Chinacast Education 10Q 2011 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2011

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

For the transition period from to

Commission File Number: 001-33771

CHINACAST EDUCATION CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

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

Suite 08, 20/F, One International Financial Centre, 1 Harbour View Street,

Central, Hong Kong

(Address of Principal Executive Offices) (Zip Code)

(852) 3960 6506

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

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

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

There were 48,987,235 shares of the Company’s common stock, par value $0.0001 per share, outstanding as of August 6, 2011.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION		3
Item 1. Financial Statements (Unaudited)		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		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

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

CHINACAST EDUCATION CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share-related data)

					As of
	As of June 30,				December 31,
	2011		2011		2010
	US$		RMB		RMB
	(Note 1)				(Note 1)
Assets
Current assets:
Cash and cash equivalents		65,905		428,382		244,403
Term deposits		66,154		430,000		704,000
Accounts receivable		8,605		55,937		59,420
Inventory		150		972		993
Prepaid expenses and other current assets		5,041		32,766		48,221
Amounts due from related parties		529		3,438		3,438
Deferred tax assets		423		2,750		2,972
Current portion of prepaid lease payments for land use rights		613		3,986		3,986
Total current assets		147,420		958,231		1,067,433
Non-current deposits		843		5,480		7,388
Prepayment for construction projects		5,762		37,452		-
Property and equipment, net		116,505		757,283		763,926
Prepaid lease payments for land use rights - non-current		26,999		175,496		177,544
Acquired intangible assets, net		11,705		76,081		100,816
Long-term investments		462		3,000		3,000
Goodwill		119,085		774,051		774,083
Total assets		428,781		2,787,074		2,894,190

							As of
	As of June 30,						December 31,
	2011			2011			2010
	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 RMB1,563 and RMB1,635 as of June 30, 2011 and December 31, 2010, respectively)		5,304			34,478			48,602
Accrued expenses and other current liabilities (including accrued expenses and other liabilities of the consolidated VIE without recourse to ChinaCast Education Corporation of RMB16,305 and RMB17,502 as of June 30, 2011 and December 31, 2010, respectively)		40,350			262,273			279,973
Deferred revenues		10,821			70,339			262,824
Income taxes payable (including income taxes payable of the consolidated VIE without recourse to ChinaCast Education Corporation of RMB3,956 and RMB4,844 as of June 30, 2011 and December 31, 2010, respectively)		16,641			108,168			99,461
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 June 30, 2011 and December 31, 2010)		26,154			170,000			170,000
Other borrowings(including other borrowings of the consolidated VIE without recourse to ChinaCast Education Corporation of nil as of June 30, 2011 and December 31, 2010)		5,231			34,000			1,500
Total current liabilities		104,501			679,258			862,360
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 June 30, 2011 and December 31, 2010)		16,154			105,000			90,000
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 June 30, 2011 and December 31, 2010)		7,567			49,187			51,503
Unrecognized tax benefits – non-current (including unrecognized tax benefits of the consolidated VIE without recourse to ChinaCast Education Corporation of RMB5,799 as of June 30, 2011 and December 31, 2010, respectively)		18,308			119,003			109,933
Total non-current liabilities		42,029			273,190			251,436

Total liabilities		146,530			952,448			1,113,796
Commitments and contingencies
Equity:
Ordinary shares (US$0.0001 par value; 100,000,000 shares authorized; 48,987,235 and 49,778,952 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively)		6			36			36
Additional paid-in capital		228,473			1,485,075			1,510,527
Statutory reserve		7,334			47,671			47,671
Accumulated other comprehensive loss		(430	)		(2,793	)		(3,194	)
Retained earnings		42,882			278,728			199,862

Total ChinaCast Education Corporation shareholders’ equity		278,265			1,808,717			1,754,902
Noncontrolling interest		3,986			25,909			25,492

Total equity		282,251			1,834,626			1,780,394

Total liabilities and equity		428,781			2,787,074			2,894,190

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 June 30,									For the six months ended June 30,
	2011			2011			2010			2011			2011			2010
	US$			RMB			RMB			US$			RMB			RMB
	(Note 1)						(Note 1)			(Note 1)						(Note 1)
Revenues:
Service		23,357			151,826			110,645			46,119			299,774			218,975
Equipment		2,600			16,897			-			2,600			16,897			31

		25,957			168,723			110,645			48,719			316,671			219,006

Cost of revenues:
Service		(12,027	)		(78,177	)		(52,136	)		(21,674	)		(140,881	)		(100,355	)
Equipment		(2,580	)		(16,771	)		-			(2,580	)		(16,771	)		-

		(14,607	)		(94,948	)		(52,136	)		(24,254	)		(157,652	)		(100,355	)

Gross profit		11,350			73,775			58,509			24,465			159,019			118,651

Operating (expenses) income:

Selling and marketing expenses (including share-based compensation of RMB nil and RMBnil for the three months ended June 30 for 2011 and 2010, respectively, share-based compensation of RMBnil and RMB410 for the six months ended June 30 for 2011 and 2010, respectively)		(116	)		(752	)		(503	)		(182	)		(1,184	)		(1,308	)
General and administrative expenses (including share-based compensation of RMB4,044 and RMB1,712 for the three months ended June 30 for 2011 and 2010, respectively, share-based compensation of RMB5,359 and RMB4,192 for the six months ended June 30 for 2011 and 2010, respectively)		(4,384	)		(28,496	)		(14,925	)		(8,624	)		(56,057	)		(32,552	)
Foreign exchange gain (loss)		(60	)		(389	)		(250	)		(92	)		(595	)		(553	)
Other operating income		(36	)		(232	)		207			18			118			214

Total operating expenses, net		(4,596	)		(29,869	)		(15,471	)		(8,880	)		(57,718	)		(34,199	)

	For the three months ended June 30,									For the six months ended June 30,
	2011			2011			2010			2011			2011			2010
	US$			RMB			RMB			US$			RMB			RMB
	(Note 1)						(Note 1)			(Note 1)						(Note 1)
Income from operations		6,754			43,906			43,038			15,585			101,301			84,452
Interest income		615			3,998			3,534			1,261			8,195			6,488
Interest expense		(638	)		(4,148	)		(3,594	)		(1,192	)		(7,749	)		(6,565	)
Income before provision for income taxes and earnings in equity method investments		6,731			43,756			42,978			15,654			101,747			84,375
Provision for income taxes		(263	)		(1,708	)		(9,938	)		(3,459	)		(22,485	)		(19,749	)
Net income before earnings in equity investments		6,468			42,048			33,040			12,195			79,262			64,626
Loss in equity investments		-			-			(30	)		-			-			(60	)
Net income		6,468			42,048			33,010			12,195			79,262			64,566
Less: Net income attributable to noncontrolling interest		(28	)		(184	)		(434	)		(60	)		(396	)		(868	)
Net income attributable to ChinaCast Education Corporation		6,440			41,864			32,576			12,135			78,866			63,698
Net income		6,468			42,048			33,010			12,195			79,262			64,566
Foreign currency translation adjustments		25			164			1,442			65			422			1,608
Comprehensive income		6,493			42,212			34,452			12,260			79,684			66,174
Comprehensive income attributable to noncontrolling interest		(24	)		(157	)		(448	)		(64	)		(417	)		(820	)
Comprehensive income attributable to ChinaCast Education Corporation		6,469			42,055			34,004			12,196			79,267			65,354

Net income per share
Net income attributable to ChinaCast Education Corporation per share:
Basic		0.13			0.84			0.69			0.24			1.58			1.37

Diluted		0.13			0.83			0.69			0.24			1.57			1.36

Weighted average shares used in computation:
Basic		49,696,037			49,696,037			47,250,261			49,796,348			49,796,348			46,606,070

Diluted		50,253,690			50,253,690			47,454,800			50,368,075			50,368,075			46,880,355

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		232,987		—		—		—			—			232,990
Share-based compensation		—		—		4,600		—		—		—			—			4,600
Issuance of vested shares		180,000		—		—		—		—		—			—			—
Net income		—		—		—		—		63,698		—			868			64,566
Foreign currency translation adjustments		—		—		—		—		—		1,656			(48	)		1,608

Balance at June 30, 2010		49,778,952		36		1,528,238		39,139		200,281		(4,399	)		23,987			1,787,282

			US$	5	US$	224,741	US$	5,756	US$	29,453	US$	(647	)	US$	3,528		US$	262,836

	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, 2011		49,778,952		36		1,510,527		47,671		199,862		(3,194	)		25,492		1,780,394
Repurchase of common stock		(1,015,503)		—		(30,769)		—		—		—			—		(30,769	)
Share-based compensation		223,786		—		5,317		—		—		—			—		5,317
Net income		—		—		—		—		78,866		—			396		79,262
Foreign currency translation adjustments		—		—		—		—		—		401			21		422

Balance at June 30, 2011		48,987,235		36		1,485,075		47,671		278,728		(2,793	)		25,909		1,834,626

			US$	6	US$	228,473	US$	7,334	US$	42,882	US$	(430	)	US$	3,986	US$	282,251

See notes to unaudited condensed consolidated financial statements.

CHINACAST EDUCATION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	For the six months ended June 30,
	2011			2011			2010
	US$			RMB			RMB
	(Note 1)						(Note 1)
Cash flows from operating activities:
Net income		12,195			79,262			64,566
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,726			30,717			21,204
Amortization of acquired intangible assets		3,805			24,735			17,235
Amortization of land use rights		315			2,048			1,627
Share-based compensation		818			5,317			4,600
Loss on disposal of property, plant and equipment		112			728			1
Loss in equity investments		-			-			60
Changes in assets and liabilities:
Accounts receivable		484			3,147			5,722
Inventory		3			21			(54	)
Prepaid expenses and other current assets		2,376			15,443			(2,054	)
Non-current deposits		26			168			4,434
Amounts due from related parties		-			-			2,950
Accounts payable		(2,169	)		(14,097	)		3,852
Accrued expenses and other current liabilities		(2,436	)		(15,836	)		(1,903	)
Deferred revenues		(29,613	)		(192,485	)		(116,343	)
Income taxes payable		1,340			8,707			13,022
Deferred tax assets		34			222			606
Deferred tax liabilities		(356	)		(2,316	)		(2,653	)
Unrecognized tax benefits		1,395			9,070			8,070
Net cash (used in) provided by operating activities		(6,945	)		(45,149	)		24,942
Cash flows from investing activities:
Repayment from advance to related party		-			-			45
Purchase of property and equipment		(3,991	)		(25,941	)		(39,051	)
Purchase of term deposits		(58,462	)		(380,000	)		(43,000	)
Proceeds from maturity of term deposits		100,615			654,000			-
Deposits for investments		(78	)		(510	)		(3,000	)
Prepayment for construction projects		(5,762	)		(37,452	)		-
Net cash provided by (used in) investing activities		32,322			210,097			(85,006	)

	For the six months ended June 30,
	2011			2011			2010
	US$			RMB			RMB
	(Note 1)						(Note 1)
Cash flows from financing activities:
Other borrowings raised		5,231			34,000			82,000
Repayment of other borrowings		(231	)		(1,500	)		(67,200	)
Bank borrowings raised		16,154			105,000			80,000
Bank borrowings repaid		(13,846	)		(90,000	)		(78,400	)
Repayment of capital lease obligation		-			-			(44	)
Share repurchase		(4,734	)		(30,769	)		-
Deposit for bank borrowing guarantee		(115	)		(750	)		-
Collection of deposit for bank borrowing guarantee		462			3,000			-
Proceeds from issuance of share, net of issuance costs		-			-			232,990
Net cash provided by financing activities		2,921			18,981			249,346
Effect of foreign exchange rate changes		7			50			124
Net increase in cash and cash equivalents		28,305			183,979			189,406
Cash and cash equivalents at beginning of the period		37,600			244,403			327,628

Cash and cash equivalents at end of the period		65,905			428,382			517,034

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 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, 2010.

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, 2011.

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

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 Company provides substantially all of its satellite broadband business activities in the PRC through its 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 three employees of ChinaCast. 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, ChinaCast Technology (Shanghai) Limited (“CCT Shanghai”) entered into a series of contractual arrangements with CCLX and CCLX subsequently updated these contractual arrangements on December 31, 2010.

Agreements that transfer economic benefits to CCT Shanghai

Technology services agreement: Pursuant to an Exclusive Technical Services Agreement with a 10 year term, CCT Shanghai assists CCLX in implementing CCLX's businesses relating to the provision of exclusive technical, consulting, financial support and other services, including but not limited to the provision of technical services, business consultations, equipment or property leasing, marketing consultancy, system integration, product research and development and system maintenance. 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. During the term of the agreement, unless CCT Shanghai commits gross negligence, or a fraudulent act against CCLX, CCLX may not terminate the agreement prior to its expiration date. CCT Shanghai can terminate the agreement upon 30 days prior written notice to CCLX at anytime.

Call option agreement: Pursuant to a call option agreement, the shareholders of CCLX unconditionally and irrevocably granted CCT Shanghai or its designated party an exclusive option to purchase from CCLX's shareholders, to the extent permitted under PRC law, 100% of the equity interests in CCLX, as the case maybe, for RMB1 or the minimum amount of consideration permitted by the applicable law without any other conditions. CCT Shanghai has sole discretion to decide when to exercise the option, whether in part or in full, during the 10 year term of the agreement.

Equity pledge agreement: Pursuant to the equity pledge agreement, as a collateral security for the prompt and complete execution of the Exclusive Technical Services Agreement , 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. In the event CCLX fails to pay the service fee in accordance with the New Technical Service Agreement, CCT Shanghai has the right, but not the obligation, to dispose of the equity interest pledged by the CCLX shareholders in accordance with the provisions in the agreement.

Agreements that provide CCT Shanghai effective control over CCLX

Power of attorney: The shareholders of CCLX have executed an irrevocable power of attorney appointing CCT Shanghai, or any designated parties by CCT Shanghai as their attorney-in-fact to vote on their behalf on all matters of CCLX requiring shareholder approval under PRC laws and regulations and the article of association of CCLX. The power of attorney remains effective during the periods of their shareholding.

The article of association of CCLX states that the major rights of the shareholders in shareholders' meeting include the power to approve the operating strategy and investment plan, elect the members of board of directors and approve their compensation and review and approve annual budget and earning distribution plan. Therefore, through the irrevocable power of attorney arrangement, CCT Shanghai has the ability to exercise effective control over CCLX through shareholder votes and through such votes to also control the composition of the board of directors. In addition, the senior management team of CCLX is the same as that of CCT Shanghai. As a result of the contractual rights, the Company has the power to direct the activities of CCLX that most significantly impact CCLX's economic performance.

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. CEC and its consolidated entities (the “Group”) adopted the new guidance on January 1, 2010.

The Company has had one consolidated variable interest entity under the authoritative literature prior to the amendment discussed above because it was the primary beneficiary of the entity. Because the Company, through its wholly owned subsidiary, has (1) the power to direct the activities of the variable interest entity that most significantly affect the entity's economic performance and (2) the right to receive benefits from the variable interest entity. The Company continues to consolidate the variable interest entity upon the adoption of the new guidance which therefore has no impact on the Company's financial condition or results of operations, except for the additional disclosures on the face of and in the notes to the consolidated financial statements.

Risks in relation to the consolidation of VIE and acquired schools

The Company, believes that CCT Shanghai’s contractual arrangements with the VIE are in compliance with PRC law and are legally enforceable. The shareholders of the VIE are current employees of the Company and therefore have no current interest in seeking to act contrary to the contractual arrangements. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements and if the shareholders of the VIE were to reduce their interest in the Company, their interests may diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms, for example by influencing the VIE not to pay the service fees when required to do so.

The Company’s ability to control the VIE also depends on the power of attorney CCT Shanghai has to vote on all matters requiring shareholder approval in the VIE, including but not limited to appointment of directors, significant operating, investing, and investing decisions. As noted above, the Company believes this power of attorney is legally enforceable but may not be as efficient as direct equity ownership. However, it provides an effective legal remedy under PRC law for the Company to control the VIE assets, cash flows, and operating performance.

The Company, believes that the current ownership with the acquired schools is in compliance with PRC law and is legally enforceable. The current ownership structure provides an effective means for the Company to involve in and control the acquired schools' assets, cash flows, and operating performance.

If the contractual arrangements with the VIE or the ownership with the acquired schools are found to be in violation of any existing or future PRC laws or regulations or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:

•

Levying fines and confiscating illegal income of the VIE or the Group's subsidiaries in China;

•

Restricting or prohibiting use of the proceeds to finance the Group's business and operations in China;

•

Requiring the Group to restructure the ownership structure or operations of the VIE or the Group's subsidiaries in China;

•

Requiring the Group to discontinue all or a portion of its business in China; and/or

•

Revoking the business licenses of the VIE or the Group's subsidiaries in China.

The imposition of any of these penalties may cause significant disruption to the Group's business operations and may result in a material and adverse effect on the Group’s business, financial condition and results of operations. In addition, if the imposition of any of these penalties causes the Group to lose control over the acquired schools, or to lose the rights to direct the activities of the VIE, or the right to receive its economic benefits, the Group would no longer be able to consolidate the VIE and acquired schools. The Group does not believe that any penalties imposed or actions taken by the PRC Government would result in the liquidation of the Company, CCT Shanghai, the VIE, or the acquired schools.

CCT Shanghai is the primary beneficiary and absorbs 100% of the economic benefits of CCLX. 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 six months ended June 30, 2011 after elimination of the intercompany transactions and balances:

					As of
	As of June 30,				December 31,
	2011		2011		2010
	US$		RMB		RMB
Current assets		13,226		85,966		87,023
Non-current assets		511		3,322		3,101
Total assets		13,737		89,288		90,124

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.

					As of
	As of June 30,				December 31,
	2011		2011		2010
	US$		RMB		RMB
Current liabilities		3,357		21,824		23,941
Non-current liabilities		892		5,799		5,799
Total liabilities		4,249		27,623		29,740

	For the three months ended June 30,						For the six months ended June 30,
	2011		2011		2010		2011		2011		2010
	US$		RMB		RMB		US$		RMB		RMB
Revenues		4,925		32,012		31,654		9,692		62,997		62,046
Net income (loss)		4,065		26,423		25,850		7,734		50,273		50,169

	For the six months ended June 30,
	2011			2011			2010
	US$			RMB			RMB
Net cash provided by /(used in) operating activities		7,561			49,149			60,071
Net cash provided by /(used in) investing activities		(202	)		(1,313	)		(429)
Net cash provided by/(used in) financing activities		-			-			-

There are no assets of the CEC and its majority-owned subsidiaries that serve as collateral for CCLX and the creditors of CCLX have no recourse to the general credit of CEC and its majority-owned subsidiaries.

Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements used 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, 2010.

Convenience Translation

Amounts in United States dollars (“US$”) are presented solely for the convenience of readers and an exchange rate of RMB6.5 to US$1 was applied as of June 30, 2011. Such translation should not be construed to be the amounts that would have been reported under US GAAP.

2.	RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

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. For nonpublic entities, the disclosures are effective for annual reporting periods ending on or after December 15, 2011. In January 2011, the FASB issued another authoritative pronouncement, which temporarily defers the effective date for disclosures about troubled debt restructurings (TDRs) by creditors until it finalizes its project on determining what constitutes a TDR for a creditor. The deferral in this amendment is effective upon issuance. The deferred TDR disclosures are required in the first interim or annual period beginning after June 15, 2011. The proposed deferral would not affect nonpublic (private) entities. The guidance requires such entities to apply the TDR disclosure requirements for periods ending on or after December 15, 2011. 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 2010, the FASB issued an authoritative pronouncement on accounting for costs associated with acquiring or renewing insurance contracts. The objective of this guidance is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral and specified which costs incurred in the acquisition of new and renewal contracts should be capitalized. The guidance is effective for fiscal years beginning after December 15, 2011. While the guidance is required to be applied prospectively upon adoption, retrospective application is also permitted (to all prior periods presented). Early adoption is also permitted, but only at the beginning of an entity's annual reporting period. 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, 2011, the FASB issued an authoritative pronouncement on a creditor's determination of whether a restructuring is a troubled debt restructuring, which clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. The amendment clarify the guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. For nonpublic entities, the amendments to the Codification in the ASU are effective for annual periods ending on or after December 15, 2012, including interim periods within those annual periods. Early adoption is 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 May 2011, the FASB issued an authoritative pronouncement on fair value measurement. The guidance is the result of joint efforts by the FASB and IASB to develop a single, converged fair value framework. The guidance is largely consistent with existing fair value measurement principles in U.S. GAAP. The guidance expands the existing disclosure requirements for fair value measurements and makes other amendments, mainly including:

Highest-and-best-use and valuation-premise concepts for nonfinancial assets – the guidance indicates that the highest-and-best-use and valuation-premise concepts only apply to measuring the fair value of nonfinancial assets.

Application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk – the guidance permits an exception to fair value measurement principles for financial assets and financial liabilities (and derivatives) with offsetting positions in market risks or counterparty credit risk when several criteria are met. When the criteria are met, an entity can measure the fair value of the net risk position.

Premiums or discounts in fair value measure – the guidance states that "premiums or discounts that reflect size as a characteristic of the reporting entity's holding (specifically, a blockage factor that adjusts the quoted price of an asset or a liability because the market's normal daily trading volume is not sufficient to absorb the quantity held by the entity…) rather than as a characteristic of the asset or liability (for example, a control premium when measuring the fair value of a controlling interest) are not permitted in a fair value measurement."

Fair value of an instrument classified in a reporting entity's shareholders' equity – the guidance prescribes a model for measuring the fair value of an instrument classified in shareholders' equity; this model is consistent with the guidance on measuring the fair value of liabilities.

Disclosures about fair value measurements – the guidance expands disclosure requirements, particularly for Level 3 inputs. Required disclosures include:

For fair value measurements categorized in level 3 of the fair value hierarchy: (1) a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, (2) a description of the valuation process in place (e.g., how the entity decides its valuation policies and procedures, as well as changes in its analyses of fair value measurements, from period to period), and (3) a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs.

The level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed.

The guidance is to be applied prospective and effective for interim and annual periods beginning after December 15, 2011, for public entities. Early application by public entities is not 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 June 2011, the FASB issued an authoritative pronouncement to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity. These amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance should be applied retrospectively. For public entities, the amendments are effective for fiscal years and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.

3.	ACQUISITION

On October 5, 2009, ChinaCast Communication Holdings Limited (“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 payment.

The remaining consideration was recorded as a liability at fair value of RMB30,482 as of December 31, 2009 and was subsequently settled at RMB20,540 in September 2010. As a result, a gain of RMB9,417 from change in contingent consideration was recognized and included in the operating income of the third quarter of 2010.

The fair value of total consideration of RMB325,482 as of the acquisition date was consist of:
Consideration paid in cash			295,000
Fair value of deferred contingent consideration			30,482
Total			325,482

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		Up to 47 months
Affiliation agreement		14,000		59 months
Goodwill		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

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

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

Acquisition of Wintown

On August 23, 2010, ChinaCast Education Holdings Limited (“CEH”), the Company's subsidiary in the British Virgin Islands, consummated the acquisition of the entire interest in Wintown from the former sole owner of Wintown. Wintown ultimately 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 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 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 payment of RMB90,000.

The remaining 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 fair value of total consideration was RMB438,721 as of the date of acquisition. There was no material change in the fair value of the remaining consideration up to June 30, 2011.

The fair value of total consideration of RMB438,721 as of the acquisition date consists of:

Consideration paid in cash			360,000
Fair value of deferred contingent consideration			78,721
Total			438,721

				Amortization
	RMB			period

Cash		19,942
Other current assets		7,771
Property and equipment		218,720		3 years-remaining
				lease term
Prepaid lease payments for land use rights		37,000		Over the remaining
				lease term
Intangible assets:
Customer relationship		38,000		up to 48 months
Affiliation Agreement		31,000		3 years
Goodwill		270,308
Bank borrowing		(54,000	)
Other current liabilities		(70,621	)
Deferred revenues		(2,753	)
Deferred tax liabilities		(29,003	)
Unrecognized tax benefits		(27,643	)
Total		438,721

The Company also acquired Dongying Aohua Education Consulting Co. Ltd.(“DAEC”) on December 24, 2010 for a total cash consideration of RMB2,000 and the fair value of the total net assets of DAEC is RMB1,936, resulting in a goodwill of RMB64.

4. PREPAYMENT FOR CONSTRUCTION PROJECTS

The balance represents prepayment to Chongqing Vocational College of Media and its investor Chongqing Bainian Guangcai Company ("CVCM" collectively). Starting from 2011/2012 school year, CVCM will help FTBC construct new campus and FTBC will pay for the construction. Before the completion of the work, CVCM will allow students of FTBC to use resources of CVCM, including canteen, teaching buildings, and dormitory, etc. and FTBC needs to pay 15% of its total revenue from students as compensation.

5. NON-CURRENT DEPOSITS

Non-current deposits consisted of the following:

	As of June 30, 2011		As of December 31, 2010
	RMB		RMB

Rental deposits		246		415
Utilities deposits		454		208
Guarantee deposit for borrowings		1,750		4,000
Guarantee deposits for construction projects		2,520		2,765
Deposit for investment project		510		-
Total		5,480		7,388

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

Guarantee deposit for borrowings 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 RMB35,000.

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 June 30,			As of December 31,
	2011			2010
	RMB			RMB
Customer relationships
Cost		129,329			129,329
Less: Accumulated amortization		(84,654	)		(66,509	)

		44,675			62,820

Affiliation agreement
Cost		45,000			45,000
Less: Accumulated amortization		(13,594	)		(7,004	)

		31,406			37,996

Acquired intangible assets, net		76,081			100,816

For the three months and six months ended June 30, 2011, the Company recorded amortization expense in respect of the customer relationships amounting to RMB9,072 and RMB18,145, respectively. The Company will record further amortization expenses in respect of the customer relationships of RMB13,365, RMB18,926, RMB9,851, and RMB2,533 in 2011, 2012, 2013 and 2014, respectively.

For the three months and six months ended June 30, 2011, the Company recorded amortization expense in respect of the affiliation agreement amounting to RMB3,295 and RMB6,590, respectively. The Company will record amortization expenses in respect of the affiliation agreement of RMB6,590, RMB13,181, RMB9,737 and RMB1,898 in 2011, 2012, 2013 and 2014, respectively.

7.	BORROWINGS

During the six months ended June 30, 2011, an aggregate amount of other borrowings amounting to RMB34,000 was raised and RMB1,500 was repaid. The other borrowings carried interest at 9% per annum and will be repayable in 2011.

The Company raised other borrowings of RMB34,000 in the six months ended June 30, 2011 from two individuals. The terms and counterparties for the borrowings are as follows:

Counterparties	Amounts borrowed RMB		Borrowing date	Maturity date	Interest rate
HU, Jiping		9,000	March 3, 2011	September 15, 2011		9	%
CHEN, Ling		25,000	March 21, 2011	Within 3 months		9	%
		34,000

The Company repaid other borrowings of RMB1,500 in the six months ended June 30, 2011 to one individual as follows:

Counterparty	Amounts repaid RMB		Borrowing date	Repayment date	Interest rate
LI, Shaobi		1,500	July 16, 2010	January 20, 2011		7	%
		1,500

The ending balance of other borrowings was RMB34,000 as at June 30, 2011.

8.	SHARE REPURCHASE

From May 12, 2011 to June 30, 2011, the Company repurchased a total of 1,015,503 common stock on the market. The average repurchased price per share was US$4.688 per share and the total principal paid for the common stock was US$4,760.

9.	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, nonvested shares to its three independent directors at no consideration. Each of the three directors were granted 100,000 nonvested shares of the Company's common stock. All of the shares of nonvested 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 nonvested shares 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 nonvested shares from February 9, 2010 to the date of his resignation.

On June 22, 2010, CEC granted, under the 2007 Plan, 396,678 nonvested shares to six employees at no consideration. All of the shares of nonvested 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 nonvested shares vested on the date of grant. 33,056 of the nonvested shares vested on July 31, 2010 and an equal number of nonvested shares vest at the end of every three months thereafter until January 31, 2013.

On April 30, 2011, CEC granted, under the 2007 Plan, 250,000 nonvested shares to three independent directors at no consideration. All of the shares of nonvested stock to the independent directors were granted at fair market value based on the closing price of April 30, 2011 of US$6.11 (RMB39.72). 35,000 of the nonvested shares vested on the date of grant. 55,000 of the nonvested shares vested on February 9, 2012 and the balance of 160,000 of nonvested shares vest on February 9, 2013.

On May 31, 2011, CEC granted, under the 2007 Plan, 23,500 nonvested shares to 47 employees at no consideration. All of the shares of nonvested stock to the employees were granted at fair market value based on the closing price of May 31, 2011 of US$5.63 (RMB36.60).

	Number of shares			Weighted average grant-date fair values of shares		Weighted average intrinsic value per share at the grant date
				US$		US$
Nonvested share unvested at January 1, 2011		297,504			6.07		6.07
Granted		273,500			6.07		6.07
Vested		(124,612	)		6.00		6.00
Fortfeited		-			-		-
Nonvested share unvested at June 30, 2011		446,392			6.09		6.09

Share options

On January 11, 2008, CEC granted, under the 2007 Plan, 1,200,000 options to purchase the Company's common stock to selected employees at no consideration. The per share exercise price of the options is US$6.30 and the expiry date is January 11, 2018. A total of 401,000, 401,000 and 398,000 share options vested on March 31, 2008, March 31, 2009 and March 31, 2010, respectively. Upon exercise of these options, a total of 1,200,000 common stock will be issued. As of June 30, 2011, no such restricted shares or options have been forfeited.

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

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

Granted		—		—
Exercised		—		—
Cancelled		—		—

			Weighted
			average
	Number		exercise
	of options		price
			US$
Options outstanding at June 30, 2011		1,200,000		6.30
Options exercisable at June 30, 2011		1,200,000		6.30

The per share fair value of 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 June 30, 2011 was US$ nil.

The weighted average remaining contractual life is 6.5 years as of June 30, 2011.

Total share-based compensation expenses amounting to RMB4,044 and RMB1,712 were recognized for the three months ended June 30, 2011 and 2010, respectively. Total share-based compensation expenses amounting to RMB5,359 and RMB4,602 were recognized for the six months ended June 30, 2011 and 2010, respectively.

The total unrecognized compensation expense related to the stock compensation arrangements for the restricted shares and share options as of June 30, 2011 is USD2,512

As of June 30, 2011, no other awards have been granted under the 2007 Plan.

10.	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. All the PRC entities of the Company are subject to 25% income tax rate, except for the following entities, which enjoy preferential tax rate.

According to transitional rules published after the new income tax law, one of the Company’s major operating subsidiaries, ChinaCast Technology (Shanghai) Limited (“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.

Foreign Trade and Business College of Chongqing Normal University (“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 of the PRC and is subject to the preferential tax rate of 15% until 2010 in accordance with the western development preferential policy.

Provision for income taxes mainly represents the PRC income taxes calculated at the applicable rate on ChinaCast Technology (BVI) Limited (“CCT BVI”)’s deemed profit generated in the PRC, the profit of CCT Shanghai, CCLX, Hai Lai, Hai Yuen, FTBC, Lijiang College and HIUBC.

The Company considers its undistributed earnings 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.

CCT BVI constituted a Permanent Establishment ("PE") in the PRC and the income generated from the PE is subject to the PRC income taxes, which are calculated at 25% tax rate.

Uncertainties exist with respect to the application of the Enterprise Income Tax Law and its implementation rules to our operations, specifically with respect to our tax residency status. The enterprise Income Tax Law specifies that legal entities organized outside of the PRC will be considered residents for PRC income tax purposes if their "de facto management bodies" as establishment that carry out substantial and overall management and control over the manufacturing and business operations personnel, accounting, properties, etc. of an enterprise. The Company has evaluated the uncertain tax position related to the non-PRC tax residency of its offshore holding entities. Taking all the relevant facts, technical merits and current practice into consideration, the Company has determined that the position does not meet the FIN48 recognition threshold, which means it is more likely than not that the positions will be sustained upon examination by tax authorities with full knowledge of relevant facts and information, therefore, no unrecognized tax benefit is recorded.

The three acquired universities have so far not paid any income tax. The Company provided provisions of unrecognized tax benefits for the three acquired universities since significant judgments are required in determining whether such universities are qualified for income tax exemption. During the six months ended June 30, 2011, the unrecognized tax benefits increased from RMB109,933 to RMB119,003.

11.

GOODWILL

Changes in the carrying amount of goodwill for the year ended December 31, 2010 and six-month period ended June 30, 2011 consisted of the following:

	As of June 30,			As of December 31,
	2011			2010
	RMB			RMB
Beginning balance		774,083			503,771
Addition from acquisitions		-			270,371
Exchange rate impact		(32	)		(59	)
Ending balances		774,051			774,083

No impairment charges have been recorded for the six-month period ended June 30, 2011.

12.	NET INCOME PER SHARE

	For the three months ended June 30,				For the six months ended June 30,
	2011		2010		2011		2010
Numerator used in basic and diluted net income per share:
Net income attributable to ChinaCast Education Corporation	RMB	41,864	RMB	32,576	RMB	78,866	RMB	63,698

Shares (denominator):
Weighted average ordinary shares outstanding used in computing basic net income per share		49,696,037		47,250,261		49,796,348		46,606,070

Plus:
Incremental ordinary shares from assumed conversions of stock options, vesting of restricted shares and exercises of Underwriter Warrants		557,653		204,539		571,727		274,285

Weighted average ordinary shares outstanding used in computing diluted net income per share		50,253,690		47,454,800		50,368,075		46,880,355

Net income per share – basic:
Net income attributable to ChinaCast Education Corporation	RMB	0.84	RMB	0.69	RMB	1.58	RMB	1.37

Net income per share – diluted:
Net income attributable to ChinaCast Education Corporation	RMB	0.83	RMB	0.69	RMB	1.57	RMB	1.36

13.	SEGMENT INFORMATION

	For the three months ended June 30,				For the six months ended June 30,
	2011		2010		2011		2010
	RMB		RMB		RMB		RMB

Revenues from external customers:
ELG		65,341		47,621		112,961		94,020
TUG		103,382		63,024		203,710		124,986

		168,723		110,645		316,671		219,006

Additional analysis of revenues from ELG by product or service:
Service		48,444		47,621		96,064		93,989
Equipment		16,897		-		16,897		31

		65,341		47,621		112,961		94,020

Additional analysis of revenues from ELG by business lines:
Post secondary education distance learning		30,501		28,412		60,351		56,465
K-12 and content delivery		15,741		15,974		31,523		31,981
Vocational training, enterprise/government training and networking services		19,099		3,235		21,087		5,574

		65,341		47,621		112,961		94,020

Income from operations:
ELG		23,278		27,395		47,760		52,835
TUG		20,628		15,643		53,541		31,617

		43,906		43,038		101,301		84,452

	As of June		As of December
		30, 2011		31, 2010
	RMB		RMB
Segment assets:
ELG		630,188		656,795
TUG		2,156,886		2,237,395

		2,787,074		2,894,190

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 six months ended June 30, 2011.

Four customers as of June 30, 2011 and two customers as of December 31, 2010 each accounted for 10% or more of the Company’s accounts receivable balances, representing an aggregate of 45.7% and 20.9% of the Company’s accounts receivable balances at June 30, 2011 and December 31, 2010, respectively.

14.	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 June 30, 2011, there were 255,000 Underwriter Warrants outstanding.

15.	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 October 5, 2009, CCH, the Company's subsidiary in Bermuda, consummated the acquisition of the entire interest in East Achieve from the former sole owner of East Achieve. East Achieve holds the entire interest in Xijui. Xijiu holds the entire interest in which in Lianhe turns holds the entire interest in 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 following statement. 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 at each reporting date. As a result, the expected total consideration was RMB325,482 as of the date of acquisition. There was no change in the fair value of the remaining consideration up to June 30, 2010.

CCTSH injected RMB6 million, RMB6 million and RMB18 million into QPU as capital contribution in February, August and September of 2010 respectively. Subsequently, YPSH borrowed RMB18 million from QPU. The PRC law and regulations restricts capital withdrawal from established companies. It may be argued that the borrowing from QPU could potentially be assessed as a capital withdrawal and may be subject to penalty ranging from 2-10% of the withdrawn amount. The Company has recorded a RMB1.8 million provision for such possible penalty.

16.	SUBSEQUENT EVENT

The Company has performed an evaluation of the subsequent events review through August 9, 2011, which is the date the unaudited consolidated financial statements were available to be issued.

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 are a leading post-secondary education and e-Learning services provider in China. We provide post-secondary degree and diploma programs through our three universities in China: The Foreign Trade and Business College of Chongqing Normal University, the Lijiang College of Guangxi Normal University and the Hubei Industrial University Business College. These universities offer fully accredited, career-oriented bachelor's degree and diploma programs in business, economics, law, IT/computer engineering, hospitality and tourism management, advertising, language studies, art and music. We provide its e-Learning services to post-secondary institutions, K-12 schools, government agencies and corporate enterprises via our nationwide satellite/fiber broadband network. These services include interactive distance learning applications, multimedia education content delivery and vocational training courses.

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, 2010 filed by the Company on March 16, 2011.

Results of Operations

For the purpose of the discussion and analysis of the results of ChinaCast Education Corporation (“CEC”), its subsidiaries, and variable interest entities in this section, the consolidated group is referred to as the “Company”. ChinaCast Company Ltd. ("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 1USD = 6.5RMB at June 30, 2011 for the three months and six months ended June 30, 2011.

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 six months ended June 30, 2011 amounted to RMB168.7 million (US$26.0 million) and RMB316.7 million (US$48.7 million) respectively, representing an increase of 52.5% and 44.6% over the revenue of the corresponding periods in 2010. The increase in revenue was mainly due to the acquisition of Wintown in the third quarter of 2010 and the increase in equipment sales, in the second quarter of 2011. The Wintown Group contributed a revenue of RMB29.5 million (US$4.5 million) and RMB58.6 million (US$9.0 million) in the three months and six months ended June 30, 2011 respectively.

Revenue of the ELG amounted to RMB65.3 million (US$10.1 million) and RMB113.0 million (US$17.4 million) for the three months and six months ended June 30, 2011 respectively, as compared to revenue of RMB47.6 million and RMB94.0 million of the ELG for the three months and six months ended June 30, 2010 respectively. Service income, amounted to RMB48.4 million (US$7.4 million) and RMB96.1 million (US$14.8 million) for the three months and six months ended June 30, 2011, compared to RMB47.6 million and RMB94.0 million for the corresponding periods in 2010. Equipment sales, amounted to RMB 16.9 million (US$ 2.6 million) and RMB16.9 million (US$2.6 million) for the three months and six months ended June 30, 2011, against RMB nil and RMB0.03 million for the same periods last year. The following table provides a summary of the ELG’s revenue by business lines:

	Three Months ended
	June 30, 2011				June 30, 2010
	(millions)				(millions)
	US$		RMB		RMB
Post secondary education distance learning		4.7		30.5		28.4
K-12 and content delivery		2.4		15.7		16.0
Vocational training, enterprise / government training and networking		3.0		19.1		3.2
Total ELG revenue		10.1		65.3		47.6

	Six Months ended
	June 30, 2011				June 30, 2010
	(millions)				(millions)
	US$		RMB		RMB
Post secondary education distance learning		9.3		60.4		56.5
K-12 and content delivery		4.9		31.5		32.0
Vocational training, enterprise / government training and networking		3.2		21.1		5.5
Total ELG revenue		17.4		113.0		94.0

Net revenue from post secondary education distance learning services increased from RMB56.5 million in the six months ended June 30, 2010 to RMB60.4 million (US$9.3 million) in six months ended June 30, 2011. Net revenue from post secondary education distance learning services increased from RMB28.4 million in the three months ended June 30, 2010 to RMB30.5 million (US$4.7 million) in three months ended June 30, 2011. The total number of post-secondary students enrolled in courses using the Company’s distance learning platforms increased to 144,000 at June 30, 2011 from 141,000 at June 30, 2010. The increase was due to the growth of students enrolled in distance learning degree courses with the universities. The increase was also due to the contribution from the 60% owned subsidiary established with Petroleum University in 2010, which had a revenue of RMB1.5 million (US$0.2 million) and RMB2.4 million (US$0.4 million) for the three months and six months ended June 30, 2011 respectively.

The revenue from the K-12 and content delivery business decreased slightly by approximately 1.4% from RMB32.0 million for the six months ended June 30, 2010 to RMB31.5 million (US$4.9 million) for the six months ended June 30, 2011. The revenue from the K-12 and content delivery business decreased slightly by approximately 1.5% from RMB16.0 million for the three months ended June 30, 2010 to RMB15.7 million(US$2.4 million) for the three months ended June 30, 2011. The number of subscribing schools for K-12 distance learning services has stabilized at 6,500, and since K-12 revenue is generated in CCT BVI, whose functional currency is HKD, the revenue decreased due to exchange rate fluctuations.

Net revenue from vocational and career training services, enterprise government training and networking services increased from RMB5.6 million during the six months ended June 30, 2010 to RMB21.1 million (US$3.2 million) during the six months ended June 30, 2011. Net revenue from vocational and career training services, enterprise government training and networking services increased from RMB3.2 million during the three months ended June 30, 2010 to RMB19.1 million (US$3.0 million) during the three months ended June 30, 2011. The increase was mainly due to fluctuations in equipment sales. Equipment sales included in the revenue of this business line amounted to RMB 16.9 (US$ 2.6 million) and RMB16.9 million (US$2.6 million) for the three months and six months ended June 30, 2011, against RMB nil and RMB0.03 million for the same periods last year.

The revenue of TUG increased from RMB63.0 million and RMB125.0 million in the three months and six months ended June 30, 2010, respectively, to RMB103.4 million (US$15.9 million) and RMB203.7 million (US$31.3 million) in the three months and six months ended June 30, 2011. The increase was mainly due to the acquisition of Wintown in the third quarter of 2010. TUG’s total student enrolment increased from approximately 20,400 as at June 30, 2010 to approximately 32,600 as at June 30, 2011. Student enrollments of the FTBC Group, the LJC Group and the HIUBC Group were approximately 12,600, 9,200 and 10,800, respectively, as at June 30, 2011.

Cost of sales of the Company increased by 57.1% from RMB100.4 million during the first half of 2010 to RMB157.7 million (US$24.3 million) during the first half of 2011. Cost of sales of the Company increased by 82.1% from RMB52.1 million during the second quarter of 2010 to RMB94.9 million (US$14.6 million) during the second quarter of 2011. The increase was mainly due to the acquisition of Wintown, which increased the cost of sales of the TUG from RMB45.6 million for the three months ended June 30, 2010 to RMB71.3 million (US$11.0 million) for the three months ended June 30, 2011 and the increase of cost for materials related to equipment sales from RMB nil for the three months ended June 30, 2010 to RMB16.5 million (US$2.5 million) for the three months ended June 30, 2011.

ELG’s cost of sales increased from RMB13.2 million during the first half of 2010 to RMB30.0 million (US$4.6 million) during the first half of 2011. ELG’s cost of sales increased from RMB6.6 million during the second quarter of 2010 to RMB23.6 million (US$3.6 million) during the second quarter of 2011. The increase was mainly due to increase in equipment sales. There was no cost of materials for ELG for the first half of 2010 whereas ELG’s cost of materials was RMBnil and RMB16.8 million (US$2.6 million) for the three months and six months ended June 30, 2011. The cost of service for the ELG amounted to RMB6.8 million (US$1.1 million) and RMB13.2 million (US$2.0 million) for the three months and six months ended June 30, 2011, as compared to RMB6.6 million and RMB13.2 million for the same periods in 2010.

TUG’s cost of sales amounted to RMB71.3 million (US$11.0 million) and RMB127.6 million (US$19.6 million) for the three months and six months ended June 30, 2011 as compared to RMB45.6 million and RMB87.1 million for the same periods in 2010. The increase was due to the acquisition of Wintown in the third quarter of 2010, after which there were three universities operated under TUG. The cost of sales of the Wintown Group amounted to RMB24.5 million (US$3.8 million) and RMB41.1 million (US$6.3 million) for the three months and six months ended June 30, 2011, respectively.

ELG’s gross profit margin decreased by 21.9 percentage points, from 86.2% in the second quarter of 2010 to 64.3% in the second quarter of 2011. The decrease was due to the increase in equipment sales, which has a low margin. TUG’s gross profit margin was 31.0% for the second quarter of 2011 as compared to 27.7% for the same period of 2010. The increase was due to economies of scale and improved efficiency of FTBC and LJC, which was slightly offset by the lower gross profit margin of HIUBC with higher affiliation fee split to the associated university and higher amortization of intangibles.

Selling and marketing expenses decreased from RMB1.3 million in the first half of 2010 to RMB1.2 million (US$0.2 million) in the first half of 2011. Selling and marketing expenses increased from RMB0.5 million in the second quarter of 2010 to RMB0.8 million (US$0.1 million) in the second quarter of 2011. The increase was due to the increase in selling and marketing activities in the consolidated subsidiary established with the Petroleum University in 2010.

General and administrative expenses increased by 90.9% and 72.2% to RMB28.5 million (US$4.4 million) and RMB56.1 million (US$8.6 million) in the three months and six months ended June 30, 2011 as compared to the same periods last year. The increase was mainly due to the acquisition of Wintown in the third quarter of 2010. In addition, the Company granted new restricted shares to the independent directors and staff in the second quarter of 2011. Share -based compensation increased from RMB1.7 million and RMB4.2 million for the three months and six months ended June 30, 2010 to RMB4.0 million (US$0.6 million) and RMB5.4 million (US$0.8 million) for the three months and six months ended June 30, 2011, respectively.

Interest income increased from RMB6.5 million in the first half of 2010 to RMB8.2 million (US$1.3 million) in the first half of 2011. Interest income increased from RMB3.5 million in the second quarter of 2010 to RMB4.0 million (US$0.6 million) in the second quarter of 2011. The increase was due to the increase in the amount of the Company’s term deposits and increase in the interest rate.

Interest expense increased from RMB6.6 million in the first half of 2010 to RMB7.7 million (US$1.2 million) in the first half of 2011. Interest expense increased from RMB3.6 million in the second quarter of 2010 to RMB4.1 million (US$0.6 million) in the second quarter of 2011. 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 the corresponding bank loan.

Overall, profit before income tax and loss in equity investments increased from RMB43.0 million in the three months ended June 30, 2010 to RMB43.8 million (US$6.7 million) in the three months ended June 30, 2011, an increase of 1.9%. The increase was mainly due to the increase in revenue.

The Company recorded a loss in equity investments amounting to RMBnil million (US$nil million) in the second quarter of 2011 compared to a loss of RMB0.03 million in the second quarter of 2010.

Income taxes decreased by 82.8% from RMB9.9 million in the second quarter of 2010 to RMB1.7 million (US$0.3 million) in the second quarter of 2011. The decrease was due to reversal of unrecognized tax benefits recorded for previous years, which was offset slightly by the increase in tax rate for the TUG from 15% to 25% after the expiration of the western development preferential policy in 2011.

Noncontrolling interest amounted to RMB0.2 million (US$0.03 million) for the three months ended June 30, 2011 as compared to RMB0.4 million for the three months ended June 30, 2010. The decrease was due to the loss in the consolidated subsidiary established with the Petroleum University, which offset the increase in noncontrolling interest due to higher profit.

Net income attributable to the Company increased by 28.8% to RMB42.0 million (US$6.5 million) in the three months ended June 30, 2011 from RMB32.6 million in the three months ended June 30, 2010.

On March 16, 2007, the National People’s Congress of China enacted a new tax law, under which foreign-invested enterprises and domestic companies will be subject to enterprise income tax at a uniform rate of 25% . The new tax law became effective on January 1, 2008. There is a transition period, during which enterprises may continue to enjoy existing preferential tax treatment or in which their tax rates may be gradually adjusted to 25%. Following the effectiveness of the new tax law, one of the Company’s major operating subsidiaries, CCT Shanghai, which was subject to the preferential tax rate of 15%, is now eligible for the phased-in rates, which is 18% in 2008, 20% in 2009, 22% in 2010, 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,
	June 30, 2011				2010
	(millions)				(millions)
	RMB		US$		RMB
Cash and cash equivalents		428.4		65.9		244.4
Term deposits		430.0		66.2		704.0
Subtotal		858.4		132.1		948.4
Accounts receivable		55.9		8.6		59.4
Inventory		1.0		0.2		1.0
Prepaid expenses and other current assets		32.8		5.0		48.2
Total current assets		958.2		147.4		1,067.4
Total assets		2,787.1		428.8		2,894.2

Cash and cash equivalents balances increased from RMB244.4 million as at December 31, 2010, to RMB428.4 million (US$65.9 million) as at June 30, 2011. The increase was mainly due to the reduction of term deposits.

There was net cash used in operating activities of RMB45.1 million (US$6.9 million) for the six months ended June 30, 2011 as compared to net cash from operating activities of RMB24.9 million for the six months ended June 30, 2010. 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 remainder of the academic year, the TUG would have a net cash outflow. The change from net cash from operating activities for the first half of 2010 to net cash used in operating activities for the first half of 2011 was mainly because of the addition of another university under TUG. Account payables reduced by RMB14.1 million (US$2.2 million) in the first half of 2011 whereas account payables increased by RMB3.8 million in the first half of 2010. Prepaid expenses and other current assets reduced by RMB15.5 million (US$2.4 million) in the first half of 2011 whereas prepaid expenses and other current assets increased by RMB2.1 million in the first half of 2010. 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 depend upon the terms of the contracts.

Net cash from investment activities in the six months ended June 30, 2011 was RMB210.1 million (US$32.3 million), mainly reflect the net transfer from term deposit of RMB274.0 million (US$42.2 million), which was offset by a cash outflow of RMB63.4 million (US$9.8 million) for the purchase and construction of fixed assets. For the six months ended June 30, 2010, there was a net transfer to term deposit of RMB43.0 million and purchase of fixed assets of RMB39.1 million, which resulted in a cash outflow of RMB85.0 million for the period.

Net cash provided by financing activities in the first half of 2011 was RMB19.0 million (US$2.9 million) as compared to RMB249.3 million in the first half of 2010. RMB30.8 million (US$4.7 million) was used to repurchase shares in the market in the second quarter of 2011. New shares were issued in the first half of 2010 to investors to finance future acquisition of the TUG, with proceeds of RMB233.0 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 June 30, 2011 amounted to RMB2,787.1 million (US$428.8 million), a reduction of 3.7%, when compared to the total assets of RMB2,894.2 million at December 31, 2010. Total current assets decreased by 10.2% to RMB958.2 million (US$147.4 million) at June 30, 2011.

Accounts receivable decreased from RMB59.4 million as of December 31, 2010 to RMB55.9 million (US$8.6 million) at June 30, 2011. 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 RMB1.0 million (US$0.2 million) at June 30, 2011.

Prepaid expenses and other current assets decreased from RMB48.2 million as at December 31, 2010 to RMB32.8 million (US$5.0 million). The decrease was mainly due to the changes in the deposits paid by the TUG.

As at June 30, 2011, the Company had total bank borrowings of RMB275.0 million (US$42.3 million). RMB170.0 million (US$26.2 million) of the bank borrowings expiring within one year are secured by a 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 RMB105.0 million (US$16.2 million) of the bank loan expiring over one year is secured by the guarantees provided by Chongqing Education Guarantee Co., Ltd. (“CQEG”), Chongqing Culture Media Guarantee Co., Ltd (“CQCMG”) and Hai Lai. In consideration of the guarantees provided by CQEG, the entitlement to tuition fee of FTBC and a deposit of RMB1 million paid to CQEG were used as securities. In consideration of the guarantees provided by CQCMG, a deposit of RMB0.75 million paid to CQCMG was 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 June 30, 2010, the exchange rate between the RMB and the U.S. dollar was RMB6.8 to US$1.

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

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

We recognized a foreign exchange loss of approximately RMB0.4 million (US$0.06 million) and RMB0.6 million (US$0.09 million) for the three months and six months ended June 30, 2011, respectively. We do not currently engage in hedging activities, as such, we may in the future experience economic loss as a result of any foreign currency exchange rate fluctuations.

Interest Rate Risk

We have a long history of investing excess cash under a conservative corporate policy that only allows investments in bank fixed deposits, with preservation of capital and liquidity as the primary objectives. For the three months and six months ended June 30, 2011, we recorded an interest income of RMB4.0 million (US$0.6 million) and RMB8.2 million (US$1.3 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 RMB309.0 million (US$47.5 million) as at June 30, 2011. Interest paid in the three months and six months ended June 30, 2011 was RMB4.1 million (US$0.6 million) and RMB7.7 million (US$1.2 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 2010 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 2010 Annual Report on Form 10-K.

Item 4. Controls and Procedures.

We maintain “disclosure controls and procedures,” as such term is defined under Exchange Act Rule 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2011. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2011, the Company's disclosure controls and procedures were not effective to give a reasonable assurance that information required to be disclosed by us 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 principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure due to the identification of the following material weaknesses in our internal controls discussed in “ Management’s Annual Report on Internal Control Over Financial Reporting ” included in our 2010 annual report on Form 10-K:

-Lack of sufficient skilled resources in the finance team to meet the demands of rapidly expanded businesses which resulted in a delayed closing process; and

-Lack of contemporaneous documentation of certain decisions made by the Board of Directors

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

Since March 2011, the Company has taken the following action in internal control over financial reporting:

We have employed an additional senior qualified accountant who is well experienced in preparing financial statements for listed companies and in internal control reviews.

We have strengthened our financial teams at the operation level by adding resources as well as provided staff trainings so that the teams are fully aware and supportive of the Company’s commitment to the quality of its financial reporting.

We have engaged external contractors who are experienced in US GAAP conversion to assist the financial teams at the universities starting from the first quarter of 2011 to ensure the timely availability of accurate US GAAP conversion information for review by the auditor.

We have established training objectives for senior and corporate financial staff members to (i) update them on new developments in US GAAP reporting requirements, (ii) provide additional training through structured professional programs including programs in the US and (iii) encourage and sponsor staff members to pursue US accounting qualifications including obtaining a CPA license.

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, 2010, filed with the SEC on March 16, 2011.

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

This table provides certain information with respect to our repurchases of shares of the Company’s common stock during the first half of 2011:

Issuer’s Purchases of Equity Securities (a)

Period	Total Number of Shares Purchased	Average Price Paid for Share	Total Number of Shares Purchased as Part of Publicly Announced Plan (a)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan (a)
May 1, 2011, through May 31, 2011	174,710	$6.13	174,710	48,928,676
June 1, 2011 through June 30, 2011	840,793	$4.39	840,793	45,239,619
Total	1,015,503	$4.69	1,015,503

(a)	On March 16, 2011, we announced that the Board of Directors authorized a US$50 million share-repurchase plan (the “2011 Stock Repurchase Plan”) to be utilized over the next 12 months.

Item 3. Defaults upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits.

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

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

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

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

SIGNATURES

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

	CHINACAST EDUCATION CORPORATION
	(Registrant)

Date: August 9, 2011	By:	/s/ Ron Chan Tze Ngon
	Name:	Ron Chan Tze Ngon
	Title:	Chairman of the Board,
	Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Antonio Sena
	Name:	Antonio Sena
	Title:	Chief Financial Officer and
	Secretary (Principal Accounting and Financial Officer)

EXHIBIT INDEX

Exhibit No.		Description

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.

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

Chinacast Education Inactive 10-Q2011 Q2 Quarterly report

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