Chinacast Education 10Q 2010 Q3 Quarterly report

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

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

							As of
	As of September 30,						December 31,
	2010			2010			2009
	US$			RMB			RMB
	(Note 1)						(Note 1)
Liabilities and equity
Current liabilities:
Accounts payable (including accounts payable of the consolidated VIE without recourse to ChinaCast Education Corporation of RMB1,705 and RMB719 as of September 30, 2010 and December 31, 2009, respectively)		5,938			39,782			16,061
Accrued expenses and other current liabilities (including accrued expenses and other liabilities of the consolidated VIE without recourse to ChinaCast Education Corporation of RMB18,210 and RMB16,740 as of September 30, 2010 and December 31, 2009, respectively)		39,290			263,241			215,631
Deferred revenues (including deferred revenues of the consolidated VIE without recourse to ChinaCast Education Corporation of nil as of September 30, 2010 and December 31, 2009)		47,626			319,097			156,645
Income taxes payable (including income taxes payable of the consolidated VIE without recourse to ChinaCast Education Corporation of RMB4,179 and RMB2,293 as of September 30, 2010 and December 31, 2009, respectively)		13,998			93,793			68,731
Current portion of long-term bank borrowings (including current portion of long-term bank borrowings of the consolidated VIE without recourse to ChinaCast Education Corporation of nil as of September 30, 2010 and December 31, 2009)		25,075			168,000			104,400
Current portion of capital lease obligation (including current portion of capital lease obligation of the consolidated VIE without recourse to ChinaCast Education Corporation of nil as of September 30, 2010 and December 31, 2009)		196			1,313			1,323
Other borrowings (including other borrowings of the consolidated VIE without recourse to ChinaCast Education Corporation of nil as of September 30, 2010 and December 31, 2009)		224			1,500			200
Total current liabilities		132,347			886,726			562,991
Non-current liabilities:
Long-term bank borrowings (including long-term bank borrowings of the consolidated VIE without recourse to ChinaCast Education Corporation of nil as of September 30, 2010 and December 31, 2009)		16,418			110,000			134,000
Deferred tax liabilities – non-current (including deferred tax liabilities – non-current of the consolidated VIE without recourse to ChinaCast Education Corporation of nil as of September 30, 2010 and December 31, 2009)		8,150			54,606			30,923
Unrecognized tax benefits – non-current (including unrecognized tax benefits of the consolidated VIE without recourse to ChinaCast Education Corporation of RMB5,662 and RMB5,257 as of September 30, 2010 and December 31, 2009, respectively)		15,111			101,244			62,457
Total non-current liabilities		39,679			265,850			227,380

Total liabilities		172,026			1,152,576			790,371
Commitments and contingencies (Note 15)
Equity:
Ordinary shares (US$0.0001 par value; 100,000,000 shares authorized; 49,778,952 and 45,170,698 shares issued and outstanding as of September 30, 2010 and December 31, 2009, respectively)		5			36			33
Additional paid-in capital		228,379			1,530,140			1,290,651
Statutory reserve		5,842			39,139			39,139
Accumulated other comprehensive loss		(599	)		(4,011	)		(6,055	)
Retained earnings		36,093			241,822			136,583

Total ChinaCast Education Corporation shareholders’ equity		269,720			1,807,126			1,460,351	��
Noncontrolling interest		6,648			44,544			23,167

Total equity		276,368			1,851,670			1,483,518
Total liabilities and equity		448,394			3,004,246			2,273,889

See notes to unaudited condensed consolidated financial statements.

CHINACAST EDUCATION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)

(In thousands, except share-related data)

	For the three months ended September 30,									For the nine months ended September 30
	2010			2010			2009			2010			2010			2009
	US$			RMB			RMB			US$			RMB			RMB
	(Note 1)						(Note 1)			(Note 1)						(Note 1)
Revenues:
Service		18,238			122,195			80,289			50,921			341,170			228,391
Equipment		436			2,924			1,896			441			2,955			6,065

		18,674			125,119			82,185			51,362			344,125			234,456

Cost of revenues:
Service		(9,157	)		(61,358	)		(28,468	)		(24,136	)		(161,713	)		(83,479	)
Equipment		(423	)		(2,832	)		(1,875	)		(423	)		(2,832	)		(6,001	)

		(9,580	)		(64,190	)		(30,343	)		(24,559	)		(164,545	)		(89,480	)

Gross profit		9,094			60,929			51,842			26,803			179,580			144,976

Operating (expenses) income:

Selling and marketing expenses (including share-based compensation of RMB nil and RMB267 for the three months ended September 30 for 2010 and 2009, respectively, share-based compensation of RMB410 and RMB1,373 for the nine months ended September 30 for 2010 and 2009, respectively)		(59	)		(394	)		(899	)		(254	)		(1,702	)		(3,442	)
General and administrative expenses (including share-based compensation of RMB1,922 and RMB2,868 for the three months ended September 30 for 2010 and 2009, respectively, share-based compensation of RMB6,114 and RMB11,474 for the nine months ended September 30 for 2010 and 2009, respectively)		(2,957	)		(19,817	)		(12,964	)		(7,816	)		(52,369	)		(43,603	)

Foreign exchange gain (loss)		(1	)		(4	)		(51	)		(83	)		(557	)		65
Management service fee		-			-			510			-			-			3,806
Gain from change in contingent consideration		1,413			9,467			-			1,413			9,467			-
Other operating income		(5	)		(34	)		41			27			180			548

Total operating expenses, net		(1,609	)		(10,782	)		(13,363	)		(6,713	)		(44,981	)		(42,626	)

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

Net income per share
Net income attributable to ChinaCast Education Corporation per share:
Basic		0.12			0.83			0.76			0.32			2.21			2.03

Diluted		0.12			0.82			0.75			0.32			2.18			2.03

Weighted average shares used in computation:
Basic		49,834,291			49,834,291			36,133,233			47,693,969			47,693,969			35,814,325

Diluted		50,370,903			50,370,903			36,379,884			48,176,902			48,176,902			35,945,264

See notes to unaudited condensed consolidated financial statements.

CHINACAST EDUCATION CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)

(In thousands, except share-related data)

	ChinaCast Education Corporation Shareholders
											Accumulated
					Additional						other
	Ordinary				paid-in		Statutory		Retained		comprehensive			Noncontrolling			Total
	Shares		Amount		capital		Reserve		earnings		loss			interest			equity
			RMB		RMB		RMB		RMB		RMB			RMB			RMB
Balance at January 1, 2010		45,170,698		33		1,290,651		39,139		136,583		(6,055	)		23,167			1,483,518
Issuance of shares of common stock		4,428,254		3		232,967		—		—		—			—			232,970
Share-based compensation		—		—		6,522		—		—		—			—			6,522
Issuance of vested shares		180,000		—		—		—		—		—			—			—
Noncontrolling interest contribution in joint venture		—		—		—		—		—		—			20,000			20,000
Net income		—		—		—		—		105,239		—			1,427			106,666
Foreign currency translation adjustments		—		—		—		—		—		2,044			(50	)		1,994

Balance at September 30, 2010		49,778,952		36		1,530,140		39,139		241,822		(4,011	)		44,544			1,851,670

			US$	5	US$	228,379	US$	5,842	US$	36,093	US$	(599	)	US$	6,648		US$	276,368

	ChinaCast Education Corporation Shareholders
											Accumulated
					Additional						other
	Ordinary				paid-in		Statutory		Retained		comprehensive			Noncontrolling			Total
	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 for acquisition of additional interests in subsidiary		2,582,947		2		28,746		—		—		—			(28,748	)		—
Share-based compensation		120,000		—		12,847		—		—		—			—			12,847
Net income		—		—		—		—		72,835		—			6,945			79,780
Foreign currency translation adjustments		—		—		—		—		—		(697	)		(2	)		(699	)

Balance at September 30, 2009		38,351,198		29		989,945		28,117		128,361		(6,159	)		22,774			1,163,067

			US$	4	US$	140,580	US$	4,135	US$	18,877	US$	(906	)	US$	3,349		US$	171,039

See notes to unaudited condensed consolidated financial statements.

CHINACAST EDUCATION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

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

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

Cash and cash equivalents at end of the period		60,471			405,153			398,312

See notes to unaudited condensed consolidated financial statements.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except share-related data)

1.	BASIS OF PREPARATION

The accompanying unaudited condensed consolidated financial statements of ChinaCast Education Corporation (“CEC”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“US GAAP”) for complete annual financial statements and should be read in conjunction with the audited financial statements included in CEC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

In the opinion of the management of CEC, the accompanying unaudited condensed consolidated financial statements are prepared on the same basis as the audited financial statements and these unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results of the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results expected for any subsequent interim period or for CEC’s fiscal year ending December 31, 2010.

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

Newly Established Subsidiaries

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

The VIE Arrangements

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

Arrangement with CCLX

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

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

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

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

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

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

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

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

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

Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been using the same accounting policies used in the preparation of the audited financial statements included in CEC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, except for the additional accounting policies adopted as stated in (1) of Note 2.

Convenience Translation

Amounts in United States dollars (“US$”) are presented solely for the convenience of readers and an exchange rate of RMB6.7 to US$1 was applied as of September 30, 2010. Such translation should not be construed to be the amounts that would have been reported under US GAAP.

2.	RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

(1)	Newly Adopted Accounting Pronouncements

In June 2009, the FASB issued an authoritative pronouncement to amend the accounting rules for variable interest entities. The amendments effectively replace the quantitative-based risks-and-rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has (1) the power to direct the activities of a variable interest entity that most significantly affect the entity’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entity’s economic performance. The new guidance also requires additional disclosures about a reporting entity’s involvement with variable interest entities and about any significant changes in risk exposure as a result of that involvement. The new guidance is effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, and all interim and annual periods thereafter. During the nine months ended September 30, 2010, there were no significant changes in previously adopted accounting policies or their application, with the exception of additional disclosures upon adoption of ASC 810-10-45-25, under which the reporting entity needs to present separately on the face of the condensed consolidated balance sheets the liabilities of a consolidated variable interest entity for which creditors (or beneficial interest holders) do not have recourse to the general credit of the primary beneficiary. As a result, the Company presents the additional disclosures on the face of the unaudited condensed financial statements as of September 30, 2010 and December 31, 2009.

In January 2010, the FASB issued authoritative guidance to improve disclosures about fair value measurements. This guidance amends previous guidance on fair value measurements to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurement on a gross basis rather than on a net basis as currently required. This guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This guidance is effective for annual and interim periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activities of purchases, sales, issuances, and settlements on a gross basis, which will be effective for annual and interim periods beginning after December 15, 2010. Early application is permitted and, in the period of initial adoption, entities are not required to provide the amended disclosures for any previous periods presented for comparative purposes. The adoption of this pronouncement did not have a significant impact on its the Company's financial condition or results of operations.

(2)	Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2009, the FASB issued amended revenue recognition guidance for arrangements with multiple deliverables. The new guidance eliminates the residual method of revenue recognition and allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence (VSOE), vendor objective evidence (VOE) or third-party evidence (TPE) is unavailable. Prospective application of this new guidance for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. Alternatively, an entity can elect to adopt this guidance on a retrospective basis. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.

In October 2009, the FASB issued authoritative guidance which amends the scope of existing software revenue recognition accounting. Tangible products containing software components and non-software components that function together to deliver the product’s essential functionality would be scoped out of the accounting guidance on software and accounted for based on other appropriate revenue recognition guidance. Prospective application of this new guidance for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. Alternatively, an entity can elect to adopt this new guidance on a retrospective basis. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.

In April 2010, the FASB issued authoritative guidance on milestone method of revenue recognition. The scope of this consensus is limited to arrangements that include milestones relating to research or development deliverables. The guidance specifies guidance that must be met for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The guidance applies to milestones in arrangements within the scope of this consensus regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting. The guidance will be effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early application is permitted. Companies can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.

In April 2010, the FASB issued authoritative guidance on effect of denominating the exercise price of a share-based payment award in the currency of the market in which the underlying equity securities trades and that currency is different from (1) entity's functional currency, (2) functional currency of the foreign operation for which the employee provides services, and (3) payroll currency of the employee. The guidance clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should be considered an equity award assuming all other criteria for equity classification are met. The guidance will be effective for interim and annual periods beginning on or after December 15, 2010, and will be applied prospectively. Affected entities will be required to record a cumulative catch-up adjustment for all awards outstanding as of the beginning of the annual period in which the guidance is adopted. The Company is in the process of evaluating the effect of adoption of this pronouncement.

In July 2010, the FASB issued an authoritative pronouncement on disclosure about the credit quality of financing receivables and the allowance for credit losses. The objective of this guidance is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. The guidance requires an entity to provide disclosures on a disaggregated basis on two defined levels: (1) portfolio segment; and (2) class of financing receivable. The guidance includes additional disclosure requirements about financing receivables, including: (1) Credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables; (2) The aging of past due financing receivables at the end of the reporting period by class of financing receivables; and (3) The nature and extent of troubled debt restructurings that occurred during the period by class of financing receivables and their effect on the allowance for credit losses. For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company is in the process of evaluating the effect of adoption of this pronouncement.

3.	DISCONTINUED OPERATIONS

Starting from 2007, the Company provided Modern English training services through Jiangsu English Training Technology Limited (“JSET”). During 2009, the Company gradually closed all the training centers. On December 29, 2009, the Company completed the transaction under a sale and purchase agreement with a third party to dispose of its brand name usage right associated with the English training services with a consideration of RMB6,000. A gain amounting to RMB1,552 was reported for the fiscal year ended December 31, 2009. The Company ceased all English training services in JSET thereafter.

Summarized operating results from the discontinued operations included in the Company's condensed consolidated statements of operations were as follows for the three months and nine months ended September 30, 2009 and 2010, respectively:

	Three months ended September 30,					Nine months ended September 30,
	2009			2010		2009			2010
	RMB			RMB		RMB			RMB

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

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

4.	ACQUISITIONS

East Achieve Limited

On October 5, 2009, CCH, the Company's subsidiary in Bermuda, consummated the acquisition of the entire interest in East Achieve Limited (“East Achieve”) from the former sole owner of East Achieve. East Achieve holds the entire interest in Shanghai Xijui Information Technology Co., Ltd. (“Xijiu”). Xijiu holds the entire interest in China Lianhe Biotechnology Co., Ltd. (“Lianhe”) which in turns holds the entire interest in Lijiang College of Guangxi Normal University (“Lijiang College”). Lijiang College is a private college affiliated with Guangxi Normal University. The total consideration for the acquisition is up to RMB365,000, of which RMB295,000 was paid during 2009. The remaining amount of the consideration is to be calculated as below.

For the academic year of 2009 (i.e. from September 1, 2009 to August 31, 2010), if the net profit as determined under the relevant sale and purchase agreement of the Lijiang College is less than RMB55,000, CCH is entitled to deduct an amount equal to 6.6 times of the difference between the net profit and RMB55,000 from the remaining amount of consideration.

The contingent consideration was recorded as a liability at fair value of RMB30,482 and the change of its fair value was recorded in earnings as of the acquisition date and at each reporting date thereafter. As a result, the expected total consideration was RMB325,482 as of the date of acquisition. In September, 2010, the final payment of the consideration was determined to be RMB20,540, and the gain of RMB9,942 from change in contingent consideration was included in the operating income.

The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price allocation was as follows:

				Amortization
	RMB			period
Cash		73,113
Other current assets		2,408
Non-current deposits		6,374
Property and equipment		261,543		3-20 years
Prepaid lease payments for land use rights		28,920		Over the remaining lease term of 48 years
Intangible assets:
Customer relationship		51,000		47 months
Affiliation agreement		14,000		59 months
Goodwill (allocated to TUG segment)		192,440
Other current liabilities		(105,424	)
Deferred revenues		(89,114	)
Deferred tax liabilities		(12,616	)
Long-term bank borrowings		(90,000	)
Unrecognized tax benefits		(7,162	)
Total		325,482

An affiliation agreement ("Affiliation Agreement") was signed between Lianhe and Guangxi Normal University in relation to the operations of Lijiang College. Under the Affiliation Agreement, Guangxi Normal University authorizes Lijiang College to use its school name and offers certain management and operational supports for an agreed amount of fees.

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

Pro forma

The following supplemental unaudited pro forma results of operations for the year ended December 31, 2009 presented the acquisition as if it had occurred on January 1, 2009. The unaudited pro forma results include estimates and assumptions regarding amortization of acquired intangible assets, which the Company believes are reasonable. However, pro forma results are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated, or that may result in the future:

	For the year
	ended December 31,
	2009
	RMB

Revenues		427,484
Net income attributable to
ChinaCast Education Corporation		91,401
Net income attributable to ChinaCast Education
Corporation per share – basic		2.47
Net income attributable to ChinaCast Education
Corporation per share – diluted		2.46

Wintown Limited

On August 23, 2010, CEH, the Company's subsidiary in the British Virgin Island, consummated the acquisition of the entire interest in Wintown Limited (“Wintown”) from the former sole owner of Wintown. Wintown ultimately holds the entire interest in Business College of Hubei Industrial University (“HIUBC”). HIUBC is a private college affiliated with Hubei Industrial University. The total consideration for the acquisition is up to RMB450,000, of which RMB360,000 was paid during 2010. The remaining amount of the consideration is to be calculated as below.

For the academic year of 2010 (i.e. from September 1, 2010 to August 31, 2011), if the net profit as determined under the relevant sale and purchase agreement of the HIUBC is less than RMB50,000, CEH is entitled to deduct an amount equal to 9 times of the difference between the net profit and RMB50,000 from the remaining amount of consideration.

The contingent consideration was recorded as a liability at fair value of RMB78,721 and the change of its fair value will be recorded in earnings at each reporting date. As a result, the expected total consideration was RMB438,721 as of the date of acquisition.

The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition.

HIUBC has not obtained land use right certificates for the 4 land parcels purchased yet as of September 30, 2010, however, the management of the Company believe they will be able to get them and have the absolute right to use or dispose the lands.

Due to the fact that there is neither land use rights certificate nor official government documents made available to the valuation firm, and disposal of the subject land parcels to third party in the open market may need further approval from the government, the assessment of the fair value of the four land parcels is not completed as of the date of this Form 10-Q.

Since the valuation and the purchase price allocation is not completed yet as of the date of this Form 10-Q, based on the preliminary purchase price allocation, provisional amounts were recognized for identifiable assets and liabilities. The Company will retrospectively adjust the provisional amounts recognized at the acquisition date before the end of the measurement period. The preliminary purchase price allocation was as follows:

				Amortization
	RMB			period
Cash		19,941
Other current assets		7,430
Non-current deposits		-
Property and equipment		218,981		3-20 years
Prepaid lease payments for land use rights		36,973		Over the remaining lease term
Intangible assets:
Customer relationship		41,000		48 months
Affiliation agreement		32,000		36 months
Goodwill (allocated to TUG segment)		264,970
Other current liabilities		(69,908	)
Deferred revenues		(2,753	)
Deferred tax liabilities		(27,844	)
Long-term bank borrowings		(54,000	)
Unrecognized tax benefits		(28,069	)
Total		438,721

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

An affiliation agreement ("Affiliation Agreement") was signed between Jiyang and Hubei Industrial University in relation to the operations of HIUBC. Under the Affiliation Agreement, Hubei Industrial University authorizes HIUBC to use its school name and offers certain management and operational supports for an agreed amount of fees.

Pro forma

The following supplemental unaudited pro forma results of operations for the period ended September 30, 2010 and September 30, 2009 presented the acquisition as if it had occurred on January 1, 2010 and January 1, 2009. The unaudited pro forma results include estimates and assumptions regarding amortization of acquired intangible assets, which the Company believes are reasonable. However, pro forma results are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated, or that may result in the future:

	For the period		For the period
	ended September 30,		ended September 30,
	2010		2009
	RMB		RMB

Revenues		413,488		336,298
Net income attributable to
ChinaCast Education Corporation		91,786		56,520
Net income attributable to ChinaCast Education
Corporation per share – basic		1.92		1.58
Net income attributable to ChinaCast Education
Corporation per share – diluted		1.91		1.57

5.	NON-CURRENT DEPOSITS

Non-current deposits consisted of the following:

	As of September 30, 2010		As of December 31, 2009
	RMB		RMB

Rental deposits		415		358
Utilities deposits		208		208
Guarantee deposit for borrowings		4,000		3,000
Guarantee deposits for construction projects		2,492		2,492
Deposit for investment project		5,044		3,000
Deposit for acquiring of land use rights		-		5,492
Total		12,159		14,550

Rental deposits represented office rental deposits for the Company’s daily operations.

Guarantee deposit represented deposits placed with Chongqing Education Guarantee Co., Ltd., a long-term investment of the Company, which in turn provided guarantee in favor of the relevant bank for the Company’s bank borrowings of RMB30,000 and RMB20,000, respectively.

Deposit for investment project represented deposit for establishment of a wholly-owned foreign enterprise in the PRC.

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

6.	ACQUIRED INTANGIBLE ASSETS, NET

Acquired intangible assets, net consisted of the following:

	As of September 30,			As of December 31,
	2010			2009
	RMB			RMB
Customer relationships
Cost		132,329			91,329
Less: Accumulated amortization		(57,538	)		(33,331	)

		74,791			57,998

Affiliation agreement
Cost		46,000			14,000
Less: Accumulated amortization		(3,736	)		(712	)

		42,264			13,288

Acquired intangible assets, net		117,055			71,286

On April 11, 2008, the Company acquired a customer relationship through the acquisition of Hai Lai Education Technology Limited. The customer relationship is being amortized using accelerated amortization method over 41 months based on the estimated progression of the students through the respective courses, giving consideration to the revenue and cash flow associated.

On October 5, 2009, the Company acquired another customer relationship through the acquisition of East Achieve (see Note 4). The customer relationship is being amortized using accelerated amortization method over 47 months based on the estimated progression of the students through the respective courses, giving consideration to the revenue and cash flow associated.

On August 23, 2010, the Company acquired another customer relationship through the acquisition of Wintown (see Note 4). The customer relationship is being amortized using accelerated amortization method over 48 months based on the estimated progression of the students through the respective courses, giving consideration to the revenue and cash flow associated.

For the three months and nine months ended September 30, 2010, the Company recorded amortization expense in respect of the customer relationships amounting to RMB8,395 and RMB24,207, respectively. The Company will record further amortization expenses in respect of the customer relationships of RMB9,372, RMB32,609, RMB19,726, RMB10,351 and RMB2,733 for the three months ended December 31, 2010 and year 2011, 2012 ,2013 and 2014, respectively.

On October 5, 2009, the Company acquired an affiliation agreement through the acquisition of East Achieve (see Note 4). The affiliation agreement is being amortized on a straight-line basis over 59 months.

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

For the three months and nine months ended September 30, 2010, the Company recorded amortization expense in respect of the affiliation agreement amounting to RMB1,601 and RMB3,024, respectively. The Company will record amortization expenses in respect of the affiliation agreement of RMB3,379, RMB13,514, RMB13,514, RMB9,959 and RMB1,898 for the three months ended December 31, 2010 and year 2011, 2012, 2013 and 2014, respectively.

7.	NON-CURRENT ADVANCES TO RELATED PARTY

The noncurrent advances to a related party represent money spent on assets and expenses to help ChinaCast Co., Ltd. ("CCL") build up its satellite business over the years. CCL was an investment holding company established in 1999 to invest in tradable shares, technology companies, real estate and other long-term investments. The Company itself has no equity investment in CCL. In 2002, CCL entered into a technical services agreement (the "CCL TSA") and an equity pledge agreement with the Company, pursuant to which the Company agreed to assist CCL in the implementation of business relating to the provision of the broadband satellite services in the PRC. The Company provided CCL with interest free cash advances to finance acquisition of related satellite equipment. CCL established a branch office in Beijing, CCLBJ, (though it is registered in Shanghai) to conduct CCL's Turbo 163 business, DDN Enhancement business and Cablenet business, and agreed to pay monthly service fees to the Company in an amount equal to the difference between total cash revenue that CCLBJ received in the preceding month and CCLBJ's cash paid out or allocated to pay for operating expenses for the preceding month. Through the CCL TSA, the Company is effectively entitled to the net profit of CCLBJ, but is not obligated to fund any losses of CCLBJ. CCL was treated as an VIE, but was never included in the accompanying consolidated financial statements because the Company was not considered to be the primary beneficiary of CCL. Effective January 1, 2010, the CCL TSA was terminated and CCL is no longer considered a VIE of the Company thereafter.

CCL is treated as a related party, and the amounts advanced to this related party were RMB99,665 and RMB99,727 as at September 30, 2010 and December 31, 2009, respectively.

CCL has undertaken that when regulation allows, the ownership of CCLX and all the relevant assets attributable to the satellite business operations in the books of CCL and CCLBJ will be transferred to the Company, the consideration of which will be settled against the above advances to CCL in the books of the Company at the sole discretion of the Company.

In addition, the Company has obtained an undertaking from CCL that, at the time of such transfer, CCL will make a payment to the Company for any shortfall if the valuation of the advances is lower than the outstanding amount of the advances, and therefore believes that the advances are recoverable.

For the three months and nine months ended September 30, 2009, the Company received a management service fee of RMB510 and RMB3,806, respectively. CCLBJ was gradually scaling down its business operations, and effective January 1, 2010, CCLBJ no longer provided any satellite related services, including those to the Company. CCLX has been providing the satellite related services to the Company, and the intercompany transactions between CCLX and the Company have been eliminated upon consolidation.

8.	BORROWINGS

The Company repaid the bank borrowing amounting to RMB58,400, RMB20,000 and RMB16,000, respectively, in January, June and September 2010 as at their maturity date.

In March and April 2010, a bank borrowing amounting to RMB12,000 and RMB8,000 was raised by Foreign Trade and Business College of Chongqing Normal University (“FTBC”). The bank borrowing carried interests at the benchmark interest rate announced by the People’s Bank of China plus 10% per annum and was secured by guarantees given by Chongqing Education Guarantee Co., Ltd. (“CQEG”) and in favor of the relevant bank. In connection with the guarantee given by CQEG, a deposit of RMB1,000 were pledged to CQEG. RMB10,000 of the borrowing will be repayable in September 2011, the remaining RMB2,000 will be repayable in September 2012.

In May 2010, a bank borrowing amounting to RMB30,000 was raised by FTBC. The bank borrowing carried interests at 9.5% per annum and was secured by guarantees given by Chongqing Yutai Guarantee Co., Ltd. (“CQYT”) and in favor of the relevant bank. In connection with the guarantee given by CQYT, certain buildings of RMB45,000 are pledged to CQYT as counter-guarantee objective, and Hai Lai and three employees of the Company are jointly liable to CQYT. RMB10,000 of the borrowing will be repayable in October 2010, and remaining RMB20,000 will be repayable in September 2011.

In March 2010, a bank borrowing amounting to RMB30,000 was raised by Lijiang College. The bank borrowing carried interests at 5.31% per annum and will be repayable in March 2011.

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

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

9.	SHARE OFFERINGS

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

On April 29, 2010, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Wu Shi Xin, the sole stockholder of Wintown Enterprises Limited, a British Virgin Islands company (“Wintown”), pursuant to which Mr. Wu purchased 3,735,734 shares of the Company’s common stock (the “Shares”) on June 2, 2010 for a total purchase price of US$29,300.

Pursuant to the Stock Purchase Agreement, the Company granted Mr. Wu a one time demand registration right with respect to the Shares, exercisable at any time on or after October 1, 2010.

10.	STOCK COMPENSATION PLAN

Under the 2007 Omnibus Securities and Incentive Plan (“2007 Plan”) adopted in May 2007, CEC may grant any awards to eligible participants, including employees, directors or consultants, to purchase up to 2,500,000 ordinary shares.

Nonvested shares

On January 11, 2008, CEC agreed to grant, under the 2007 Plan, restricted shares to its three independent directors at no consideration. Each of the three directors was agreed to be granted 100,000 restricted shares of the Company's common stock. All of the shares of restricted stock to be granted to the directors were issued at fair market value based on the closing price on January 11, 2008 of US$6.25 (RMB45.38). For each of the three directors of CEC, 10,000, 30,000 and 60,000 of the restricted shares were vested on February 9, 2008, February 9, 2009 and February 9, 2010, respectively. In December 2009, Mr. Richard Xue decided not to stand for re-election to the board of directors of CEC. CEC's board of directors accelerated the date of the vesting of his final grant of 60,000 restricted shares from February 9, 2010 to the date of his resignation.

On June 22, 2010, CEC granted, under the 2007 Plan, 396,678 restricted shares to six employees at no consideration. All of the shares of restricted stock to the employees were granted at fair market value based on the closing price of June 22, 2010 of US$6.07 (RMB41.26). 33,062 of the restricted shares were vested on the date of granting. 33,056 of the restricted shares vested on July 31, 2010 and an equal number of restricted shares shall be vested at the end of every three months thereafter until January 31, 2013.

	Number of shares			Fair values of shares		Intrinsic value
				US$		US$
Nonvested share unvested at January 1, 2010		120,000			6.25		750
Granted		396,678			6.07		2,408
Vested		(186,118	)		6.19		(1,152	)
Fortified		-			-		-
Nonvested share unvested at September 30, 2010		330,560			6.07		2,006

Share options

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

A summary of the share option activity under 2007 Plan was as follows:

			Weighted
			average
	Number		exercise
	of options		price
			US$
Options outstanding at December 31, 2009		1,200,000		6.30

Granted		—		—
Exercised		—		—
Cancelled		—		—

			Weighted
			average
	Number		exercise
	of options		price
			US$
Options outstanding at September 30, 2010		1,200,000		6.30
Options exercisable at December 31, 2009		802,000		6.30
Options exercisable at September 30, 2010		1,200,000		6.30

A summary of the status of the Company's nonvested share options as of September 30, 2010 and changes during the nine months ended September 30, 2010, is presented as below:

				Weighted average		Weighted
				grant date		average
Nonvested share options	Shares			fair value		exercise price
				US$		US$

Nonvested at January 1, 2010		398,000			2.67		6.30
Granted		-			-		-
Vested		(398,000	)		2.67		6.30
Forfeited		-			-		-
Nonvested at September 30, 2010		-			-		-

The per share fair value of share options as of January 11, 2008, the grant date was US$2.67 (RMB19.33).

The aggregate intrinsic value of share options outstanding and exercisable as of September 30, 2010 was US$ 310l.

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

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

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

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

11.	INCOME TAXES

On March 16, 2007, the National People’s Congress enacted a new enterprise income tax law, which took effect on January 1, 2008. The new law applies a uniform 25% enterprise income tax rate to both foreign invested enterprises and domestic enterprises. The new law provides a five-year transition period from its effective date for the entitled enterprises which were established before the promulgation date of the new tax law and which were entitled to a preferential tax treatment such as a reduced tax rate or a tax holiday. According to transitional rules published after the new income tax law, one of the Company’s major operating subsidiaries, CCT Shanghai, which was subject to the preferential tax rate of 15%, is now eligible to the phased-in rates: 18% in 2008, 20% in 2009, 22% in 2010, 24% in 2011, 25% in 2012 and thereafter.

FTBC and Hai Yuen Company Limited (“Hai Yuen”) were incorporated in Chongqing of the PRC and are subject to the preferential tax rate of 15% until 2010 in accordance with the western development preferential policy.

Lijiang College was incorporated in Guilin and is subject to the preferential tax rate of 15% until the end of 2010 in accordance with the western development preferential policy.

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

The Company considers itself to be permanently reinvested with respect to its investment in its foreign subsidiaries. Accordingly, no deferred income tax liability related to the unremitted earnings of its foreign subsidiaries has been included in the Company’s provision for income taxes. Upon distribution of subsidiaries earnings in the form of dividends or otherwise, the Company would be subject to a withholding tax calculated based on 10% of the gross amount of distribution.

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

12.

GOODWILL

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

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

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

13.	NET INCOME PER SHARE

	For the three months ended September 30,					For the nine months ended September 30,
	2010		2009			2010		2009
Numerator used in basic and diluted net income per share:
Income from continuing operations attributable to ChinaCast Education Corporation	RMB	41,541	RMB	27,744		RMB	105,239	RMB	74,276
Loss on discontinued operations attributable to ChinaCast Education Corporation		-	RMB	(388	)		-	RMB	(1,441	)
Net income attributable to ChinaCast Education Corporation	RMB	41,541	RMB	27,356		RMB	105,239	RMB	72,835

Shares (denominator):
Weighted average ordinary shares outstanding used in computing basic net income per share		49,834,291		36,133,233			47,693,969		35,814,325

Plus:
Incremental ordinary shares from assumed conversions of stock options, vesting of restricted shares and exercises of Underwriter Warrants		536,612		246,651			482,933		130,939

Weighted average ordinary shares outstanding used in computing diluted net income per share		50,370,903		36,379,884			48,176,902		35,945,264

Net income per share – basic:
Income from continuing operations attributable to ChinaCast Education Corporation	RMB	0.83	RMB	0.77		RMB	2.21	RMB	2.07
Loss on discontinued operations attributable to ChinaCast Education Corporation		-	RMB	(0.01	)		-	RMB	(0.04	)
Net income attributable to ChinaCast Education Corporation	RMB	0.83	RMB	0.76		RMB	2.21	RMB	2.03

Net income per share – diluted:
Income from continuing operations attributable to ChinaCast Education Corporation	RMB	0.82	RMB	0.76		RMB	2.18	RMB	2.07
Loss on discontinued operations attributable to ChinaCast Education Corporation		-	RMB	(0.01	)		-	RMB	(0.04	)
Net income attributable to ChinaCast Education Corporation	RMB	0.82	RMB	0.75		RMB	2.18	RMB	2.03

14.	SEGMENT INFORMATION

	For the three months ended September 30,				For the nine months ended September 30,
	2010		2009		2010		2009
	RMB		RMB		RMB		RMB

Revenues from external customers:
ELG		49,881		50,747		143,901		144,631
TUG		75,238		31,438		200,224		89,825

		125,119		82,185		344,125		234,456

Additional analysis of revenues from ELG by product or service:
Service		46,957		48,851		140,946		138,566
Equipment		2,924		1,896		2,955		6,065

		49,881		50,747		143,901		144,631

Additional analysis of revenues from ELG by business lines:
Post secondary education distance learning		28,575		28,857		85,040		81,308
K-12 and content delivery		15,996		16,047		47,977		48,310
Vocational training, enterprise/government training and networking services		5,310		5,843		10,884		15,013

		49,881		50,747		143,901		144,631

Income from operations:
ELG		36,702		27,505		89,537		72,162
TUG		13,445		10,974		45,062		30,188

		50,147		38,479		134,599		102,350

	As of September		As of December
	30, 2010		31, 2009
	RMB		RMB
Segment assets:
ELG		762,631		805,116
TUG		2,241,615		1,468,773

		3,004,246		2,273,889

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

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

Three customers as of September 30, 2010 and three customers as of December 31, 2009 each accounted for 10% or more of the Company’s accounts receivable balances, representing an aggregate of 35.7% and 35.8% of the Company’s accounts receivable balances at September 30, 2010 and December 31, 2009, respectively.

15.	WARRANTS AND UNIT PURCHASE OPTIONS

In connection with the share offering which was consummated in October 2008, the Company sold to the underwriter in December 2008, for nominal consideration, an aggregate of 255,000 Underwriter Warrants with a price of US$3.15 per share. The Underwriter Warrants will be exercisable for five years from the closing date of the share offering and are classified as Equity in the accompanying consolidated financial statements. As of September 30, 2010, there were 255,000 Underwriter Warrants outstanding.

16.	CONTINGENCIES

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.

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.

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

17.	RELATED PARTY TRANSACTIONS

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

(a)

Amounts due to a shareholder

	As of		As of
	December 31,		September 30,
	2009		2010

Mr. Wu Shi Xin	RMB	-	RMB	(74,887	) (i)

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

(b)

Amounts due to/from a unconsolidated VIE

	As of		As of
	December 31,		September 30,
	2009		2010

Due to CCL	RMB	-	RMB	-	(ii)

Due from CCL	RMB	99,727	RMB	99,665	(ii)

ii.

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

18.	SUBSEQUENT EVENTS

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

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

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

Forward Looking Statements

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

Overview

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

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

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

Critical Accounting Policies

For summary of the critical accounting policies and the significant judgments and estimates made on the part of the management, see item 7 of Form 10-K for the year ended December 31, 2009 filed by the Company on March 29, 2010.

Results of Operations

For the purpose of the discussion and analysis of the results of ChinaCast Education Corporation (“CEC”), its subsidiaries, and variable interest entity in this section, the consolidated group is referred to as the “Company”. CCL was not accounted for as a consolidated variable interest entity, because the Company was not considered to be the primary beneficiary of CCL. The US dollar figures presented below were based on the historical exchange rate of US$1 = RMB6.7 at September 30, 2010 for the three months and nine months ended September 30, 2010.

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

The revenue of the Company for the three months and nine months ended September 30, 2010 amounted to RMB125.1 million (US$18.7 million) and RMB344.1 million (US$51.4 million) respectively, representing an increase of 52.2% and 46.8% over the revenue of the corresponding periods in 2009. The increase in revenue was mainly due to the acquisition of East Achieve in the fourth quarter of 2009 and the acquisition of Wintown in the third quarter of 2010.

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

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

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

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

The revenue from the K-12 and content delivery business decreased slightly by approximately 0.6% from RMB48.3 million for the nine months ended September 30, 2009 to RMB48.0 million (US$7.2 million) for the nine months ended September 30, 2010. The revenue from the K-12 and content delivery business remained the same at RMB16.0 million (US$2.4 million) for the three months ended September 30, 2010 and for the three months ended September 30, 2009. The number of subscribing schools for K-12 distance learning services has stabilized at 6,500.

Net revenue from vocational and career training services, enterprise government training and networking services decreased from RMB15.0 million during the nine months ended September 30, 2009 to RMB10.9 million (US$1.6 million) during the nine months ended September 30, 2010. Net revenue from vocational and career training services, enterprise government training and networking services decreased from RMB5.8 million during the three months ended September 30, 2009 to RMB5.3 million (US$0.8 million) during the three months ended September 30, 2010. The decrease was mainly due to fluctuations in equipment sales. Equipment sales included in the revenue of this business line amounted to RMB2.9 million (US$0.4 million) and RMB3.0 million (US$0.4 million)for the three months and nine months ended September 30, 2010, against RMB1.9 million and RMB6.1 million during the same periods last year.

The revenue of TUG increased from RMB31.4 million and RMB89.8 million in the three months and nine months ended September 30, 2009 respectively to RMB75.2 million (US$11.2 million) and RMB200.2 million (US$29.9 million) in the three months and nine months ended September 30, 2010. The increase was mainly due to the acquisition of East Achieve in the fourth quarter of 2009 and the acquition of Wintown in the third quarter of 2010. TUG’s total student enrolment increased from approximately 12,200 as at September 30, 2009 to approximately 32,700 as at September 30, 2010. Average revenue per student for 2010 amounted to RMB3,100 per student per quarter as compared to RMB2,700 per student per quarter for 2009.

Cost of sales of the Company increased by 83.9% from RMB89.5 million during the first three quarters of 2009 to RMB164.5 million (US$24.6 million) during the first three quarters of 2010. Cost of sales of the Company increased by 111.9% from RMB30.3 million during the third quarter of 2009 to RMB64.2 million (US$9.6 million) during the third quarter of 2010. The increase was mainly due to the acquisition of East Achieve in the fourth quarter of 2009 and Wintown in the third quarter of 2010, which increased the cost of sales of the TUG.

ELG’s cost of sales decreased from RMB34.3 million during the first three quarters of 2009 to RMB22.6 million (US$3.4 million) during the first three quarters of 2010. ELG’s cost of sales decreased from RMB11.7 million during the third quarter of 2009 to RMB9.4 million (US$1.4 million) during the third quarter of 2010. The decrease was mainly due to the termination of the payment of satellite platform usage fee to CCLBJ. ELG’s cost of materials for the three months and nine months ended September 30, 2010 amounted to RMB2.8 million (US$0.4 million) and RMB2.8 million (US$0.4 million) respectively whereas ELG’s cost of materials were RMB1.9 million and RMB6.0 million for the three months and nine months ended September 30, 2009. The cost of service for the ELG amounted to RMB6.6 million (US$1.0 million) and RMB19.7 million (US$2.9 million) for the three months and nine months ended September 30, 2010, as compared to RMB9.8 million and RMB28.3 million for the same periods in 2009. Satellite platform fee to CCLBJ amounted to RMB1.7 million and RMB5.1 million for the third quarter and the first three quarters of 2009 quarter respectively and the payment of the satellite platform fee to CCLBJ was terminated with effect from January 1, 2010.

TUG’s cost of sales amounted to RMB54.8 million (US$8.2 million) and RMB142.0 million (US$21.2 million) for the three months and nine months ended September 30, 2010 as compared to RMB19.2 million and RMB56.9 million for the same periods in 2009. The increase was due to the acquisition of East Achieve in the fourth quarter of 2009 and Wintown in the third quarter of 2010, after which there were three universities operated under TUG.

ELG’s gross profit margin increased by 3.9 percentage points, from 77.3% in the third quarter of 2009 to 81.2% in the third quarter of 2010. The increase was due to the increase in economy of scale as well as the reduction in equipment sales, which has a low margin and the termination of the satellite platform usage fee to CCLBJ. TUG’s gross profit margin was 27.1% for the third quarter of 2010 as compared to 38.8% for the same period of 2009. The decrease was mainly due to the lower margin of the newly acquired LJC and HIUBC, which had a higher revenue split to the parent university as compared to FTBC.

For the three months and nine months ended September 30, 2009, the Company received a management service fee of RMB0.5 million and RMB3.8 million. The management service fee arose from various agreements with CCL that entitled the Company to the economic benefits of its Beijing Branch — CCLBJ. The management service fee was terminated with effect from January 1, 2010.

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

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

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

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

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

Interest expense increased from RMB5.6 million in the first three quarters of 2009 to RMB10.6 million (US$1.6 million) in the first three quarters of 2010. Interest expense increased from RMB2.4 million in the third quarter of 2009 to RMB4.1 million (US$0.6 million) in the third quarter of 2010. Interest expense was mainly associated with the loan of the TUG to finance the construction of the campus. The increase was due to the increase in bank loan and the reduction in interest capitalized in the construction project of TUG.

Overall, profit before income tax and loss in equity investments increased from RMB37.8 million in the three months ended September 30, 2009 to RMB49.9 million (US$7.4 million) in the three months ended September 30, 2010, an increase of 32.0%. The increase was mainly due to the increase in revenue.

The Company recorded a loss in equity investments amounted to RMB0.03 million (US$0.004 million) in the third quarter of 2010 compared to a loss of RMB0.8 million in the third quarter of 2009.

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

Noncontrolling interest amounted to RMB0.6 million (US$0.09 million) for the three months ended September 30, 2010 as compared to RMB2.0 million for the three months ended September 30, 2009. On September 18, 2009, the Company acquired the 20% minority stake in Hai Lai, which resulted in a reduction of the noncontrolling interest.

Net income attributable to the Company increased by 51.5% to RMB41.5 million (US$6.2 million) in the three months ended September 30, 2010 from RMB27.4 million in the three months ended September 30, 2009.

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

Liquidity and Capital Resources

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

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

Cash and cash equivalents balances increased from RMB327.6 million as at December 31, 2009, to RMB405.2 million (US$60.5 million) as at September 30, 2010. The increase was mainly due to the issuance of new shares to an investor as well as the collection of account receivable.

There was net cash from operating activities of RMB362.4 million (US$54.8 million) for the nine months ended September 30, 2010 as compared to net cash from operating activities of RMB144.2 million for the nine months ended September 30, 2009. The universities under the TUG enroll students at the beginning of an academic year and collect most of the tuition and other fee in September as well as the subsequent months every year. For the remaining of the academic year, the TUG would have a net cash outflow. The increase of net cash from operating activities for the first three quarters of 2010 as compared to the first three quarters of 2009 was mainly because of the addition of two universities under TUG. Cash generated from deferred revenues amounted to RMB159.7 million (US$23.8 million) for the nine months ended September 30, 2010 as compared to RMB23.1 million for the same period in 2009. Account receivables reduced by RMB4.8 million (US$0.7 million) in the first three quarters of 2010 whereas account receivables increased by RMB23.1 million in the first three quarters of 2009. Revenue is recognized ratably throughout the periods services are provided, but payments may be received ahead of or behind the revenue being recognized. Payments received before recognition of revenue are recorded as deferred revenue while payments not received at the time goods and service have been provided are recorded as accounts receivable. For revenue related to project sales, the timing of payments depended upon the terms of the contracts.

Net cash used in investment activities in the nine months ended September 30, 2010 was RMB505.0 million (US$75.4 million), mainly reflecting the payment of consideration for the acquisition of Wintown and East Achieve amounting to RMB374.4 million (US$55.9 million) and the transfer from term deposit of RMB93.0 million (US$13.9 million) For the nine months ended September 30, 2009, transfer from term deposit amounted to RMB89.0 million, which resulted in a cash inflow of RMB32.6 million for the period.

Net cash provided by financing activities in the first three quarters of 2010 was RMB219.9 million (US$32.8 million) as compared to RMB66.5 million in the first three quarters of 2009. New shares were issued in the first three quarters of 2010 to investors to finance future acquisition of the TUG, the proceeds of which amounted to RMB233.0 million (US$34.8 million).

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

Total assets at September 30, 2010 amounted to RMB3,004.2 million (US$448.4 million), an increase of 32.1%, when compared to the total assets amounting to RMB2,273.9 million at December 31, 2009. Total current assets increased by 18.8% to RMB1,092.8 million at September 30, 2010.

Accounts receivable decreased slightly from RMB53.8 million as at December 31, 2009 to RMB50.1 million (US$7.5 million) at September 30, 2010. Most of the business partners are long term customers and settle their accounts promptly. All accounts receivable are reviewed regularly and provisions have been made for any balances that are disputed or doubtful.

Inventory, mainly made up of satellite transmission and receiving equipment, amounted to RMB1.4 million (US$0.2 million) at September 30, 2010.

Prepaid expenses and other current assets increased from RMB19.2 million as at December 31, 2009 to RMB28.8 million (US$4.3 million). The increase was mainly due to the changes in the deposits paid by the TUG.

The noncurrent advances to a related party represent money spent on assets and expenses to build up the satellite business of CCL over the years. CCL has undertaken that when regulation allows, the ownership of CCLX and all the relevant assets attributable to the satellite business operations in the books of CCL and CCLBJ will be transferred to the Company, the consideration of which will be settled against the above advances to CCL in the books of the Company at the sole discretion of the Company.

In addition, we have obtained an undertaking from CCL that, at the time of such transfer, CCL will make a payment to the Company for any shortfall if the valuation of the advances is lower than the outstanding amount of the advances, and therefore believe that the advances are recoverable. Amounts advanced to the related party were RMB99.7 million (US$14.9 million) as at September 30, 2010. As at December 31, 2009, the amount advanced was RMB99.7 million.

As at September 30, 2010, the Company had total bank loans of RMB278.0 million (US$41.5 million). RMB168.0 million of the bank loans are expiring within one year were secured by pledge of certain land use rights and buildings, the entitlement to accommodation income of the student apartments and guarantees given by certain individuals. The remaining RMB110.0 million of the bank loan is expiring over one year and was secured by the guarantees provided by Chongqing Education Guarantee Co., Ltd. (“CQEG”) and Hai Lai. In consideration of the guarantees provided by CQEG, the entitlement to tuition fee of FTBC and a deposit of RMB4 million paid to CQEG were used as securities.

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Foreign Exchange Risk

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

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

Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although currently the Renminbi exchange rate versus the U.S. dollar is restricted to a rise or fall of no more than 0.3% per day and the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, the PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and lessen intervention in the foreign exchange market. As of the close of business on September 30, 2010, the exchange rate between the RMB and the U.S. dollar was RMB6.7 to US$1.

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

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

We recognized a foreign exchange loss of approximately RMB0.004 million (US$0.001 million) and RMB0.6 million (US$0.09 million) for the three months and nine months ended September 30, 2010, respectively. We do not currently engage in hedging activities, as such, we may in the future experience economic loss as a result of any foreign currency exchange rate fluctuations.

Interest Rate Risk

We have a long history of investing excess cash under a conservative corporate policy that only allows investments in bank fixed deposits, with preservation of capital and liquidity as the primary objectives. For the three months and nine months ended September 30, 2010, we recorded an interest income of RMB3.8 million (US$0.6 million) and RMB10.3 million (US$1.5 million), respectively. Any significant changes in interest rate might have an adverse effect on this interest income.

We have short-term and long-term debt amounting to RMB278.0 million (US$41.5 million) as at September 30, 2010. Interest paid in the three months and nine months ended September 30, 2010 was RMB4.1 million (US$0.6 million), and RMB10.6 million (US$1.6 million) respectively. Any significant changes in interest rate might have an adverse effect on interest expense. There have been no material changes associated with the impact of inflation and concentration of credit risk from that previously disclosed in our 2009 Annual Report on Form 10-K.

Inflation

There have been no material changes associated with the impact of inflation from that previously disclosed in our 2009 Annual Report on Form 10-K.

Item 4. Controls and Procedures.

We maintain “disclosure controls and procedures,” as such term is defined under Exchange Act Rule 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2010. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2010 our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting that occurred during the third fiscal quarter of 2010 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

There are no material changes from risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on March 29, 2010.

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

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits.

10.1

English Translation of Share Transfer Agreement dated August 19, 2010 by and among ChinaCast Education Holdings Limited, Wu Shi Xing, Wintown Enterprises Limited, Shanghai Rubao Information Technology Co., Ltd., Wuhan Jiyang Education Investment Co., Ltd. and Hubei Industrial University Business College. (1)

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2010

SIGNATURES

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

	CHINACAST EDUCATION CORPORATION
	(Registrant)

Date: November 9, 2010	By:	/s/ Ron Chan Tze Ngon
	Name:	Ron Chan Tze Ngon
	Title:	Chairman of the Board,
	Chief Executive Officer (Principal Executive Officer)

Date: November 9, 2010	By:	/s/ Antonio Sena
	Name:	Antonio Sena
	Title:	Chief Financial Officer and
	Secretary (Principal Accounting and Financial Officer)

EXHIBIT INDEX

Exhibit No.		Description

10.1		English Translation of Share Transfer Agreement dated August 19, 2010 by and among ChinaCast Education Holdings Limited, Wu Shi Xing, Wintown Enterprises Limited, Shanghai Rubao Information Technology Co., Ltd., Wuhan Jiyang Education Investment Co., Ltd. and Hubei Industrial University Business College. (1)

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2010

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. junior Avg

Chinacast Education Inactive 10-Q2010 Q3 Quarterly report

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