2008 to RMB8.1 million (US$1.2 million). The decrease was mainly due to the reduction in accrued interest for the term deposits.

The Company also funded the operation of a related party, CCL, which held the satellite license before transferring it to the Company. The related party is still in the process of transferring its satellite related businesses to the Company. Amounts advanced to the related party were RMB100.8 million (US$14.8 million) as at June 30, 2009. As at December 31, 2008, the amount advanced was RMB110.2 million, the decrease is mainly due to repayment made.

As at June 30, 2009, the Company had total long-term bank loans of RMB108.4 million (US$15.9 million). RMB78.4 million of the bank loans are expiring within one year were secured by pledge of certain land use rights and buildings in Hai Lai, the entitlement to accommodation income of the student apartments of FTBC and guarantees given by certain individuals. The rest RMB30.0 million of bank loan is expiring over one year which was secured by the guarantees provided by Chongqing Education Guarantee Co., Ltd. (“CQEG”) and Hai Lai. In consideration of the guarantees provided by CQEG, the entitlement to tuition fee of FTBC and a deposit of RMB3 million paid to CQEG were used as securities.

Off-Balance Sheet Arrangements

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Foreign Exchange Risk

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

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

     Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although currently the Renminbi exchange rate versus the U.S. dollar is restricted to a rise or fall of no more than 0.3% per day and the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, the PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and lessen intervention in the foreign exchange market. As of the close of business on June 30, 2009, the exchange rate between the RMB and the U.S. dollar was RMB6.8 to US$1.

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

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

     We recognized a foreign exchange gain of approximately RMB0.05 million (US$0.01 million) and a foreign exchange loss of approximately RMB0.12 million (US$0.02 million) for the three months and six months ended June 30, 2009, respectively. We do not currently engage in hedging activities, as such, we may in the future experience economic loss as a result of any foreign currency exchange rate fluctuations.

Interest Rate Risk

     We have a long history of investing excess cash under a conservative corporate policy that only allows investments in bank fixed deposits, with preservation of capital and liquidity as the primary objectives. For the three months and six months ended June 30, 2009, we recorded an interest income of RMB2.5 million (US$0.4 million) and of RMB4.8 million (US$0.7 million), respectively. Any significant changes in interest rate might have an adverse effect on this interest income.

     We have short-term and long-term debt amounting to RMB108.4 million (US$15.9 million) as at June 30, 2009. Interest paid in the three months and six months ended June 30, 2009 was RMB1.6 million (US$0.2 million) and RMB3.1 million (US$0.4 million), respectively. Any significant changes in interest rate might have an adverse effect on interest expense. There have been no material changes associated with the impact of inflation and concentration of credit risk from that previously disclosed in our 2008 Annual Report on Form 10-K.

Inflation

     There have been no material changes associated with the impact of inflation from that previously disclosed in our 2008 Annual Report on Form 10-K.

Item 4. Controls and Procedures.

     We maintain “disclosure controls and procedures,” as such term is defined under Exchange Act Rule 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2009. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2009 our disclosure controls and procedures were effective.

     There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter of 2009 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

     There are no material changes from risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 16, 2009.

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

     None.

Item 3. Defaults Upon Senior Securities.

     None.

Item 4. Submission of Matters to a Vote of Security Holders.

     None.

Item 5. Other Information.

     None.

Item 6. Exhibits.

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Insider Trading Policy

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SIGNATURES

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

	CHINACAST EDUCATION CORPORATION (Registrant)
Date: August 10, 2009	By:	/s/ Ron Chan Tze Ngon
	Name: Ron Chan Tze Ngon
	Title: Chairman of the Board,
	Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Antonio Sena
	Name: Antonio Sena
	Title: Chief Financial Officer and
	Secretary (Principal Financial Officer)

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