CHINACAST EDUCATION CORPORATION

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, 2008


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


		For the transition period to

Commission File Number 000-50550

CHINACAST EDUCATION CORPORATION

(Exact Name of Issuer as Specified in Its Charter)


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

15F Reignwood Center,
8 Yong An Dongli
Jianguo Menwai Avenue,
Beijing, 100022, People’s Republic of China
(Address of Principal Executive Offices)

(8610) 6566-7788
(Issuer’s Telephone Number, Including Area Code)

Great Wall Acquisition Corporation
Former Name If Applicable

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 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 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. (Check one):

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company o

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

There were 31,398,252 shares of the Company’s common stock, par value $0.0001 per share, outstanding as of August 11, 2008.

Transitional Small Business Disclosure Format (Check one): Yes o No þ

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, 2008						December 31, 2007
	US$			RMB			RMB
	(Note 1)
Assets
Current assets:
Cash and cash equivalents		2,869			19,799			138,610
Term deposits		54,115			373,396			596,768
Accounts receivable, net of allowance of RMB148 for both 2008 and 2007		5,664			39,078			35,316
Inventory		288			1,986			2,015
Prepaid expenses and other current assets		1,397			9,644			7,127
Amounts due from related parties		303			2,088			3,248

Total current assets		64,636			445,991			783,084
Non-current deposits		195			1,350			1,948
Property and equipment, net		32,893			226,959			11,107
Land use rights		19,780			136,485			—
Acquired intangible assets, net		8,775			60,546			21,781
Long-term investments		1,500			10,349			11,165
Non-current advances to a related party		16,123			111,246			119,914
Goodwill		42,184			291,069			1,715

Total assets		186,086			1,283,995			950,714

Liabilities, minority interest, and shareholders’ equity Current liabilities:
Accounts payable		3,473			23,965			13,027
Accrued expenses and other current liabilities		24,217			167,099			53,376
Income taxes payable		6,576			45,374			31,237
Other borrowings		1,200			8,280			—
Current portion of long-term bank loans		10,638			73,400			—
Current portion of capital lease obligation		—			—			34

Total current liabilities		46,104			318,118			97,674

Non-current liabilities:
Long-term bank loans		725			5,000			—
Deferred tax liabilities		4,076			28,123			—
Unrecognized tax benefits		5,032			34,723			27,892

Total non-current liabilities		9,833			67,846			27,892

Total liabilities		55,937			385,964			125,566

Minority interest		5,783			39,902			20,512

Commitments and contingencies (Note 14)
Shareholders’ equity:
Ordinary shares (US$0.0001 par value; 100,000,000 shares authorized in 2008 and 2007; 31,289,742 and 27,292,641 shares issued and outstanding in 2008 and 2007, respectively)		3			24			21
Subscription receivable		(12,706	)		(87,670	)		—
Additional paid-in capital		126,932			876,724			768,844
Statutory reserve		3,118			21,513			16,087
Accumulated other comprehensive loss		(790	)		(5,451	)		(5,205	)
Retained earnings		7,809			52,989			24,889

Total shareholders’ equity		124,366			858,129			804,636

Total liabilities, minority interest, and shareholders’ equity		186,086			1,283,995			950,714

See notes to unaudited condensed consolidated financial statements.

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,
	2008			2008			2007			2008			2008			2007
	US$			RMB			RMB			US$			RMB			RMB
	(Note 1)									(Note 1)
Revenues:
Service		10,262			70,808			34,487			16,089			111,013			68,022
Equipment		451			3,115			7,786			3,247			22,404			14,106

		10,713			73,923			42,273			19,336			133,417			82,128

Cost of revenues:
Service		(4,419	)		(30,496	)		(10,333	)		(6,156	)		(42,482	)		(21,089	)
Equipment		(448	)		(3,090	)		(8,168	)		(3,217	)		(22,195	)		(14,411	)

		(4,867	)		(33,586	)		(18,501	)		(9,373	)		(64,677	)		(35,500	)

Gross profit		5,846			40,337			23,772			9,963			68,740			46,628

Operating (expenses) income:
Selling and marketing expenses (including share-based compensation of RMB1,392 and RMBnil for the six months ended June 30 for 2008 and 2007, respectively, share-based compensation of RMB111 and RMBnil for the three months ended June 30 for 2008 and 2007, respectively)		(128	)		(882	)		(2,086	)		(633	)		(4,369	)		(2,765	)
General and administrative expenses (including share-based compensation of RMB9,964 and RMBnil for the six months ended June 30 for 2008 and 2007, respectively, share-based compensation of RMB2,130 and RMBnil for the three months ended June 30 for 2008 and 2007, respectively)		(1,766	)		(12,183	)		(10,930	)		(4,407	)		(30,399	)		(20,998	)
Foreign exchange loss		(27	)		(186	)		(2,299	)		(94	)		(651	)		(3,143	)
Management service fee		289			1,993			7,128			405			2,791			11,829

Total operating expenses, net		(1,632	)		(11,258	)		(8,187	)		(4,729	)		(32,628	)		(15,077	)

Income from operations		4,214			29,079			15,585			5,234			36,112			31,551
Interest income		829			5,721			3,917			1,677			11,573			6,822
Interest expense		(26	)		(182	)		(2	)		(27	)		(186	)		(30	)
Income before provision for income taxes, earnings in equity investments, and minority interest and discontinued operations		5,017			34,618			19,500			6,884			47,499			38,343
Provision for income taxes		(871	)		(6,009	)		(4,540	)		(1,430	)		(9,868	)		(8,032	)

Income before earnings in equity investments, minority interest, and discontinued operations		4,146			28,609			14,960			5,454			37,631			30,311
Loss in equity investments		(59	)		(408	)		(240	)		(118	)		(816	)		(479	)
Minority interest		(356	)		(2,457	)		(649	)		(412	)		(2,841	)		(2,424	)

Income from continuing operations		3,731			25,744			14,071			4,924			33,974			27,408

Discontinued operations:
Loss from discontinued operations, net of tax RMBnil for both 2008 and 2007		—			—			—			—			—			(139	)
Minority interest in discontinued operations, net of tax RMBnil for both 2008 and 2007		—			—			—			—			—			(230	)

Loss on discontinued operations		—			—			—			—			—			(369	)

Net income		3,731			25,744			14,071			4,924			33,974			27,039

Net income per share
Basic		0.14			0.94			0.52			0.18			1.24			1.05

Diluted		0.14			0.94			0.49			0.18			1.22			0.99

Weighted average shares used in computation:
Basic		27,385,554			27,385,554			26,954,945			27,341,405			27,341,405			25,840,030

Diluted		27,385,554			27,385,554			28,463,653			27,838,906			27,838,906			27,313,016

See notes to unaudited condensed consolidated financial statements.

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


	For the six months ended June 30,
	2008			2008			2007
	US$			RMB			RMB
	(Note 1)
Cash flows from operating activities:
Net income		4,924			33,974			27,039
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Minority interest in continuing operations		412			2,841			2,424
Minority interest in discontinued operations		—			—			230
Depreciation and amortization		1,789			12,348			2,921
Share-based compensation		1,646			11,356			—
Loss in equity investments		118			816			479
Changes in assets and liabilities:
Accounts receivable		(665	)		(4,586	)		(7,698	)
Inventory		4			29			(145	)
Prepaid expenses and other current assets		(322)			(2,223)			(2,076	)
Non-current deposits		157			1,081			—
Amounts due from related parties		168			1,160			1,087
Accounts payable		194			1,338			4,717
Accrued expenses and other current liabilities		(2,052	)		(14,165	)		(46,918	)
Amounts due to related parties		—			—			(292	)
Income taxes payable		1,117			7,707			2,623
Deferred taxes assets		—			—			86
Deferred taxes liabilities		(118	)		(816	)		—
Unrecognised tax benefits		(1	)		(6	)		750

Net cash provided by (used in) operating activities		7,371			50,854			(14,773	)

Cash flows from investing activities:
Repayment from advance to related parties		1,278			8,817			1,811
Advance to related parties		(22	)		(149	)		(1,443	)
Purchase of subsidiaries, net of cash acquired		(59,950	)		(413,657	)		—
Purchase of property and equipment		(513	)		(3,536	)		(1,298	)
Term deposits		32,373			223,372			41,487
Proceeds from disposal of discontinued operations, net of cash disposed of		—			—			(9,113	)

Net cash used in investing activities		(26,834	)		(185,153	)		31,444

Cash flows from financing activities:
Other borrowings raised		243			1,680			—
Exercise of warrants, net of expense of RMB600		2,038			14,064			—
Repayment of capital lease obligation		(5	)		(32	)		(76	)
Repayment of advances from related parities		—			—			(4,251	)

Net cash provided by (used in) financing activities		2,276			15,712			(4,327	)

Effect of foreign exchange rate changes		(32	)		(224	)		(1,704	)
Net decrease in cash and cash equivalents		(17,219	)		(118,811	)		10,640
Cash and cash equivalents at beginning of the period		20,088			138,610			278,067

Cash and cash equivalents at end of the period		2,869			19,799			288,707

See notes to unaudited condensed consolidated financial statements.

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

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-KSB for the fiscal year ended December 31, 2007.

		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 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, 2008.

		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-KSB for the fiscal year ended December 31, 2007, except for the following additional accounting policies adopted in connection with the acquisition set out in Note 4:

		Revenues from bachelor degree and diploma program offerings, representing tuition fees and accommodation and catering service income, are recognized on a straight-line basis over the service period.

		Customer relationship acquired is being amortized using the 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.

Convenience Translation

Amounts in United States dollars (“US$”) are presented solely for the convenience of readers and an exchange rate of RMB6.9 to US$1 was applied as of June 30, 2008. Such transaction 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. For purposes of the preparation of the consolidated financial statements, the consummation date was designed as the effective date when 80.27% of the outstanding ordinary shares of ChinaCast were acquired by Great Wall and the remaining outstanding ordinary shares of ChinaCast not acquired by Great Wall were reported as minority interest for all the periods presented.

		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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2007, the Financial Accounting Standard Board (“FASB”) issued Standard of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combination”, to improve reporting creating greater consistency in the accounting and financial reporting of business combinations. The standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective

		for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The Company is currently evaluating whether the adoption of SFAS No. 141R will have a significant effect on its consolidated financial position, results of operations or cash flows.

		In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” to improves the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way as required in the consolidated financial statements. Moreover, SFAS No. 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transaction. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is currently evaluating whether the adoption of SFAS No. 160 will have a significant effect on its consolidated financial position, results of operations or cash flows.

DISCONTINUED OPERATIONS

		As of December 31, 2006, the Company had a 50% stake in Beijing Tongfang Digital Education Technology Limited (“Tongfang”) and Tongfang had a 51% stake in Beijing Tongfang Chuangxin Technology Limited (“Tongfang Chuangxin”). The Company considers Tongfang and Tongfang Chuangxin as subsidiaries due to the fact that the Company controls the entities by having the majority voting rights in the board of directors of Tongfang who in turn holds a majority ownership interest in Tongfang Chuangxin. On February 9, 2007, the Company completed the transaction under a sale and purchase agreement with Tongfang Co. Limited to dispose all of its shareholding in Tongfang in return for a 17.85% interest in Tongfang Chuangxin. As part of the consideration for the sale, the Company offset the RMB6,300 payable to Tongfang Co. Limited against the sale proceeds. No significant gain or loss was reported as a result of the sale. Tongfang ceased to be a subsidiary of the Company and the Company has accounted for its investment in Tongfang Chuangxin amounting to RMB8,936 under the cost method of accounting thereafter.

		The following was a summary of the assets and liabilities associated with the discontinued operations as of February 9, 2007:


	As of
	February 9, 2007
	RMB
Current assets of discontinued operations:
Cash and cash equivalents		9,113
Accounts receivable, net		2,715
Prepaid expenses and other current assets		1,732

		13,560

Non-current assets of discontinued operations:
Property and equipment, net		1,433
Acquired intangible assets, net		13,581

		15,014

Current liabilities of discontinued operations:
Accounts payable		1,355
Accrued expenses and other current liabilities		6,884

		8,239

Minority interest		6,694

Attributable goodwill		1,595

Summarized operating results from the discontinued operations included in the Company’s consolidated statements of operations were as follows for the three and six months ended June 30, 2008 and 2007.


	For the three months ended June 30,				For the six months ended June 30,
	2008		2007		2008		2007
	RMB		RMB		RMB		RMB
Revenues		—		—		—		1,096

Loss before provision of income taxes from discontinued operations		—		—		—		(139	)
Provision for income taxes		—		—		—		—
Minority interest in discontinued operations		—		—		—		(230	)

Loss from discontinued operations, net of tax		—		—		—		(369	)

Reduction in net income per share of the Company — basic and diluted		—		—		—		(0.01	)

ACQUISITION

		On April 11, 2008, Yu Pei Information Technology (Shanghai) Limited, 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 (“Heng Tai”). FTBC is a private college affiliated with Chongqing Normal University. The consideration for the acquisition was RMB480,000, of which RMB424,000 was paid and the remaining balance of RMB56,000 was agreed to be paid subsequent to June 2008. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their estimated fair market value at the date of acquisition. The preliminary purchase price allocation, which was based on management’s estimates and assumptions, was as follows:


				Amortization
	RMB			period
Cash		10,343
Other current assets		323
Non-current deposits		523
Property and equipment and land use rights		355,450		4-50 years

Intangible assets:
Customer relationship (allocated to the TUG as set out in Note 11)		45,049		41 months
Goodwill (allocated to the TUG as set out in Note 11)		289,417
Bank and other borrowings		(65,000	)
Other current liabilities		(83,779	)
Deferred tax liabilities		(28,939	)
Long-term bank loans		(20,000	)
Unrecognized tax benefits		(6,837	)
Minority interest		(16,550	)


Total		480,000

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 ended June 30, 2008 and 2007 and for the six months ended June 30, 2008 and 2007 presented the acquisition as if it had occurred on January 1, 2008 and 2007. 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		2007		2008		2007
	RMB		RMB		RMB		RMB
Net revenues		77,222		66,920		163,713		124,773
Net income attributable to holders of ordinary shares		26,220		16,282		37,706		30,916
Net income per share — basic		0.96		0.60		1.38		1.20
Net income per share — diluted		0.96		0.57		1.35		1.13

NON-CURRENT DEPOSITS

Non-current deposits consisted of the following:


	As of June 30,2008		As of December 31,2007
	RMB		RMB
Rental deposits		1,350		1,948

Rental deposits represented satellite rental deposit for ChinaCast satellite business operations and 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.

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,
	2008			2007			2008			2007
	RMB			RMB			RMB			RMB
Net income		25,744			14,071			33,974			27,039

Foreign currency translation adjustment		(63	)		(1,317	)		(246	)		(2,915	)


Comprehensive income		25,681			12,754			33,728			24,124

ACQUIRED INTANGIBLE ASSET, NET

Acquired intangible assets, net consisted of the following:


	As of June 30, 2008			As of December 31, 2007
	RMB			RMB
Brand name usage right		22,532			22,532
Customer relationship		45,049			—

		67,581			22,532

Less: accumulated amortization		(7,035	)		(751	)

		60,546			21,781

		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.

		For the three months and six months ended June 30, 2008, the Company recorded amortization expense in respect of the brand name usage right amounting to RMB563 and RMB 1,126 respectively. The Company will record amortization expenses in respect of brand name usage right of RMB1,127, RMB2,253, RMB2,253, RMB2,253, RMB12,769 in 2008, 2009, 2010, 2011 and 2012 and thereafter, respectively.

		On April 11, 2008, the Company acquired customer relationship through an acquisition (see Note 4). 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 months and six months ended June 30, 2008, the Company recorded amortization expense in respect of the customer relationship amounting to RMB5,158 and RMB 5,158 respectively. The Company will record amortization expenses in respect of customer relationship of RMB9,793, RMB15,669, RMB9,793 and RMB4,636 in 2008, 2009, 2010 and 2011, respectively.

STOCK COMPENSATION PLAN

		2007 Omnibus Securities and Incentive Plan (“2007 Plan”)

		Under the 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 ordinary 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 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, 2008, no restricted shares or share options have been forfeited.

		Management used the Black Scholes Model to estimate the fair value of the share options on the grant date with the following assumptions:


Expected price volatility	37.6	%
Risk-free interest rate	4.75	%
Expected life	67 months
Expected dividends	—
Fair value of ordinary share at grant date	US$	6.25

The fair value of the share option on the grant date was US$2.67 (RMB19.33). In calculating the fair value of the options using the Black Scholes Model, the following major assumptions were used:

(1)

Volatility

The volatility of the underlying ordinary shares during the life of the options was estimated based on the historical stock prices volatility of listed comparable companies over a period comparable to the expected term of the options.

(2)

Risk free interest rate

Risk free interest rate was estimated based on the yield to maturity of China international government bonds with a maturity period close to the expected term of the options.

(3)

Expected term

As the Company did not have historical share option exercise experience, it estimated the expected term as the weighted average between the vesting term of the options and the original contractual term.

(4)

Dividend yield

The dividend yield was estimated by the Company based on their expected dividend policy over the expected term of the options.

(5)

Exercise price

The exercise price of the options was determined by the Company’s board of directors.

(6)

Fair value of underlying ordinary shares

The estimated fair value of the ordinary shares underlying the options as of the grant date was determined based on the closing price of the ordinary shares traded in NASDAQ Global Market as of the grant date.

As of June 30, 2008, 401,000 share options were exercisable. The following table summarized information with respect to share options outstanding at June 30, 2008:

Weighted-average

Exercise

Number

Remaining

Intrinsic

price

outstanding

contractual life

value

Share options

US$

6.3

1,200,000

9.5 years

—

		The aggregate intrinsic value of share options outstanding and exercisable as of June 30, 2008 was US$nil and US$nil, respectively.

		Total share-based compensation expenses amounting to RMB2,241and RMBnil were recognized for the three months ended June 30, 2008 and 2007, respectively. Total share-based compensation expenses amounting to RMB11,356 and RMBnil were recognized for the six months ended June 30, 2008 and 2007, respectively.

		There was RMB24,445 of total unrecognized compensation expense related to nonvested restricted shares and share options as of June 30, 2008.

		As of June 30, 2008, no other awards have been granted under the 2007 Plan.

INCOME TAXES

		On March 16, 2007, the National People’s Congress enacted a new enterprise income tax law, which takes effect from 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, which is 18% in 2008, 20% in 2009, 22% in 2210, 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. Hai Yuen and FIBC were incorporated in Chongqing of the PRC and are subject to the preferential tax rate of 15% 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. Management has considered the determination of the amount of unrecognized deferred income tax liability to be not practicable because of the complexities associated with the hypothetical calculation.

		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, 2008, the unrecognized tax benefits increased from RMB27,892 to RMB34,723.

10.

NET INCOME 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,
	2008		2007		2008		2007
Numerator used in basic and diluted net income per share:
Income from continuing operations	RMB	25,744	RMB	14,071	RMB	33,974	RMB	27,408

Loss on discontinued operation	RMB	—	RMB	—	RMB	—	RMB	(369	)

Income attributable to holders of ordinary shares	RMB	25,744	RMB	14,071	RMB	33,974	RMB	27,039

Shares (denominator):
Weighted average ordinary shares outstanding used in computing basic net income per share		27,385,554		26,954,945		27,341,405		25,840,030

Plus:
Incremental ordinary shares from assumed conversions of stock options and exercises of Warrants (Note 12)		—		1,508,708		497,501		1,472,986

Weighted average ordinary shares outstanding used in computing diluted net income per share		27,385,554		28,463,653		27,838,906		27,313,016

Net income per share—basic:
Income from continuing operations	RMB	0.94	RMB	0.52	RMB	1.24	RMB	1.06

Loss on discontinued operations	RMB	—	RMB	—	RMB	—	RMB	(0.01	)

Net income	RMB	0.94	RMB	0.52	RMB	1.24	RMB	1.05

Net income per share—diluted:
Income from continuing operations	RMB	0.94	RMB	0.49	RMB	1.22	RMB	1.00

Loss on discontinued operations	RMB	—	RMB	—	RMB	—	RMB	(0.01	)

Net income	RMB	0.94	RMB	0.49	RMB	1.22	RMB	0.99

The diluted net income per share calculations have not included the outstanding unit purchase option (the “UPO”) or the related warrants (Note 12) since the effect is anti-dilutive.

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,
	2008		2007		2008		2007
	RMB		RMB		RMB		RMB

Revenues from external customers:
ELG (Note)		48,311		42,273		107,805		82,128
TUG		25,612		—		25,612		—

		73,923		42,273		133,417		82,128

Income from operations:
ELG		22,406		15,585		29,439		31,551
TUG		6,673		—		6,673		—

		29,079		15,585		36,112		31,551

Note:
Revenues from ELG:
Service		45,196		34,487		85,401		68,022
Equipment		3,115		7,786		22,404		14,106

		48,311		42,273		107,805		82,128


	As of June		As of December
	30, 2008		31, 2007
Segment assets:
		629,021		950,714
ELG		654,974		—

TUG		1,283,995		950,714

		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 customers accounting for 10% or more of total net revenues for the three and six months ended June 30, 2008.

		Three customers as of June 30, 2008 and two customers as of December 31, 2007 each accounted for 10% or more of the Company’s accounts receivable balances, representing an aggregate of 36.9% and 25.7% of the Company’s accounts receivable balance at June 30, 2008 and December 31, 2007, respectively.

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 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”) and Sherleigh Associates Inc. Profit Sharing Plan and Sherleigh Associates Inc. Defined Benefit Pension Plan (collectively, “Sherleigh”)(Fir Tree and Sherleigh, collectively, the “Warrantholders”), whereby the Company agreed to reduce the exercise price of the Warrants held by Fir Tree and Sherleigh 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. 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 459,925 restricted shares of common stock of the Company to Fir Tree and 62,994 restricted shares of common stock of the Company to Sherleigh. The additional value to the Warrantholders as a result of the above arrangement represented a deemed dividend to the Warrantholders, and it was recognized at the time when the relevant Warrants were exercised on June 30, 2008.

		In connection with the initial public offering, Great Wall issued, for $100, an “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.

		As of June 30, 2008, there were 395,000 UPO, 10,000 UPO Warrants and 5,562,768 Warrants outstanding.

13.		NEW BORROWINGS

		Bank borrowings amounting to RMB78,400 were assumed in connection with the acquisition as set out in Note 4. Bank borrowings carried interests at the benchmark interest rate announced by the People’s Bank of China plus 10% to 20% per annum and will be repayable within two years. As of June 30, 2008, bank borrowings amounting to RMB73,400 will be due for repayment within one year and were classified as current liabilities.

		In connection with the acquisition as set out in Note 4, other borrowings amounting to RMB6,600 were assumed. During the period to June 30, 2008, a further amount of other borrowings of RMB1,680 was raised. These borrowings carried interest at 10.125% per annum and will be repayable within one year.

14.

CONTINGENCIES

	a)		On March 21, 2006, after obtaining the approval of its shareholders, the Company amended 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.

Item 2. Management’s Discussion and Analysis or Plan of Operation.

Forward Looking Statement

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-KSB, 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 have 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 has become 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 judgements and estimates made on the part of the management, see item 6 of Form 10KSB for the year ended December 31, 2007 filed by the Company on March 31, 2008. The following are accounting policies that were either new or were adopted during the six months ended June 30, 2008.

The Company acquired 80% of Hai Lai, which owns FTBC in the second quarter of 2008. FTBC offers accredited bachelor degree and diploma courses to students in the PRC. Revenues from bachelor degree and diploma program offerings, representing tuition fees and accommodation and catering service income, are recognized on a straight-line basis over the service period. Customer relationship acquired is being amortized using the accelerated amortization method over 41 months based on the estimated progression of the students through the respective courses, giving consideration to the evenue and cash flow associated.

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 = 6.9RMB at June 30, 2008 for the three months and six months ended June 30, 2008.

Since our acquisition of Hai Lai, we have been organized as two business divisions, 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, 2008 compared to the three Months Ended June 30, 2007. The revenue of the Company for the three months and six months ended June 30, 2008 amounted to RMB73.9 million (US$10.7 million) and RMB133.4 million (US$19.3 million) respectively representing an increase of 74.7% and 62.5% over the revenue of the corresponding period in 2007. The increase 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 RMB48.3 million (US$7.0 million) and RMB107.8 million (US$15.6 million) for the three months and six months ended June 30, 2008 as compared to a revenue of RMB42.3 million and RMB82.1 million of the ELG the three months and six months ended June 30, 2007. Service income, mainly of a recurring nature amounted to RMB45.2 million (US$6.6 million) and RMB85.4 million (US$12.4 million) for the three months and six months ended June 30 2008 compared to RMB34.5 million and RMB68 million in the same periods in 2007. Equipment sales, mainly project based, amounted to RMB3.1 million (US$0.5 million) and RMB22.4 million (US$3.2 million) for the three months and six months ended June 30 2008 against RMB7.8 million and RMB 14.1 million during the same periods last year. The following table provides a summary of the ELG’s revenue by business lines:


	Three Months ended				Three Months Ended
	June 30, 2008				June 30, 2007
(millions)	US$		RMB		RMB
Post secondary education distance learning		3.5		24.1		15.4
K-12 and content delivery		2.5		17.4		17.8
Vocational training, enterprise / government training and networking and English training services		1.0		6.8		9.1
Total ELG revenue		7.0		48.3		42.3


	Six Months ended				Six Months Ended
	June 30, 2008				June 30, 2007
(millions)	US$		RMB		RMB
Post secondary education distance learning		6.8		46.8		30.2
K-12 and content delivery		4.8		33.3		33.5
Vocational training, enterprise / government training and networking and English training services		4.0		27.7		18.4
Total ELG revenue		15.6		107.8		82.1

Net revenue from post secondary education distance learning services increased from RMB30.2 million in the six months ended June 30, 2007 to RMB46.8 million (US$6.8 million) in six months ended June 30, 2008. Net revenue from post secondary education distance learning services increased from RMB15.7 million in the three months ended June 30, 2007 to RMB24.1 million (US$3.5 million) in three months ended June 30, 2008. The total number of post-secondary students enrolled in courses using the Company’s distance learning platforms including contracts with CCLBJ but excluding Tongfang Education’s students, increased to 128,000 at June 30, 2008 from 116,000 at the end of June 30, 2007. The increase was due to the continuous growth of students enrolled in distance learning degree courses with the universities.

The revenue from the K-12 and content delivery business decreased slightly by approximately 0.6% from RMB33.5 million for the six months ended June 30, 2007 to RMB33.3 million (US$4.38million) for the six months ended June 30, 2008. The revenue from the K-12 and content delivery business decreased by approximately 2.2% from RMB17.8 million for the three months ended June 30, 2007 to RMB17.4 million (US$2.5 million) for the three months ended June 30, 2008. The number of subscribing schools for K-12 distance learning services has stabilized at 6,500.

Net revenue from vocational and career training services and enterprise government training and networking, and English training services increased from RMB18.4 million during the six months ended June 30, 2007 to RMB27.7 million (US$4.0 million) during the six months ended June 30, 2008. Net revenue from vocational and career training services and enterprise government training and networking, and English training services decreased from RMB9.1 million during the three months ended June 30, 2007 to RMB6.8 million (US$2.9 million) during the three months ended June 30, 2008. The changes were mainly due to fluctuations in equipment sales, the nature of which is not recurring. English training service contributed a revenue of RMB1.9 million (US$0.3 million) in the first half of 2008.

TUG was newly established in the second quarter of 2008 after the acquisition of Hai Lai and its revenue amounted to RMB25.6 million (US$3.7 million) in the three months ended June 30, 2008. FTBC had approximately 10,000 students and generated RMB21.1 million (US$3.1 million) tuition revenue in the second quarter of 2008. Other revenue of TUG, which comprises mainly accommodation and catering revenue, amounted to RMB4.5 million (US$0.7 million).

Cost of sales of the Company increased by 82.3% from RMB35.5 million during the first half of 2007 to RMB64.7 million (US$9.4 million) during the first half of 2008. Cost of sales of the Company increased by 81.6% from RMB18.5 million during the second quarter of 2007 to RMB33.6 million (US$4.9 million) during the second quarter of 2008. The increase was due to the acquisition of Hai Lai and increase in equipment sales.

ELG’s cost of materials increased from RMB14.4 million during the first half of 2007 to RMB22.2 million (US$3.2 million) during the first half of 2008. ELG’s cost of materials decreased from RMB8.2 million during the second quarter of 2007 to RMB3.1 million (US$0.4 million) during the second quarter of 2008. The changes were mainly due to fluctuations in equipment sales. The cost of service for the ELG amounted to RMB12.2 million (US$1.8 million) and RMB24.1 million (US$3.5 million) for the three months and six months ended June 30, 2008 as compared to RMB10.3 million and RMB21.1 million in the same periods in 2007. The increase was due to the establishment of English training service in the second half of 2007.

TUG’s cost amounted to RMB18.3 million (US$2.7 million) in the second quarter of 2008, which comprises payroll to teaching staff, depreciation and amortization expense in relation to the intangible asset.

ELG ‘s gross profit margin increased by 12.3 percentage points, from 56.2% in the first quarter of 2007 to 68.5% in the second quarter of 2008. 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. TUG’s gross profit margin was 28.4% for the second quarter of 2008.

For the three months ended June 30, 2008, the Company received a management service fee of RMB2.0 million (US$0.3 million), as compared to RMB7.1 million during the three months ended June 30, 2007. For the six months ended June 30, 2008, the Company received a management service fee of RMB2.8 million (US$0.4 million), as compared to RMB11.8 million during the six months ended June 30, 2007. 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, which led to the reduction in management service fee.

Selling and marketing expenses decreased from RMB2.1 million in the second quarter of 2007 to RMB0.9 million (US$0.1 million) in the second quarter of 2008. Selling and marketing expenses increased from RMB2.8 million in the first half of 2007 to RMB4.4 million (US$0.6 million) in the first half of 2008. The increase in the first half was due to the granting of employee share options under the CEC’s share incentive plan, which led to a share-based compensation of RMB1.4 million and RMB0.1 million in the selling and marketing expenses for the first quarter and second quarter of 2008 respectively. The reduction in the second quarter of 2008 as compared to the same period in 2007 was due to the reduction in selling and marketing expenses of the English training service.

General and administrative expenses increased by 11.9% to RMB12.2 million (US$1.8 million) in the three months ended June 30, 2008 from RMB10.9 million during the three months ended June 30, 2007. General and administrative expenses increased by 44.8% to RMB30.4 million (US$4.4 million) in the six months ended June 30, 2008 from RMB21.0 million during the six months ended June 30, 2007. The increase was due to the granting of restricted shares to directors of the CEC and employee share options to employees under the CEC’s share incentive plan, which led to a share-based compensation of RMB10.0 million (US$1.4 million) in the general and administrative expenses for the first half of 2008.

The Company has foreign exchange losses of RMB0.2 million (US$0.03 million) for the second quarter of 2008 compared to a loss of RMB2.3 million during the second quarter of 2007. The Company has foreign exchange losses of RMB0.7 million (US$0.1 million) for the first half of 2008 compared to a loss of RMB3.1 million during the first half of 2007. The decrease was a result of the reduction of the Company’s holding in US dollars during 2007.

Interest income increased significantly from RMB3.9 million in the second quarter of 2007 to RMB 5.7 million (US$0.8 million) in the second quarter of 2008. Interest income increased significantly from RMB6.8 million in the first half of 2007 to RMB 11.6 million (US$1.7 million) in the first half of 2008. The increase was mainly due to the increase in the Company’s cash and term deposits and the increase in interest rate in China.

Overall, profit before income tax increased from RMB19.5 million in the three months ended June 30, 2007 to RMB34.6 million (US$5.0 million) in the three months ended June 30, 2008, an increase of 77.4%. The increase was mainly due to increase in business in the DLG. The TUG also contributed RMB6.5 million (US$0.9 million) to the increase.

The Company’s share of loss in equity investments amounted to RMB0.4 million (US$0.06 million) in the second quarter of 2008 compared to RMB0.2 million in the second quarter of 2007. The Company’s share of loss in equity investments amounted to RMB0.8 million (US$0.1 million) in the first half of 2008 compared to RMB0.5 million in the first half of 2007.

Income taxes increased by 55.5% from RMB4.5 million in the second quarter of 2007 to RMB6.0 million (US$0.9 million) in the second quarter of 2008. Income taxes increased by 35.0% from RMB8.0 million in the first half of 2007 to RMB9.9 million (US$1.4 million) in the first half of 2008. The increase was due to the increase in business and the newly acquired TUG.

Minority interest amounted to RMB2.5 million (US$0.4 million) for the three months ended June 30, 2008 as compared to RMB0.6 million for the three months ended June 30, 2007. The increase in minority interest in 2008 was mainly due to the acquisition of Hai Lai, in which there is a 20% minority stake.

Income from continuing operations amounted to RMB25.7 million (US$3.7million) in the three months ended June 30, 2008 compared to RMB14.1 million in the three months ended June 30, 2007.

In February 2007, the Company streamlined its beneficial holding in Tongfang Chuangxin by disposing its entire stake in Tongfang Education in exchange for a direct 17.85% stake in Tongfang Chuangxin and RMB6.3 million. As a result, the Company cannot consolidate the results of Tongfang Education and Tongfang Chuangxin. The consolidated result of Tongfang Education was shown as loss on discontinued operations for the six months ended June 30, 2007. Net loss on discontinued operations amounted to RMB0.4 million for the six months ended June 30, 2007.

Net income increased significantly by 76.6% to RMB25.7 million (US$3.7 million) in the three months ended June 30, 2008 from RMB14.1 million in the three months ended June 30, 2007. The increase are mainly due to the increase in business and the newly acquired TUG.

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 will become effective on January 1, 2008. There will be 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.

Liquidity and Capital Resources

The following is an extract of the key items from the consolidated balance sheets.


	As of				As of
	June 30, 2008				December 31, 2007
(millions)	RMB		US$		RMB
Cash and cash equivalents		19.8		2.9		138.6
Term deposits		373.4		54.1		596.8
Subtotal		393.2		57.0		735.4
Accounts receivable		39.1		5.7		35.3
Inventory		2.0		0.3		2.0
Prepaid expenses and other current assets		9.6		1.4		7.1
Total current assets		446.0		64.6		783.1
Non-current advances to a related party		111.2		16.1		119.9
Total assets		1,284.0		186.1		950.7

Cash and bank balances together with term deposits decreased from RMB735.4 million as at December 31, 2007, to RMB393.2 (US$57.0) million as at June 30, 2008. The decrease of approximately 46.5% was because of the payment of the consideration for the acquisition of Hai Lai.

There was a net cash generated from operating activities of RMB50.9 million (US$7.4 million) in the six months ended June 30, 2008 as compared to a net cash used in operating activities of RMB14.8 million in the six months ended June 30, 2007. This was mainly due to the profit earned. There were also substantial settlements of professional fees after the consummation of the acquisition exercise of CCH in the first quarter of 2007. 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 which 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 2008 was RMB185.2 million (US$26.8 million), mainly reflecting the net effect of payment for the acquisition of Hai Lai of RMB413.7 million (US$60.0 million) and transfer from term deposit of RMB223.4 million (US$32.4 million). For the six months ended June 30, 2007, transfer from term deposit amounted to RMB41.5 million.

Net cash provided by financing activities in the first six months of 2008 was RMB15.7 million (US$2.3 million) as a result of the exercise of Warrants.

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, 2008 amounted to RMB1,284.0 million (US$186.1 million). At December 31, 2007, total assets were RMB950.7 million, an increase of 35.1%. Total current assets decreased by 43% to 446.0 million.

Account receivables increased from RMB35.3 million as at December 31, 2007 to RMB39.1 million (US$5.7 million) at June 30, 2008. Most of the business partners are long term customers and settle their accounts promptly. All account receivables 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 RMB2.0 million (US$0.3 million) at June 30, 2008.

Item 3. Quantitative And Qualitative Disclosures About Market Risk

Foreign Exchange Risk

Our reporting currency is the Renminbi. Transactions in other currencies are recorded at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are remeasured into Renminbi 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, Renminbi 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 Renminbi 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, 2008, the exchange rate between the RMB and the U.S. dollar was RMB6.9 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 Renminbi. The majority of our net sales and purchases are denominated in Renminbi.

Any devaluation of the Renminbi 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 Renminbi may affect our financial performance in the future.

We recognized a foreign exchange loss of approximately RMB0.2 million (US$0.02 million) RMB0.7 million (US$0.1 million) for the three and six months ended June 30, 2008. 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 and six months ended June 30, 2008, we recorded an interest income of RMB5.7 million (US$0.8 million) RMB11.6 million (US$1.7 million). 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 RMB78.4 million (US$11.4 million) as at June 30, 2008. Interest paid in the six months end June 30, 2008 was RMB2.8 million. 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 2007 Annual Report on Form 10-KSB.

Inflation

There have been no material changes associated with the impact of inflation from that previously disclosed in our 2007 Annual Report on Form 10-KSB.

Item 4. Controls and Procedures.

We maintain “disclosure controls and procedures,” as such term is defined under Exchange Act Rule 13a-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, 2008. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2008 our disclosure controls and procedures were effective at the reasonable assurance level in ensuring that material information relating to us is made known to the Chief Executive Officer and Chief Financial Officer by others within our company during the period in which this report was being prepared.

There were no changes in our internal controls or in other factors during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 4A. Controls and Procedures.

Not Applicable.

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-KSB for the year ended December 31, 2007, filed on March 31, 2008

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

On December 22, 2006, we consummated the acquisition of CCH. On that date, shareholders of CCH that had previously executed Letters of Undertaking with us with respect to the sale of their shares and that collectively held 239,648,953 shares of CCH or 51.22% of CCH’s outstanding shares accepted the voluntary conditional Offer made in Singapore by DBS Bank, for and on our behalf, to acquire all of the outstanding ordinary shares of CCH. As a result of this acceptance of the Offer by the CCH shareholders that previously executed the Letters of Undertaking, CCH become our subsidiary and such acquisition qualified as a “business combination” under our amended and restated certificate of incorporation. Each of the CCH shareholders who accepted the Offer received 0.04697048 new share of our common stock in exchange for each share of CCH tendered by such shareholder. As of January 18, 2007, the date of the close of the Offer we had issued to the former CCH shareholders in connection with the Offer, a total of 17,624,727 shares of our common stock in offshore transactions in reliance on Regulation S of the Securities Act. As of February 12, 2007 we issued to Hughes Network Systems LLC, a former CCH shareholder 2,957,573 shares of our common stock in exchange for 62,966,736 shares of CCH held by such shareholder. These shares were issued to Hughes, an “accredited investor”, in an exempted transaction under Section 4(2) of the Securities Act. On April 10, 2007, CEC acquired 20,265,000 additional shares by the issuance of 951,853 CEC common shares and increased its holdings to 98.06% of the outstanding ordinary shares of CCH. On July 11, 2007, CEC acquired 9,074,161 additional shares and increased its holdings to 100% of the outstanding ordinary shares of CCH.

Item 3. Defaults Upon Senior Securities.

Not applicable.

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

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

	31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


	Page
PART I — FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis or Plan of Operation		15
Item 3. Quantitative and Qualitative Disclosures About Market Risk		21
Item 4. Controls and Procedures		21
Item 4A. Controls and Procedures		21
PART II — OTHER INFORMATION		22
Item 1. Legal Proceedings		22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 3. Defaults Upon Senior Securities		22
Item 4. Submission of Matters To a Vote of Security Holders		22
Item 5. Other Information		22
Item 6. Exhibits		22
EX-31.1 CERTIFICATION OF CEO PURSUANT TO SEC 302
EX-31.2 CERTIFICATION OF CFO PURSUANT TO SEC 302
EX-32.1 CERTIFICATION OF CEO PURSUANT TO SEC 906
EX-32.2 CERTIFICATION OF CFO PURSUANT TO SEC 906


	CHINACAST EDUCATION CORPORATION (Registrant)
Date: August 11, 2008	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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15.		SUBSEQUENT EVENTS

In July 2008, the Company entered into agreements with Capela Overseas Ltd (“Capela”), whereby the Company agreed to reduce the exercise price of the Warrants held by Capela from US$5.00 per share to US$4.25 per share. In connection with the reduction in the price of the Warrants, on July 4, 2008, Capela exercised in full an aggregate of 94,117 Warrants. As additional consideration for Capela exercising the Warrants in full as well as for the value of the Warrants, on July 4, 2008 the Company issued 14,394 restricted shares of common stock of the Company to Capela.