CHINACAST EDUCATION CORP - FORM 10-Q

Attached files

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EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - CHINACAST EDUCATION CORP	v219893_ex31-1.htm
EX-32.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 906 - CHINACAST EDUCATION CORP	v219893_ex32-2.htm
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - CHINACAST EDUCATION CORP	v219893_ex31-2.htm
EX-32.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 906 - CHINACAST EDUCATION CORP	v219893_ex32-1.htm

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 March 31, 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 ¨

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 ¨ No ¨

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 ¨

Accelerated filer þ

Non-accelerated filer ¨

(Do not check if a smaller reporting

company)

Smaller reporting

company ¨

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

There were 49,778,952 shares of the Company’s common stock, par value $0.0001 per share, outstanding as of May 6, 2011.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3. Quantitative and Qualitative Disclosures About Market Risk		33
Item 4. Controls and Procedures		34
PART II — OTHER INFORMATION		35
Item 1. Legal Proceedings		35
Item 1A. Risk Factors		35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		35
Item 3. Defaults Upon Senior Securities		35
Item 4. (Removed and Reserved)		35
Item 5. Other Information		35
Item 6. Exhibits		35
SIGNATURES		36
EXHIBIT INDEX		37

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CHINACAST EDUCATION CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share-related data)

					As of
	As of March 31,				December 31,
	2011		2011		2010
	US$		RMB		RMB
	(Note 1)				(Note 1)
Assets
Current assets:
Cash and cash equivalents		48,856		317,563		244,403
Term deposits		92,308		600,000		704,000
Accounts receivable		8,083		52,537		59,420
Inventory		150		973		993
Prepaid expenses and other current assets		6,326		41,122		48,221
Amounts due from related parties		529		3,438		3,438
Deferred tax assets		335		2,178		2,972
Current portion of prepaid lease payments for land use right		613		3,986		3,986
Total current assets		157,200		1,021,797		1,067,433
Non-current deposits		1,189		7,729		7,388
Prepaid for construction projects		1,668		10,840		-
Property and equipment, net		116,473		757,075		763,926
Prepaid lease payments for land use rights - non-current		27,157		176,520		177,544
Acquired intangible assets, net		13,608		88,449		100,816
Long-term investments		462		3,000		3,000
Goodwill		119,088		774,072		774,083
Total assets		436,845		2,839,482		2,894,190

							As of
	As of March 31,						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 March 31, 2011 and December 31, 2010, respectively)		3,227			20,974			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 RMB15,118 and RMB17,502 as of March 31, 2011 and December 31, 2010, respectively)		39,853			259,049			279,973
Deferred revenues		25,822			167,841			262,824
Income taxes payable (including income taxes payable of the consolidated VIE without recourse to ChinaCast Education Corporation of RMB3,209 and RMB4,844 as of March 31, 2011 and December 31, 2010, respectively)		16,074			104,479			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 March 31, 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 March 31, 2011 and December 31, 2010)		5,231			34,000			1,500
Total current liabilities		116,361			756,343			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 March 31, 2011 and December 31, 2010)		13,846			90,000			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 March 31, 2011 and December 31, 2010)		8,017			52,111			51,503
Unrecognized tax benefits – non-current (including unrecognized tax benefits of the consolidated VIE without recourse to ChinaCast Education Corporation of RMB5,799 and RMB5,799 as of March 31, 2011 and December 31, 2010, respectively)		18,746			121,846			109,933
Total non-current liabilities		40,609			263,957			251,436

Total liabilities		156,970			1,020,300			1,113,796
Commitments and contingencies
Equity:
Ordinary shares (US$0.0001 par value; 100,000,000 shares authorized; 49,778,952 and 49,778,952 shares issued and outstanding in 2011 and 2010, respectively)		6			36			36
Additional paid-in capital		232,591			1,511,842			1,510,527
Statutory reserve		7,334			47,671			47,671
Accumulated other comprehensive loss		(459	)		(2,984	)		(3,194	)
Retained earnings		36,441			236,865			199,862

Total ChinaCast Education Corporation shareholders’ equity		275,913			1,793,430			1,754,902
Noncontrolling interest		3,962			25,752			25,492

Total equity		279,875			1,819,182			1,780,394

Total liabilities and equity		436,845			2,839,482			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 March 31,
	2011			2011			2010
	US$			RMB			RMB
	(Note 1)						(Note 1)
Revenues:
Service		22,761			147,948			108,330
Equipment		-			-			31

		22,761			147,948			108,361

Cost of revenues:
Service		(9,646	)		(62,704	)		(48,219	)
Equipment		-			-			-

		(9,646	)		(62,704	)		(48,219	)

Gross profit		13,115			85,244			60,142

Operating (expenses) income:

Selling and marketing expenses (including share-based compensation of RMBnil and RMB410 for the three months ended March 31 for 2011 and 2010, respectively)		(67	)		(432	)		(805	)
General and administrative expenses (including share-based compensation of RMB1,315 and RMB2,480 for the three months ended March 31 for 2011 and 2010, respectively)		(4,240	)		(27,560	)		(17,627	)

Foreign exchange gain (loss)		(32	)		(207	)		(303	)
Other operating income		54			350			7

Total operating expenses, net		(4,285	)		(27,849	)		(18,728	)

	For the three months ended March 31,
	2011			2011			2010
	US$			RMB			RMB
	(Note 1)						(Note 1)
Income from operations		8,830			57,395			41,414
Interest income		647			4,197			2,954
Interest expense		(554	)		(3,601	)		(2,971	)
Income before provision for income taxes and earnings in equity method investments		8,923			57,991			41,397
Provision for income taxes		(3,196	)		(20,776	)		(9,811	)
Net income before earnings in equity investments		5,727			37,215			31,586
Loss in equity investments		-			-			(30	)
Net income		5,727			37,215			31,556
Less: Net income attributable to noncontrolling interest		(33	)		(212	)		(434	)
Net income attributable to ChinaCast Education Corporation		5,694			37,003			31,122
Net income	5,727			37,215			31,556
Foreign currency translation adjustments		40			258			214
Comprehensive income		5,767			37,473			31,770
Comprehensive income attributable to noncontrolling interest		(40)			(260	)		(420	)
Comprehensive income attributable to ChinaCast Education Corporation	5,727			37,213			31,350

Net income per share
Net income attributable to ChinaCast Education Corporation per share:
Basic		0.11			0.74			0.68

Diluted		0.11			0.74			0.67

Weighted average shares used in computation:
Basic		49,778,952			49,778,952			45,968,134

Diluted		50,180,468			50,180,468			46,312,165

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
			Amount		capital		Reserve		earnings		loss			interest		Equity
	Shares		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		692,520		1		34,127		—		—		—			—		34,128
Share-based compensation		—		—		2,890		—		-		—			-		2,890
Issuance of vested shares		180,000		—		—		—		-		—					-
Net income		—		—		—		—		31,122		—			434		31,556
Foreign currency translation adjustments		—		—		—		—		—		228			(14)		214

Balance at March 31, 2010		46,043,218		34		1,327,668		39,139		167,705		(5,827	)		23,587		1,552,306

			US$	5	US$	195,245	US$	5,756	US$	24,663	US$	(857	)	US$	3,468	US$	228,280

	ChinaCast Education Corporation Shareholders
											Accumulated
					Additional						other
	Ordinary				paid-in		Statutory		Retained		comprehensive			Noncontrolling		Total
			Amount		capital		Reserve		earnings		loss			interest		Equity
	Shares		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
Share-based compensation		—		—		1,315		—		—		—			—		1,315
Net income		—		—		—		—		37,003		—			212		37,215
Foreign currency translation adjustments		—		—		—		—		—		210			48		258

Balance at March 31, 2011		49,778,952		36		1,511,842		47,671		236,865		(2,984	)		25,752		1,819,182

			US$	6	US$	232,591	US$	7,334	US$	36,441	US$	(459	)	US$	3,962	US$	279,875

See notes to unaudited condensed consolidated financial statements.

CHINACAST EDUCATION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	For the three months ended March 31,
	2011			2011			2010
	US$			RMB			RMB
	(Note 1)						(Note 1)
Cash flows from operating activities:
Net income		5,725			37,215			31,556
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,193			14,257			10,950
Amortization of acquired intangible assets		1,903			12,367			8,618
Amortization of land use rights		158			1,024			816
Share-based compensation		202			1,315			2,890
Loss on disposal of property, plant and equipment		(88)			(570)			1
Loss in equity investments		-			-			30
Changes in assets and liabilities:
Accounts receivable		1,042			6,776			1,297
Inventory		3			21			(63	)
Prepaid expenses and other current assets		1,091			7,090			601
Non-current deposits		26			169			(5,939	)
Amounts due from related parties		-			-			2,950
Accounts payable		(4,250	)		(27,628	)		4,560
Accrued expenses and other current liabilities		(2,106	)		(13,686	)		(3,116	)
Deferred revenues		(14,613	)		(94,983	)		(57,389	)
Income taxes payable		772			5,018			6,284
Deferrred tax assets		122			794			489
Deferred tax liabilities		94			608			(1,357	)
Unrecognized tax benefits		1,833			11,913			4,034
Net cash (used in) provided by operating activities		(5,893	)		(38,300	)		7,212
Cash flows from investing activities:
Repayment from related party		-			-			3
Purchase of property and equipment		(2,165	)		(14,074	)		(23,345	)
Purchase of term deposit		-			-			(43,000	)
Proceeds from maturity of term deposits		16,000			104,000
Deposits for investments		(78)			(510)			(3,000	)
Prepayment for construction projects		(1,668)			(10,840)			-
Net cash provided by (used in) investing activities		12,089			78,576			(69,342	)

	For the three months ended March 31,
	2011		2011		2010
	US$		RMB		RMB
	(Note 1)				(Note 1)
Cash flows from financing activities:
Other borrowings raised		5,231		34,000		69,000
Repayment of other borrowings		(231)		(1,500)		(200	)
Bank borrowings raised		6,923		45,000		42,000
Bank borrowings repaid		(6,923)		(45,000)		(58,400	)
Proceeds from issuance of shares, net of issuance costs		-		-		34,128
Net cash provided by financing activities		5,000		32,500		86,528
Effect of foreign exchange rate changes		60		384		1
Net increase(decrease) in cash and cash equivalents		11,196		72,776		24,399
Cash and cash equivalents at beginning of the period		37,600		244,403		327,628

Cash and cash equivalents at end of the period		48,856		317,563		352,028

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, 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, 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, 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.

Call option agreement: Pursuant to the 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, all 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.

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.

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. 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.

The Company 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 three months ended March 31, 2011:

					As of
	As of March 31,				December 31,
	2011		2011		2010
	US$		RMB		RMB
Current assets		13,041		84,765		87,023
Non-current assets		379		2,460		3,101
Total assets		13,420		87,225		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 March 31,				December 31,
	2011		2011		2010
	US$		RMB		RMB
Current liabilities		3,060		19,890		23,981
Non-current liabilities		892		5,799		58,708
Total liabilities		3,952		25,689		82,689

	For the three months ended March 31,
	2011		2011		2010
	US$		RMB		RMB
Revenues		4,767		30,985		30,391
Net income (loss)		3,669		23,849		24,419

	For the three months ended March 31,
	2011			2011			2010
	US$			RMB			RMB
Net cash provided by /(used in) operating activities		2,972			19,315			23,989
Net cash provided by /(used in) investing activities		(1	)		(9	)		1,113
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, except for the additional accounting policies adopted as stated in (1) of note 2.

Convenience Translation

Amounts in United States dollars (“US$”) are presented solely for the convenience of readers and an exchange rate of RMB6.5 to US$1 was applied as of March 31, 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.

3.	ACQUISITION

Acquisition of East Achieve

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

For the academic year of 2009 (i.e. from September 1, 2009 to August 31, 2010), if the net profit as determined under the relevant sale and purchase agreement of the Lijiang College is less than RMB55,000, CCH is entitled to deduct an amount equal to 6.6 times of the difference between the net profit and RMB55,000 from the remaining 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, CEH, the Company's subsidiary in the British Virgin Island, 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 March 31, 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.	NON-CURRENT DEPOSITS

Non-current deposits consisted of the following:

	As of March 31, 2011		As of December 31, 2010
	RMB		RMB

Rental deposits		245		415
Utilities deposits		454		208
Guarantee deposit for borrowings		4,000		4,000
Guarantee deposits for construction projects		2,520		2,765
Deposit for investment project		510		-
Total		7,729		7,388

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

Guarantee deposit represented deposits placed with Chongqing Education Guarantee Co., Ltd., a long-term investment of the Company, which in turn provided guarantee in favor of the relevant bank for the Company’s bank borrowings of RMB50,000.

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

5.	ACQUIRED INTANGIBLE ASSETS, NET

Acquired intangible assets, net consisted of the following:

	As of March 31,			As of December 31,
	2011			2010
	RMB			RMB
Customer relationships
Cost		129,329			129,329
Less: Accumulated amortization		(75,581	)		(66,509	)

		53,748			62,820

Affiliation agreement
Cost		45,000			45,000
Less: Accumulated amortization		(10,299	)		(7,004	)

		34,701			37,996

Acquired intangible assets, net		88,449			100,816

For the three months ended March 31, 2011, the Company recorded amortization expense in respect of the customer relationships amounting to RMB9,072. The Company will record further amortization expenses in respect of the customer relationships of RMB22,437, RMB18,926, RMB9,851 and RMB2,533 in 2011, 2012, 2013 and 2014, respectively.

For the three months ended March 31, 2011, the Company recorded amortization expense in respect of the affiliation agreement amounting to RMB3,295. The Company will record amortization expenses in respect of the affiliation agreement of RMB9,886, RMB13,181, RMB9,737 and RMB1,898 in 2011, 2012, 2013 and 2014, respectively.

6.	BORROWINGS

During the three months ended March 31, 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.

7.	STOCK COMPENSATION PLAN

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

Nonvested shares

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

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

	Number of shares			Fair values of shares		Intrinsic value
				US$		US$
Nonvested share unvested at January 1, 2011		297,504			6.07		1,806
Granted		-			-		-
Vested		(33,056	)		6.07		(201	)
Fortified		-			-		-
Nonvested share unvested at March 31, 2011		264,448			6.07		1,605

Share options

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

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

			Weighted
			Average
			Exercise
	Number		Price
	of options		US$

Options outstanding at December 31, 2010		1,200,000		6.30

Granted		—		—
Exercised		—		—
Cancelled		—		—

			Weighted
			Average
			Exercise
	Number		Price
	of options		US$
Options outstanding at March 31, 2011		1,200,000		6.30

Options exercisable at March 31, 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 March 31, 2011 was US$4,344.

The weighted average remaining contractual life is 6.75 years as of March 31, 2011.

Total share-based compensation expenses amounting to RMBnil and RMB2,890 were recognized for the three months ended March 31, 2011 and 2010, respectively.

The total unrecognized compensation expense related to the stock compensation arrangements for the restricted shares and share options as of March 31, 2011 is USD1,471.

As of March 31, 2011, no other awards have been granted under the 2007 Plan.

8. INCOME TAXES

On March 16, 2007, the National People’s Congress enacted a new enterprise income tax law, which took effect on January 1, 2008. The new law applies a uniform 25% enterprise income tax rate to both foreign invested enterprises and domestic enterprises. The new law provides a five-year transition period from its effective date for the entitled enterprises which were established before the promulgation date of the new tax law and which were entitled to a preferential tax treatment such as a reduced tax rate or a tax holiday. According to transitional rules published after the new income tax law, one of the Company’s major operating subsidiaries, 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.

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.

During the three months ended March 31, 2010, the unrecognized tax benefits increased from RMB109,933 to RMB119,203.

GOODWILL

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

	As of March 31,			As of December 31,
	2011			2010
	RMB			RMB
Beginning balance	774,083			503,771
Addition from acquisitions		-			270,371
Exchange rate impact		(11	)		(59	)
Ending balances		774,072			774,083

No impairment charges have been recorded for the three-month period ended March 31, 2011.

10.	NET INCOME PER SHARE

	For the three months ended March 31,
	2011		2010
Numerator used in basic and diluted net income per share:
Net income attributable to ChinaCast Education Corporation	RMB	37,003	RMB	31,122

Shares (denominator):
Weighted average ordinary shares outstanding used in computing basic net income per share		49,778,952		45,968,134

Plus:
Incremental ordinary shares from assumed conversions of stock options, vesting of restricted stock and exercises of Underwriter Warrants		401,516		344,031

Weighted average ordinary shares outstanding used in computing diluted net income per share		50,180,468		46,312,165

Net income per share – basic:
Net income attributable to ChinaCast Education Corporation	RMB	0.74	RMB	0.68

Net income per share – diluted:
Net income attributable to ChinaCast Education Corporation per share —diluted:	RMB	0.74	RMB	0.67

11. SEGMENT INFORMATION

	For the three months ended March 31,
	2011		2010
	RMB		RMB
Revenues from external customers:
ELG		47,620		46,399
TUG		100,328		61,962
		147,948		108,361

Additional analysis of revenues from ELG by product or service:
Service		47,620		46,368
Equipment		-		31
		47,620		46,399

Additional analysis of revenues from ELG by business lines:
Post secondary education distance learning		29,850		28,054
K-12 and content delivery		15,782		16,006
Vocational training, enterprise/government training and networking services		1,988		2,339
		47,620		46,399
Income from operations:
ELG		24,482		25,440
TUG		32,913		15,974
		57,395		41,414

	As of March		As of December
	31, 2011		31, 2010
	RMB		RMB
Segment assets:
ELG		689,109		656,795
TUG		2,150,373		2,237,395

		2,839,482		2,894,190

The Company’s revenues and net income are substantially derived from the PRC. Most of the assets and capital expenditures 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 ended March 31, 2011.

Three customers as of March 31, 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 35.7% and 20.9% of the Company’s accounts receivable balance at March 31, 2011 and December 31, 2010, respectively.

12.	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 March 31, 2011, there were 255,000 Underwriter Warrants outstanding.

13.	CONTINGENCIES

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

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

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

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.

14.	SUBSEQUENT EVENT

CEC has granted a new batch of restricted shares on April 30, 2011, to the three independent directors: Out of the 250,000 shares in total, 35,000 shares were vested on April 30, 2011, 55,000 will be vested on Feb 9, 2012 and 160,000 shares will be vested on Feb 9, 2013. The total unrecognized compensation cost is RMB10,048.

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”. 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 March 31, 2011 for the three months ended March 31, 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 ended March 31, 2011 amounted to RMB147.9 million (US$22.8 million) representing an increase of 36.5% over the revenue of the corresponding period in 2010. The increase in revenue for the three months ended March 31, 2011 was mainly due to the acquisition of Wintown in the third quarter of 2010.

Revenue of the ELG amounted to RMB47.6 million (US$7.3 million) for the three months ended March 31, 2011, as compared to revenue of RMB46.4 million of the ELG for the three months ended March 31, 2010. Service income, mainly of a recurring nature amounted to RMB47.6 million (US$7.3 million) for the three months ended March 31, 2011, compared to RMB46.4 million for the same period in 2010. There was no equipment sales, mainly project based, for the three months ended March 31, 2011, as compared to RMB0.03 million for the same period last year. The following table provides a summary of the ELG’s revenue by business lines:

	Three Months ended
	March 31, 2011				March 31, 2010
	(millions)				(millions)
	US$		RMB		RMB
Post secondary education distance learning		4.6		29.8		28.1
K-12 and content delivery		2.4		15.8		16.0
Vocational training, enterprise / government training and networking		0.3		2.0		2.3
Total ELG revenue		7.3		47.6		46.4

Net revenue from post secondary education distance learning services increased from RMB28.1 million in the three months ended March 31, 2010 to RMB29.8 million (US$4.6 million) in three months ended March 31, 2011. The total number of post-secondary students enrolled in courses using the Company’s distance learning platforms increased to 144,000 at March 31, 2011 from 141,000 at March 31, 2010. The increase was due to the cooperation with the China Petroleum University and the continuous growth of students enrolled in distance learning degree courses with the universities.

The revenue from the K-12 and content delivery business decreased slightly by approximately 1.4% from RMB16.0 million for the three months ended March 31, 2010 to RMB15.8 million (US$2.4 million) for the three months ended March 31, 2011. The number of subscribing schools for K-12 distance learning services has stabilized at 6,500.

Net revenue from vocational and career training services, enterprise government training and networking services decreased slightly from RMB2.3 million during the three months ended March 31, 2010 to RMB2.0 million (US$0.3 million) during the three months ended March 31, 2011.

The revenue of TUG increased from RMB62.0 million in the three months ended March 31, 2010 to RMB100.3 million (US$15.4 million) in the three months ended March 31, 2011. The increase was mainly due to the acquisition of Wintown in the third quarter of 2010. TUG’s total student enrollment increased from approximately 20,400 as at March 31, 2010 to approximately 32,600 as at March 31, 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 March 31, 2011 .

Cost of sales of the Company increased by 30.0% from RMB48.2 million during the first quarter of 2010 to RMB62.7 million (US$9.6 million) during the first quarter of 2011. The increase was mainly due to the acquisition of Wintown, which contributed RMB16.6 million (US$2.6 million) to the cost of sales of the TUG.

ELG’s cost of sales decreased from RMB6.7 million during the first quarter of 2010 to RMB6.4 million (US$1.0 million) during the first quarter of 2011. The decrease was mainly due to the drop in the transponder fee after signing of a new contract in the fourth quarter of 2010.

TUG’s cost of sales amounted to RMB56.3 million (US$8.7 million) for the three months ended March 31, 2011 as compared to RMB41.6 million for the same period 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.

ELG’s gross profit margin increased by 1.0 percentage points, from 85.6% in the first quarter of 2010 to 86.6% in the first quarter of 2011. The increase was due to the reduction of the transponder fee mentioned above. TUG’s gross profit margin was 43.9% for the first quarter of 2011 as compared to 32.9% for the same period of 2010. The increase was due to the economy of scale of FTBC and a financial contribution from the affiliated parent university of HIUBC for HIUBC to enhance the teaching team.

Selling and marketing expenses decreased from RMB0.8 million in the first quarter of 2010 to RMB0.4 million (US$0.1 million) in the first quarter of 2011. The decrease was due to the drop in share option expense from RMB0.4 million for the three months ended March 31, 2010 to RMB nil (US$nil million) for the three months ended March 31, 2011.

General and administrative expenses increased to RMB27.6 million (US$4.2 million) in the three months ended March 31, 2011 as compared to RMB17.6 million in the same period last year. The increase was mainly due to the acquisition of Wintown in the third quarter of 2010.

The Company had foreign exchange loss of RMB0.2 million (US$0.03 million) for the first quarter of 2011 compared to a loss of RMB0.3 million during the first quarter of 2010. The change was a result of the change in the RMB/US exchange rate.

Interest income increased from RMB3.0 million in the first quarter of 2010 to RMB4.2 million (US$0.6 million) in the first quarter of 2011. The increase was due to the increase in the amount of the Company’s term deposits.

Interest expense increased from RMB3.0 million in the first quarter of 2010 to RMB3.6 million (US$0.6 million) in the first quarter of 2011. The increase in interest expense was due to the increase in bank borrowings, mainly associated with the TUG to finance the construction of the campus.

Overall, profit before income tax and loss in equity investments increased from RMB41.4 million in the three months ended March 31, 2010 to RMB58.0 million (US$8.9 million) in the three months ended March 31, 2011, an increase of 40.1%. The increase was mainly due the increase in profit generated by the TUG.

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

Income taxes increased by 111.8% from RMB9.8 million in the first quarter of 2010 to RMB20.8 million (US$3.2 million) in the first quarter of 2011. The increase was due to the increase in profit in the TUG after the acquisition of HIUBC and the increase in tax rate for the TUG from 15% to 25% after the expiration of the western development preferential policy.

Noncontrolling interest amounted to RMB0.2 million (US$0.03 million) for the three months ended March 31, 2011 as compared to RMB0.4 million for the three months ended March 31, 2010. The increase was due to a higher profit.

Net income attributable to the Company increased by 18.9% to RMB37.0 million (US$5.7 million) in the three months ended March 31, 2011 from RMB31.1 million in the three months ended March 31, 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,
	March 31, 2011				2010
	(millions)				(millions)
	RMB		US$		RMB
Cash and cash equivalents		317.6		48.9		244.4
Term deposits		600.0		92.3		704.0
Subtotal		917.6		141.2		948.4
Accounts receivable		52.5		8.1		59.4
Inventory		1.0		0.2		1.0
Prepaid expenses and other current assets		41.1		6.3		48.2
Total current assets		1,021.8		157.2		1,067.4
Total assets		2,839.5		436.8		2,894.2

Cash and cash equivalents balances increased from RMB244.4 million as of December 31, 2010, to RMB317.6 million (US$48.9 million) as of March 31, 2011. The increase was mainly due to the reduction of term deposits.

There was net cash used in operating activities of RMB38.3 million (US$5.9 million) for the three months ended March 31, 2011 as compared to net cash from operating activities of RMB7.2 million for the three months ended March 31, 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 a net cash from operating activities for the first quarter of 2010 to a net cash used in operating activities for the first quarter of 2011 was mainly because of the addition of another university under TUG. Account payables reduced by RMB27.6 million in the first quarter of 2011 whereas account payables increased by RMB4.6 million in the first quarter 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 depended upon the terms of the contracts.

Net cash from investment activities in the three months ended March 31, 2011 was RMB78.6 million (US$12.1 million), mainly reflecting the transfer from term deposit of RMB104.0 million (US$16.0 million). For the three months ended March 31, 2010, there was a transfer to term deposit of RMB43.0 million and purchase of fixed assets of RMB23.3 million, which resulted in a cash outflow of RMB69.3 million for the period.

Net cash provided by financing activities in the first quarter of 2011 was RMB32.5 million (US$5.0 million). New borrowings were obtained to finance the expansion of the capacity of TUG.

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 March 31, 2011 amounted to RMB2,839.5 million (US$436.8 million), a reduction of 1.9%, when compared to the total assets amounting to RMB2,894.2 million at December 31, 2010. Total current assets decreased by 4.3% to RMB1,021.8 million at March 31, 2011.

Accounts receivable decreased from RMB59.4 million as of December 31, 2010 to RMB52.5 million (US$8.1 million) at March 31, 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 March 31, 2011.

Prepaid expenses and other current assets decreased from RMB48.2 million as of December 31, 2010 to RMB41.1 million (US$6.3 million). The decrease was mainly due to the changes in the deposits paid by the TUG.

As of March 31, 2011, the Company had total bank borrowings of RMB260.0 million (US$40.0 million). RMB170.0 million of the bank borrowings are expiring within one year were 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 RMB90.0 million of bank borrowings is expiring over one year which was secured by the guarantees provided by Chongqing Education Guarantee Co., Ltd. (“CQEG”) and Hai Lai. In consideration of the guarantees provided by CQEG, the entitlement to future tuition collection rights of FTBC and a deposit of RMB4 million paid to CQEG were used as guarantees.

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 March 31, 2011, the exchange rate between the RMB and the U.S. dollar was RMB6.5 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 RMB0.2 million (US$0.03 million) for the three months ended March 31, 2011. 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 ended March 31, 2011, we recorded an interest income of RMB4.2 million (US$0.6 million). Any significant changes in interest rate might have an adverse effect on this interest income.

We have short-term and long-term debt amounting to RMB294.0 million (US$45.2 million) as of March 31, 2011. Interest paid in the three months ended March 31, 2011 was RMB3.6 million (US$0.6 million). Any significant changes in interest rate might have an adverse effect on interest expense. There have been no material changes associated with the impact of inflation and concentration of credit risk from that previously disclosed in our 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 March 31, 2011. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that during the period covered by this quarterly Report on Form 10-Q, the Companys disclosure controls and procedures were not effective as of March 31, 2011 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

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

A material weakenss 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.

There were no significant changes in our internal control over financial reporting that occurred during the first fiscal quarter of 2011 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

There are no material changes from risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 16, 2011.

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

None.

Item 3. Defaults Upon Senior Securities.

Item 4. (Removed and Reserved).

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

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

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

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

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

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: May 10, 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.

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