- Annual and Transition Report (foreign private issuer) (20-F)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to ____________

o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report_______________

Commission file number: 001-33858

ChinaEdu Corporation

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s Name into English)

Cayman Islands

( Jurisdiction of incorporation or organization)

ChinaEdu Corporation

4 th Floor-A, GeHua Building

No. 1 QinglongHutong, Dongcheng District

Beijing, 100007 People’s Republic of China

(Address of principal executive offices)

Lily Liu

Chief Financial Officer

ChinaEdu Corporation

4th Floor-A, GeHua Building

No. 1 QinglongHutong, Dongcheng District

Beijing, 100007 People’s Republic of China

Telephone: 86-10-84186655

Email: ir@chinaedu.net

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange On Which Registered
American Depositary Shares, each representing three Ordinary Shares, par value US$0.01 per share		The NASDAQ Stock Market LLC (NASDAQ Global Market)
Ordinary Shares, par value US$0.01 par value per share		The NASDAQ Stock Market LLC (NASDAQ Global Market)*

*	Application made for listing, not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

55,247,329 Ordinary Shares, par value $0.01 per Ordinary Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o No þ

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 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP þ	International Financial Reporting Standards	Other o
	as issued by the International Accounting Standards Board o

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o Item 18 o

If this is an annual report, 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

TABLE OF CONTENTS

INTRODUCTION		1
FORWARD-LOOKING STATEMENTS		2

PART I		4
Item 1.	Identity of Directors, Senior Management and Advisers	4
Item 2.	Offer Statistics and Expected Timetable	4
Item 3.	Key Information	4
Item 4.	Information on the Company	32
Item 4A.	Unresolved Staff Comments	56
Item 5.	Operating and Financial Review and Prospects	57
Item 6.	Directors, Senior Management and Employees	82
Item 7.	Major Shareholders and Related Party Transactions	90
Item 8.	Financial Information	93
Item 9.	The Offering and Listing	94
Item 10.	Additional Information	95
Item 11.	Quantitative and Qualitative Disclosures about Market Risk	101
Item 12.	Description of Securities Other than Equity Securities	101

PART II		104
Item 13.	Defaults, Dividend Arrearages and Delinquencies	104
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	104
Item 15.	Controls and Procedures	105
Item 16A.	Audit Committee Financial Expert	106
Item 16B.	Code of Ethics	107
Item 16C.	Principal Accountant Fees and Services	107
Item 16D.	Exemptions from the Listing Standards for Audit Committees	107
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	107
Item 16F.	Change in Registrant’s Certifying Accountant	108
Item 16G.	Corporate Governance	109

PART III		109
Item 17.	Financial Statements	109
Item 18.	Financial Statements	109
Item 19.	Exhibits	109

INTRODUCTION

Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:

“we,” “us,” “our company” or “our” refers to ChinaEdu Corporation, its predecessor entities and subsidiaries;

“China” or “PRC” refers to the People’s Republic of China, excluding Taiwan, Hong Kong and Macau;

“shares,” “ordinary shares,” or “common shares” refers to our common shares;

“ADSs” refers to our American Depositary Shares, each of which represents three common shares, and “ADRs” refers to the American Depositary Receipts that evidence our ADSs;

“RMB” or “Renminbi” refers to the legal currency of China; and

“$,” “dollars,” “US$” or “U.S. dollars” refers to the legal currency of the United States.

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “is expected to,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include:

our anticipated growth strategies;

our future business development, results of operations and financial condition;

expected changes in our revenues and certain cost and expense items;

our ability to increase student enrollments and course fees and expand program, service and product offerings;

competition in the language training, test preparation, primary and secondary education, educational content, software and other technology development and online education markets;

risks associated with our offering of new educational programs, services and products and the expansion of our geographic reach;

risks associated with our existing development projects, including construction delays or cost overruns with respect to our pending campus construct ion projects and the build out of our learning center s network, which may increase project costs, and the failure of the newly developed schools or learning centers to perform as expected ;

the expected increase in expenditures on education in China;

PRC laws, regulations and policies relating to private education and providers of private educational services, including recent changes in the government regulatory environment related to our international curriculum programs; and

general economic, business and other market conditions in the PRC and worldwide, including the ability of the general global economy to recover timely from the current economic downturn.

You should read thoroughly this annual report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this annual report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected Financial Data

Selected Condensed Consolidated Financial Data

The following selected condensed consolidated statement of operations data for the three years ended December 31, 2007, 2008 and 2009 and selected condensed consolidated balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements included in this annual report. These consolidated financial statements have been audited by Deloitte Touche Tohmatsu CPA Ltd., an independent registered public accounting firm. The report of Deloitte Touche Tohmatsu CPA Ltd. on our audited consolidated financial statements for the three years ended December 31, 2007, 2008 and 2009 and as of December 31, 2008 and 2009 is included in this annual report. The selected condensed consolidated statement of operations data for the years ended December 31, 2005 and 2006 and selected consolidated balance sheet data as of December 31, 2005, 2006 and 2007 have been derived from our audited consolidated financial statements, which are not included in this annual report. Our audited consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The historical results are not necessarily indicative of results to be expected in any future period. The selected condensed consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects—A. Operating Results” included elsewhere in this annual report.

	Years ended December 31,
	2005			2006 (1)			2007 (1)			2008 (1)			2009 (1)			2009 (1)
	RMB			RMB			RMB			RMB			RMB			US$
	(As adjusted)			(As adjusted)			(As adjusted)			(As adjusted)
	(In thousands, except per share data)
Condensed Consolidated Statement of Operations Data:
Net revenue
Online degree programs		98,527			156,845			202,185			255,388			285,178			41,779
Online tutoring programs		14,390			17,384			18,013			15,436			19,584			2,869
Private primary and secondary schools		8,591			10,874			13,356			19,289			30,627			4,487
International curriculum programs		4,854			28,428			31,434			27,607			19,317			2,830
Net revenue		126,362			213,531			264,988			317,720			354,706			51,965
Cost of revenue		(53,138	)		(80,308	)		(96,349	)		(117,733	)		(138,362	)		(20,270	)
Gross profit		73,224			133,223			168,639			199,987			216,344			31,695
Operating expenses
General and administrative		(44,089	)		(48,846	)		(76,893	)		(86,908	)		(82,858	)		(12,139	)
Selling and marketing		(6,116	)		(12,893	)		(14,277	)		(29,851	)		(23,688	)		(3,470	)
Research and development		(11,842	)		(14,263	)		(21,021	)		(26,185	)		(30,385	)		(4,451	)
Goodwill impairment		—			—			(16,192	)		(41,036	)		—			—
Intangible assets impairment		—			—			—			(29,057	)		—			—
Total operating expenses		(62,047	)		(76,002	)		(128,383	)		(213,037	)		(136,931	)		(20,060	)
Income (loss) from operations		11,177			57,221			40,256			(13,050	)		79,413			11,635
Other income		—			—			394			562			1,748			256
Interest income		1,078			1,172			4,118			10,652			4,980			730
Interest expense		(1,242	)		(2,279	)		(2,130	)		(1,298	)		(2	)		—
Income (loss) before income tax provisions and noncontrolling interest		11,013			56,114			42,638			(3,134	)		86,139			12,621
Income tax provisions
Current		4,849			9,475			16,286			11,860			18,981			2,781
Deferred		(855	)		(2,481	)		(1,283	)		(8,387	)		306			45
Total income tax provisions		3,994			6,994			15,003			3,473			19,287			2,826
Net income (loss)		7,019			49,120			27,635			(6,607	)		66,852			9,795
Less: net income contributable to the noncontrolling interests (2)		9,869			23,581			25,148			36,412			32,073			4,699
Net income (loss) attributable to ChinaEdu Corporation shareholders		(2,850	)		25,539			2,487			(43,019	)		34,779			5,096
Net income (loss) per share attributable to ChinaEdu Corporation shareholders—basic		(0.18	)		0.65			0.06			(0.75	)		0.71			0.104
Net income per preferred A share—basic		—			0.65			0.06			—			—			—
Net income per preferred B share—basic		—			0.65			0.06			—			—			—
Net income per preferred C share—basic		—			0.65			0.06			—			—			—
Net income per preferred D share—basic		—			—			0.06			—			—			—
Net income per share attributable to ChinaEdu Corporation shareholders—diluted		(0.18	)		0.60			0.05			(0.75	)		0.66			0.097
Net income (loss) per ADS attributable to ChinaEdu Corporation shareholders
Basic—ordinary		(0.54	)		1.95			0.18			(2.25	)		2.14			0.313
Diluted—ordinary		(0.54	)		1.80			0.15			(2.25	)		1.99			0.291
Weighted average shares used in calculating ordinary basic net income (loss) per share		16,243,736			39,209,606			42,147,170			57,679,504			48,844,606			48,844,606
Weighted average shares used in calculating ordinary diluted net income (loss) per share		16,243,736			42,708,213			47,322,184			57,679,504			52,519,683			52,519,683
Adjusted EBITDA (3)		21,966			76,901			81,409			85,271			109,288			16,011

	Years ended December 31,
	2005		2006		2007		2008		2009		2009
	RMB		RMB		RMB		RMB		RMB		US$
	(In thousands)
Share-based compensation expense included in:
Cost of revenue		369		468		346		474		489		72
General and administrative		1,965		1,942		2,960		4,073		5,982		876
Selling and marketing		—		205		222		506		676		99
Research and development		44		96		115		178		269		39
Total		2,378		2,711		3,643		5,231		7,416		1,086

Amortization of intangible assets acquired through business combination included in:
Cost of revenue		2,097		4,182		3,954		3,956		2,977		436
Selling and marketing		1,125		3,279		3,279		3,250		774		113
Total		3,222		7,461		7,233		7,206		3,751		549

The following is a reconciliation of net (loss) income attributable to ChinaEdu Corporation shareholders to adjusted EBITDA:

	Years ended December 31,
	2005		2006		2007			2008			2009			2009
	RMB		RMB		RMB			RMB			RMB			US$
	(As adjusted)		(As adjusted)		(As adjusted)			(As adjusted)
	(In thousands)
Net income (loss)		7,019		49,120		27,635			(6,607	)		66,852			9,795
Income tax provision		3,994		6,994		15,003			3,473			19,287			2,826
Share-based compensation		2,378		2,711		3,643			5,231			7,416			1,086
Exchange loss		—		—		—			1,433			—			—
Amortization		3,388		8,812		9,081			9,352			5,856			858
Depreciation		5,023		8,157		8,206			12,212			16,603			2,432
Interest income and other, net		164		1,107		(2,382	)		(9,916	)		(6,726	)		(986	)
Goodwill impairment		—		—		16,192			41,036			—			—
Intangible assets impairment		—		—		—			29,057			—			—
Write-off for receivables from prior shareholder		—		—		4,031			—			—			—
Adjusted EBITDA (3)		21,966		76,901		81,409			85,271			109,288			16,011

	Years ended December 31,
	2005		2006		2007		2008		2009		2009
	RMB		RMB		RMB		RMB		RMB		US$
	(As adjusted)		(As adjusted)		(As adjusted)		(As adjusted)
	(In thousands)
Condensed Consolidated Balance Sheet Data:
Cash and cash equivalents		155,912		148,315		497,114		353,933		203,145		29,761
Term deposits		—		10,000		6,042		63,500		122,304		17,918
Accounts receivable, net		4,813		12,578		1,238		14,854		28,334		4,151
Amounts due from related parties		57,370		59,979		105,522		150,472		176,802		25,902
Other current assets		19,168		14,346		27,013		24,237		48,545		7,112
Total current assets		237,263		245,218		636,929		606,996		579,130		84,844
Property and equipment, net		32,492		43,657		132,770		170,544		217,893		31,921
Acquired intangible assets, net		87,889		102,836		105,852		70,377		66,621		9,760
Goodwill		61,207		76,509		73,319		38,155		38,155		5,590
Other long term assets		9,557		28,990		31,198		32,608		34,493		5,054
Total assets		428,408		497,210		980,068		918,680		936,292		137,169
Deferred revenues		67,913		78,746		83,816		96,068		97,853		14,336
Accounts payable		4,393		8,413		2,773		8,530		6,467		947
Accrued expense and other current liabilities		20,276		21,754		42,096		51,629		68,917		10,096
Amounts due to related parties		6,358		7,121		28,316		25,769		25,668		3,760
Income taxes payable and other taxes payable		10,641		16,712		29,121		39,925		49,289		7,221
Acquisition payable		32,125		—		—		—		—		—
Total current liabilities		141,706		132,746		186,122		221,921		248,194		36,360
Long term debt		—		—		25,724		—		—		—
Deferred revenues		233		289		3,124		6,073		8,075		1,183
Deferred tax liabilities		16,773		19,879		24,036		11,069		10,143		1,486
Unrecognized tax benefit		—		—		4,332		5,473		7,727		1,132
Convertible notes		29,324		30,654		—		—		—		—
Total liabilities		188,036		183,568		243,338		244,536		274,139		40,161
Total ChinaEdu Corporation shareholders’ equity		204,235		264,319		678,734		589,829		559,973		82,039
Noncontrolling interests (2)		36,137		49,323		57,996		84,315		102,180		14,969
Total equity		240,372		313,642		736,730		674,144		662,153		97,008
Total liabilities and equity		428,408		497,210		980,068		918,680		936,292		137,169

(1) The amounts of share-based compensation included in operating expenses for 2006, 2007, 2008 and 2009, reflects the adoption of authoritative pronouncement regarding share-based payment effective on January 1, 2006. If we had applied the fair value recognition provisions of this pronouncement to prior periods, we would have reported net loss of RMB8.1 million for 2005, and net loss per share (diluted) of 0.50 for 2005.

(2) We adopted authoritative pronouncement on noncontrolling interests in consolidated financial statements on January 1, 2009, retrospectively.

(3) Adjusted EBITDA represents net income (loss) before interest income, income taxes, depreciation, amortization of intangible assets and land use rights, share-based compensation, write-off for receivables from prior shareholder, goodwill and intangible assets impairment charges and exchange losses. We believe that adjusted EBITDA is useful to investors as a measure of comparative operating performance, as it is less susceptible to variances in actual performance resulting from depreciation, amortization and goodwill and intangible assets impairment, and is more reflective of changes in pricing decisions, cost controls and other factors that affect operating performance. We also present adjusted EBITDA because we believe it is useful to investors as a way to evaluate our ability to incur and service debt, make capital expenditures and meet working capital requirements. Adjusted EBITDA is not intended as a measure of our operating performance, as an alternative to net income or as an alternative to any other performance measure in conformity with U.S. GAAP, or as an alternative to cash flow provided by operating activities as a measure of liquidity.

Exchange Rate Information

The following table sets forth the noon buying rates for U.S. dollars in effect in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Board, for the periods indicated.

	Renminbi per U.S. Dollar Noon Buying Rate
Period	Average 1	High	Low	Period-End
2005	8.1826	8.0702	8.2765	8.0702
2006	7.9579	7.8041	8.0702	7.8041
2007	7.5806	7.2946	7.8127	7.2946
2008	6.9193	6.7800	7.2946	6.8225
2009	6.8295	6.8176	6.8470	6.8259

1 Annual averages are calculated by averaging the noon buying rates on the last business day of each month. Monthly averages are calculated using the average of the daily rates during the relevant period.

Previous Six Months
December 2009	6.8275	6.8244	6.8299	6.8259
January, 2010	6.8269	6.8258	6.8295	6.8268
February, 2010	6.8285	6.8258	6.8330	6.8258
March, 2010	6.8262	6.8254	6.8270	6.8258
April, 2010	6.8256	6.8229	6.8275	6.8247
May, 2010	6.8275	6.8245	6.8310	6.8305
June, 2010 (through June 22)	6.8298	6.8267	6.8323	6.8267

Source: Federal Reserve Board

On June 22 , 2010 , the noon buying rate was RMB6.8267 to $1.00.

We publish our financial statements in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, as of December 31, 2009, which was RMB6.8259 to $1.00. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated above, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade.

Since July 2005, the Renminbi is no longer pegged solely to the U.S. dollar. Instead, its value is measured against a basket of currencies, determined by the People’s Bank of China, against which it can rise or fall by as much as 0.3% each day. The Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the future. See “—D. Risk Factors—Risks Related to the People’s Republic of China—The fluctuation of the Renminbi may materially and adversely affect your investment.”

B.	Capitalization and Indebtedness

Not applicable.

C.	Reasons for the Offer and Use of Proceeds

Not applicable.

D.	Risk Factors

Investing in our securities involves a high degree of risk. You should carefully consider the risks described below, in conjunction with other information and our consolidated financial statements and related notes included elsewhere in this annual report, before making an investment decision. Our business, financial condition or results of operations could be affected materially and adversely by any or all of these risks. The trading price of our ADSs could decline due to any or all of these risks, and you may lose all or part of your investment.

Risks Related to Our Business

The education sector, in which all of our businesses are conducted, and the telecommunication sector, upon which we are heavily reliant, each are subject to extensive regulation in China, and our ability to conduct business is highly dependent on our compliance with these regulatory frameworks.

The Chinese government regulates all aspects of the education sector, including licensing of parties to perform various services, pricing of tuition and other fees, curriculum content, standards for the operations of schools and learning centers associated with online degree programs and foreign participation. The Chinese laws and regulations applicable to the education and telecommunication sectors may be in some aspects vague and uncertain, and often lack detailed implementing regulations. These laws and regulations also are subject to change, and new laws and regulations may be adopted, some of which may have retroactive application or have a negative effect on our business. Moreover, there is considerable ongoing scrutiny of the education sector and its participants. For a discussion of the regulatory framework for the education system and the telecommunication sectors in China, see “Item 4. Information on the Company—B. Business Overview—Regulation.”

We must comply with China’s extensive regulations on private and foreign participation in the education and telecommunication sectors, and compliance with such restrictions has caused us to adopt complex structural arrangements with our Chinese subsidiaries and Chinese affiliated entity or variable interest entity. If the relevant Chinese authorities decide that our structural arrangements do not comply with these restrictions, we would be precluded from conducting some or all of our current business and our financial condition, results of operations and business strategy may be materially and adversely affected.

Chinese regulators have broad powers to regulate the tuition and other fees charged by schools and, as a result, can adversely impact the fees we receive from the schools to which we provide services, as well as the returns from the private primary and secondary schools operated by our Chinese affiliated entity. While China’s regulatory framework provides that investors in private schools are entitled to receive a “reasonable return” on their investment, there is no clear guidance in law as to what this term means.

Although our corporate structure and business are designed to comply with the limitations on foreign investment and participation in the education and telecommunication sectors, we cannot assure you that we will not be found to be in violation of any current or future Chinese laws and regulations. See also the risk factors below under “Risks Related to China’s Regulation of the Education and Telecommunication Sectors and Our Corporate Structure.” There are substantial uncertainties regarding the interpretation and application of Chinese laws and regulations. If we or any of our Chinese subsidiaries or Chinese affiliated entity are found to be or to have been in violation of Chinese laws or regulations limiting foreign ownership or participation in the education or telecommunication sectors, the relevant regulatory authorities have broad discretion in dealing with such violation, including but not limited to:

levying fines and confiscating illegal income;

restricting or prohibiting our use of the proceeds from our initial public offering to finance our business and operations in China;

requiring us to restructure the ownership structure or operations of our Chinese subsidiaries or Chinese affiliated entity;

requiring us to discontinue all or a portion of our business; and/or

revoking our business licenses.

Any of these or similar actions could cause significant disruption to our business operations or render us unable to conduct all or a substantial portion of our business operations, and may materially and adversely affect our business, financial condition and results of operations.

We derive a majority of our revenue by providing services to online degree programs, and any adverse development in this business will materially and adversely affect our overall results of operations.

For fiscal years ended December 31, 2007, 2008 and 2009, approximately 76.3%, 80.4%, and 80.4%, respectively, of our net revenue was generated from services provided to online degree programs of Chinese universities. The continued growth of this business line depends on our ability to attract new university customers and the ability of these universities to increase student enrollment for their online degree programs. We face many challenges in our online degree program services business, including:

our structure for this line of business, in which services are provided to our university customers’ online degree programs by one of our Chinese subsidiaries and affiliated entity, may be found by Chinese regulatory authorities to violate restrictions on entities other than universities being responsible for online degree programs;

the demand for online degree programs depends on the social acceptance and perceived attractiveness of degrees offered by these programs, which may decline due to actual or perceived quality problems at online degree programs and the increased availability of alternatives such as traditional degree programs, on-the-job training and overseas programs;

the universities with online degree programs have primary responsibility for these programs and their priorities and objectives may conflict with our own objectives of growing our revenue and profits from servicing these programs; and

each of the universities with online degree programs has been approved by China’s Ministry of Education, or the MOE, to operate these programs as part of the MOE’s pilot program for online education and there is no assurance that the MOE will not restrict, suspend or revoke this program in the future or that any of the currently approved universities, including our university partners, will continue to qualify for this program.

A significant factor affecting the results of our online degree program business is the fees that our university partners are required to pay to independent learning centers. The share of tuition revenue that we receive is after the payment of fees to learning centers. As a result, an increase in the portion of tuition fees paid to the learning centers will result in a decrease in the portion of tuition fees that we receive as revenue. In 2009, majority of our university partners paid fees to independent learning centers in amounts ranging from 20% to 54% of the gross tuition revenues received by their online degree programs. For fiscal years ended December 31, 2007, 2008 and 2009, the portion of gross tuition fees that our university partners paid in aggregate to independent learning centers was approximately 40%, 39% and 40%, respectively. There can be no assurance that the amounts payable to independent learning centers, as a portion of gross tuition fees, will not increase.

To the extent any of the factors discussed above or other adverse developments occur in the online degree program sector, our revenue and results of operations from our online degree program services business could be adversely affected.

Most of our revenue comes from a limited number of customers, the loss of which could significantly impact our revenue and results of operations.

For fiscal years ended December 31, 2007, 2008 and 2009, 68.2%, 67.3% and 63.6%, respectively, of our net revenue was derived from our services to our five largest online degree program customers. Our three largest customers, Renmin University of China, China Agricultural University and Dongbei University of Finance and Economics, accounted for 20.2%, 13.3 % and 12.0%, respectively, of our net revenue in 2009. These same customers accounted for 22.1%, 15.2 % and 13.3%, respectively, of our net revenue in 2008, and 21.1%, 17.3% and 14.0%, respectively of our revenue in 2007. We will likely continue to rely on a relatively small number of customers for a significant portion of our revenue for the foreseeable future. If for any reason our revenue from any of our significant customers or other online degree programs were to decline or if we were to lose any of our significant customers, our revenue and results of operations would be materially and adversely affected.

We may not succeed in attracting additional university online degree programs as customers and our growth prospects could suffer.

Although our strategy is to increase the number of online degree programs using our services, we may not be able to attract additional university customers. Developing and entering into a relationship with a university requires considerable effort on our part, and we may spend considerable time and still may not be successful in developing a new customer. Our ability to expand our services to additional online degree programs is dependent on our ability to identify potential university partners who can provide course offerings that will be attractive to the target market and to develop a mutually acceptable arrangement with the universities for the development of a program. Some of the universities offering online degree programs that do not utilize our services have developed their own technology platforms, and others have entered into service agreements with other service providers. Some of the universities we would like to partner with may not have goals and objectives that are compatible with ours, may be subject to long-term contracts with other service providers, or may have cumbersome decision-making procedures that may delay or prohibit our entering into a service relationship with them. In addition, some of these universities are also being pursued by our competitors. As a result, we cannot predict whether we will be successful in attracting additional universities to which we can provide services. If we are unsuccessful in establishing new service relationships, our strategic growth objectives may not be achieved, thereby adversely impacting our prospects and results of operations.

The tuition charged by online degree programs, the secondary and vocational schools that we provide curriculum programs to and our private primary and secondary schools are all subject to price controls administered by the Chinese government, and our revenue is highly dependent on the level of these tuition charges.

In the year ended December 31, 2009, 80.4% of our net revenue was generated by providing services to online degree programs. Our revenue in this segment comes primarily from service fees that are paid by universities and calculated as a percentage of the tuition revenue of the online degree programs that we provide services to, and the tuition charges for these programs are subject to price controls administered by various price control offices under China’s National Development and Reform Commission, or NDRC. Similarly, our revenue from the curriculum programs that we offer to secondary and vocational schools is also directly dependent on the tuition revenue of those schools, and those tuition charges are subject to administrative price controls. The tuition charges of our private primary and secondary schools are also subject to price controls. In light of the substantial increase in tuitions and other education-related fees in China in recent years, China’s price control authorities may impose stricter price control on tuition charges in the future. If the tuition charges upon which our revenue depends, particularly the tuition charges for online degree programs, were to be decreased or if they were not to increase in line with increases in our costs because of the actions of China’s administrative price controls, our revenue and profitability could be adversely affected.

Our international curriculum programs, which include our Polytechnic and English language programs, are heavily regulated, and our ability to conduct business in this area is highly dependent on regulatory policies and our compliance with these policies.

In April 2007, the MOE issued the Circular on Further Regulating Chinese-Foreign Cooperative Education Programs. The circular directs the local education authorities generally to suspend the approval of any new Chinese-foreign cooperative polytechnic education programs until the end of 2008, and there is no new policy currently promulgated to revoke the suspension. To ensure the quality of the Chinese-foreign cooperative education programs, the circular emphasizes the regulatory supervision of these programs and advises local education authorities to closely supervise and monitor the existing programs, especially in recruiting materials, advertisements, and issuance of degrees and diplomas, and directs them to report and remedy any non-compliance by existing programs of the applicable regulations. As a result of this circular, our BCIT program has not been able to contract new schools for the program and we do not expect it will in the near future. Although the circular only discusses the suspension of approvals through the end of 2008, we cannot assure you that our BCIT program will be able to contract new schools in 2010 or at any time after that.

In addition, in recent years our English language curriculum program, or FEC program, has faced challenges obtaining certain regulatory approvals. In August 2004, the MOE promulgated the Announcement regarding Re-Approval of Chinese-foreign Cooperative Educational Institutions and Programs, or the Re-Approval Announcement, which requires Chinese-foreign cooperative educational institutions and programs that were established before July 1, 2004 (the effective date of the Re-Approval Announcement) to be re-approved by the MOE. Since not all of our contracted schools obtained re-approval from the MOE, as a result, in 2008 we mutually terminated our agreement with Western Institute of Technology at Taranki (“WITT”), a post-secondary education institution based in New Zealand that offers English language programs for overseas students, to serve as the exclusive service provider for all of WITT’s English language programs within China until September 2020. We cannot assure you that any, or all, of the FEC contracted schools will continue to work with us in the future, and our partner schools may face challenges obtaining re-approvals for replacing WITT with other overseas education institutions with whom we may partner.

As a result of these developments, we incurred a goodwill impairment charge of RMB16.2 million related to the international curriculum programs segment during the year ended December 31, 2007 and an impairment charge of RMB68.2 million related to the international curriculum programs segment during the year ended December 31, 2008, of which RMB39.1 million was related to goodwill impairment and RMB29.1 million was related to intangible assets impairment. In 2009, we did not incur any impairment charges.

Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter to quarter. This may result in volatility and adversely affect the price of our ADSs.

We have experienced, and expect to continue to experience fluctuations in our revenue and results of operations, due to a number of reasons including seasonal changes in the number of students who are enrolled in, or served by, our businesses. Generally, more new revenue student enrollments occur in the fall, and more existing student enrollments occur in the spring upon selection of additional course credits. We generally recognize revenue over the six-month period following these enrollments. Our expenses and costs, however, do not necessarily correspond with changes in our revenue or the number of students who are enrolled in, or served by, our businesses. We expect quarterly fluctuations in our revenue and results of operations to continue. These fluctuations could result in volatility and adversely affect the price of our ADSs. As our revenue grows, these seasonal fluctuations may become more pronounced.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

We are subject to the reporting obligations under the U.S. federal securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules that now require every public reporting company to include in its annual report management’s report on internal control over financial reporting, which contains management’s assessment of the effectiveness of such company’s internal control over financial reporting. In addition, certain registrants are required to include an attestation report from an independent registered public accounting firm on the effectiveness of such registrant’s internal control over financial reporting.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009 and has concluded that our internal control over financial reporting was effective as of December 31, 2009. See “Item 15. Controls and Procedures”. Nevertheless, we cannot assure you that these measures will continue to be effective and that any significant deficiencies and material weakness in our internal control over financial reporting will not be identified in the future. Moreover, if we fail to maintain the adequacy of our internal control, we may not be able to conclude that we have effective internal control over financial reporting. Even if we do conclude that our internal control over financial reporting is effective, our independent registered public accounting firm may still issue a report that is qualified if it is not satisfied with our internal control. Furthermore, effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help us to manage the company effectively and prevent fraud. As a result, our failure to maintain effective internal control over financial reporting could result in a loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our ADSs.

Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.

We began operations in 1999 and initiated three of our four lines of business in 2005 and 2006 through acquisitions. Our limited operating history may not provide a meaningful basis on which to evaluate our business. For the year ended December 31, 2008, we incurred a net loss of RMB43.0 million, primarily due to goodwill and intangible assets impairment losses related to our international curriculum programs. We cannot assure you that we will not recognize future impairment charges or incur future losses. We also expect that our operating expenses will increase as we expand. Given our limited operating history and the limited period of time that our management team has worked together, our operating history may not provide you with a sufficient basis upon which to evaluate the ability of our management team to address these risks. If we are not successful in addressing any or all of these risks, our business may be materially and adversely affected.

We are dependent on third parties, particularly the learning centers serving online degree programs, over which we have limited control, to perform functions that are critical to the success of our business.

The success of our business in providing services to online degree programs depends in part on the actions of learning centers and universities over which we have limited control. The learning centers, principally operated by third parties, perform a number of essential functions for universities that operate the online degree programs (such as marketing, enrollment, administration, tuition collection and testing), but we have limited ability to ensure that they adequately perform these functions or comply with the regulations and standards applicable to them. If the learning centers upon which our online degree programs are dependent experience regulatory compliance issues, our results of operations and our ability to attract and retain university customers will be adversely affected. In addition, because a university must obtain regulatory approval, which is generally a time consuming process, to either change learning centers or establish its own learning centers, the learning centers may demand substantial compensation for their services.

Because we face significant competition in several of our lines of business, we could lose market share and may need to respond by lowering our prices, which could materially and adversely affect our results of operations.

Along with Guangxi Radio and TV University (“GRTU”) and Fujian Radio and TV University (“FRTU”), we currently serve 10 university partners which are under long-term contracts out of the 67 universities, as well as the China Central Radio and TV University, which functions primarily as a distance learning facility, that have been approved to offer online degree programs in China. Our revenue from these 12 universities depends on the total cash tuition receipts for these programs. The online degree programs of these 12 universities must compete with the online degree programs of the other 57 universities approved to offer online degree programs, as well as other education and training programs that are seeking to enroll students. Our learning centers network also faces competition from other third party learning centers in their efforts to attract student enrollments. While we are trying to enter into agreements with additional universities with respect to their online degree programs, we face competition from other service providers and may not succeed in our efforts.

Our online tutoring and test preparation business competes for students with traditional in-person tutoring services and after school programs, as well as with companies providing online services similar to ours. Our English language programs compete for students with other private schools with English language programs, sister schools, online programs, after school programs and self-study programs. Our Polytechnic programs compete for students with other Chinese-foreign cooperative education programs, sister school programs, distance learning programs, self-study programs and other vocational and technical training programs. Our private primary and secondary schools compete for recruiting students with other schools in their respective areas as well as boarding schools that recruit students on a nationwide basis.

There are also many new entrants seeking to participate in the education sector in China, including for-profit and not-for-profit educational institutions from overseas that are attracted by the education market in China. Although restrictive regulation of the education sector in China may have limited our competition in the past, any deregulation of this industry, or easing of restrictions on foreign participants, could increase the competition we face in one or more lines of business.

Certain of our businesses face relatively low barriers to entry, which could result in even greater competitive pressure and potential loss of market share in the future.

Our online tutoring business and international curriculum program business are characterized by relatively low start-up and fixed costs, modest capital requirements, short start-up lead times and a limited need for significant proprietary technology. As a result, potential market entrants, both in China and from abroad, face relatively low entry barriers to these markets. The online tutoring business requires relatively small amounts of capital and technological capabilities to enter. Similarly, other international programs similar to our international curriculum programs could be initiated by one or more competitors in cooperation with international partners. In addition, as the existing penetration rates of these lines of business are relatively low in our markets, competitors could acquire significant numbers of customers and establish significant market share within a relatively short period. Increased competition could result in loss of market share and revenue and lower profit margins, which would in turn have a material adverse effect on our business, financial condition and results of operations.

We have not received permanent approval to operate our learning centers and our strategy to develop a nationwide network of learning centers will involve substantial costs and may not succeed.

To date, we have also obtained provincial level approval from the Beijing, Shanghai, Jiangsu, Zhejiang and Jiangxi provinces to operate a total of 23 learning centers, which include the 10 that received provisional approval from the MOE in February 2007. We have also entered into agreements to establish four cooperative learning centers in the provinces of Jilin, Hainan, Guangdong and Henan. Although these learning centers are not branded under the ChinaEdu name, we derive revenue from them by contributing significantly to their operations.

In addition to the 27 learning centers discussed above, we have also entered into agreements with 38 third party learning centers pursuant to which we provide assistance applying for approval from provincial level education authorities as well as securing additional university online degree programs. In return, we receive a percentage of the tuition earned by these third party learning centers.

Our strategy to operate learning centers involves various risks and may not succeed. These risks include those related to operating a new business in which we do not have significant experience. To be successful in operating learning centers we will have to obtain new contracts on acceptable terms with the university online degree programs, all of which already have existing relationships with learning centers. We will also have to incur substantial capital expenditures and operating expenses and devote substantial time and other resources to establish and staff these new learning centers. In addition to the risks of entering a new line of business, we also face regulatory risks relating to our plan to expand the scope of our approval to a national scope with an unlimited number of learning centers and to convert our provisional licenses to permanent approvals. Moreover, even in the event we are able to successfully obtain MOE approval to operate learning centers in additional provinces, we will still need to obtain approval from the relevant provincial level education authorities before we are able to establish any new learning center, and there are risks relating to our ability to obtain such provincial level approvals. Any one of these risks could cause our expansion into the learning center business to be delayed or unsuccessful and our business, financial condition and results of operations could be adversely affected.

Our ability to attract and retain customers is heavily dependent on our reputation, which in turn relies on our maintaining a high level of service quality.

We need to continue to provide high quality services to our existing customers to maintain and enhance our reputation, and we also need to attract and retain customers for our various lines of business. All of our business lines are highly dependent on existing and potential students perceiving our programs as high quality and worth the investment of time and money that they require of students. If any of the programs we operate or support experience service quality problems, our reputation could be harmed and our results of operations and prospects could be materially and adversely affected.

We rely heavily on our senior management team and key personnel, and the loss of any of their services could severely disrupt our business.

Our future success is highly dependent on the ongoing efforts of our senior management and other key personnel. We rely heavily on their management skills, expertise in the education sector, strategy and marketing skills, as well as the relationships they have with many of the educational institutions with which we do business, and with local and national regulatory authorities. We do not maintain key person life insurance on any of our senior executives or other key personnel. The loss of the services of one or more of our senior executives or other key personnel may have a material adverse effect on our business, financial condition and results of operations. Competition for senior executives and other key personnel in China, such as personnel engaged in software and system development, is intense, and the pool of suitable candidates is very limited. As a result, we may not be able to retain the services of our senior executives or other key personnel, or attract and retain senior executives or other key personnel in the future.

In addition, if any member of our senior management or any of our other key personnel joins a competitor or forms a competing company, we may lose customers, business partners, key professionals and staff members to them. Each of our senior executives and key personnel has entered into an employment agreement with us that contains confidentiality and non-competition provisions. In the event of a dispute between any of our senior executives or other key personnel and us, however, we cannot assure you as to the extent, if any, that these provisions may be enforceable in China due to uncertainties involving the Chinese legal system.

If we are unable to attract and locate qualified personnel for our various programs, in particular qualified educators, our business may be materially and adversely affected.

Each of our lines of business is highly dependent on the ability to attract qualified educators to provide services in connection with our programs and the programs we support. The success of our programs and the programs we support, and the differentiating factor between our programs and those of the traditional education sector in China, rely significantly on the quality of the educators we are able to attract to such programs. For example:

the online degree programs that we serve rely to a significant degree on professors to prepare the online courseware;

our international post-secondary programs rely on capable instructors within participating colleges to take part in the training by the overseas post-secondary institutions;

our online tutoring program needs to attract tutors who are perceived to be successful in preparing students for examinations;

our private primary and secondary schools need to attract qualified and experienced teachers and administrators; and

we need to find well-qualified native English speakers to teach in the English language programs and the international post-secondary programs that we support and the private primary and secondary schools operated by our Chinese affiliated entity.

There are considerable challenges in locating and attracting the personnel we need. There is considerable competition in China to attract strong educators. To the extent we have focused our market for English language programs, international post-secondary education programs and our private primary and secondary schools in second tier cities, we also face challenges in attracting teachers from overseas who are willing to relocate to areas in which there are few, if any, expatriates and the living conditions are markedly different from their home countries. If we are unable to attract and locate well-qualified educators for the various programs, our results of operations could be adversely affected.

We may not be able to successfully execute future acquisitions or efficiently manage the businesses we have acquired to date or may acquire in the future.

Since 2005, we have entered several new lines of business through the acquisition of existing businesses or contractual rights. We may continue to expand, in part, by acquiring complementary businesses. The success of our past acquisitions and any future acquisitions will depend upon several factors, including:

our ability to identify and acquire businesses on a cost-effective basis;

our ability to integrate acquired personnel, operations, products and technologies into our organization effectively;

our ability to retain and motivate key personnel and to retain the customers of the acquired businesses;

unanticipated problems or legal liabilities of the acquired businesses; and

tax or accounting issues relating to the acquired businesses.

Any acquisition may require a significant commitment of management time, capital investment and other resources. For example, our entry into the private primary and secondary school business, which includes our Anqing Foreign Language School (the “Anqing School”), Pingdingshan Wellent Bilingual School (the “Pingdingshan School”) and Jingzhou School (Southern Campus), has required us to invest significant amounts for the acquisition of the rights to operate these schools and for expanding facilities and upgrading the services offered by these schools.

In the case of the Anqing School, we had capital commitments of RMB0.7 million outstanding associated with our acquisition as of December 31, 2009. In 2009, we completed construction of new campus at the Anqing School and our capital expenditures in Anqing School totaled RMB37.5 million for the year ended December 31, 2009. We anticipated that the additional capital expenditures associated with the contracted commitment at the Anqing School will be approximately RMB10.0 million in 2010.

In the case of the Pingdingshan School, we had no outstanding capital commitments associated with our acquisition as of December 31, 2009. In 2009, we constructed a new building and made related facility improvements. Our capital expenditures in connection with such construction and facility improvements totaled RMB4.0 million for the year ended December 31, 2009. We anticipated that the additional capital expenditures associated with the contracted commitment at the Pingdingshan School will be approximately RMB1.1 million in 2010.

In the case of the Jingzhou School (Southern Campus), we initially planned to complete construction of a new campus by the fall 2006 recruiting season, but we have encountered delays obtaining land-use rights for the new campus site. Because of the ongoing delays and the uncertainty as to when they will be resolved, we had outstanding capital commitments of approximately RMB64.8 million as of December 31, 2009 associated with the acquisition of Jingzhou School (Southern Campus). Delays in completing construction of the new campus at Jingzhou School (Southern Campus) have adversely affected revenue from this investment, and we cannot assure you that we will be able to begin construction in the near future, or at all. If we do not fulfill these commitments by the end of the contract term, our partner Jingzhou High School has the right to seek compensation from us.

If we are unable to effectively execute our acquisition strategy or integrate any acquired business, our business, financial condition and results of operations may be materially and adversely affected. In addition, if we use our equity securities as consideration for acquisitions, the value of your ordinary shares or ADSs may be diluted.

If we are not able to respond successfully to technological or industry developments, our business may be materially and adversely affected.

The market for providing services to educational institutions for their online degree programs and the market for online tutoring services are relatively new. These markets are characterized by rapid technological developments, the introduction of new business models, launches of new products and services and changes in customer needs and behavior. For example, the delivery of online degree programs in China is still relatively new and the evolution of these programs from relatively rudimentary systems for delivery of course content to more robust interactive models is taking place on an ongoing basis. As high speed Internet connections become available for more potential users, the expectations of students for online degree programs are likely to require continued devotion of our research and development efforts to maintain our position as a perceived market leader in providing technology services to online degree programs. Our online tutoring programs will likewise face expectations from students for a more stimulating and interactive environment commensurate with their other online experiences. Innovation by our competitors in China and overseas may make our existing services to online degree programs and our online tutoring programs obsolete or less competitive. To respond to these types of developments, we may be required to undertake substantial efforts and incur significant costs. If we do not successfully respond to these types of developments in a timely and cost-effective manner, our business may be materially and adversely affected.

All of the servers used to support our business operations are currently hosted in the same location in Beijing. We do not have a backup location, so we cannot assure you that we will be able to operate if our server location suffers from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, terrorist acts or similar events. Any of these events could give rise to server interruptions, breakdowns, system failures, technology platform failures and Internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware. These types of events could adversely affect our ability to provide our services to online degree programs and our online tutoring programs and adversely affect our operations. See “Item 5. Operating and Financial Review and Prospects—C. Research and Development, Patents and Licenses, etc.—Technology.”

If we are unable to achieve or maintain economies of scale with respect to our various lines of business, our results of operations from these businesses may be materially and adversely affected.

Each of our lines of business involves a degree of upfront investment in the development of programs or the acquisition of contract rights to provide services to programs, and our revenue and profitability depend on the number of students in these programs. The online degree programs to which we provide support and services, and from which we derive most of our revenue and profits, require considerable investments of time and resources to develop. In many cases, these online degree programs also require that we make substantial investments in collaborative alliances, which are the majority owned entities that we form with certain of our university partners to provide services to their online degree programs, as well as provide advance payments to the universities to attract university partners. The profitability of these programs for us depends on the ability of the programs to attract students. Similarly, our revenue from our online tutoring programs, international programs, and private primary and secondary schools depends on our attracting enough students on an ongoing basis. If the programs or schools are unable to recruit enough students to offset the development and operating costs, our results of operations will be adversely affected.

The demand for our online tutoring services may be impacted by parental concern of children spending too much time on online gaming and other non-educational online activities.

Parents and government officials in China have expressed concern that school age children are spending too much time on the Internet playing online games and engaging in other non-productive online activities. As a result, parents may not be supportive of buying computers and other computer resources or Internet access for their children, and this could adversely affect online education programs such as our online tutoring programs. This attitude could adversely affect our ability to expand enrollment in our online tutoring programs and thereby adversely affect our results of operations.

If we are unable to prevent others from using our intellectual property or if we are subject to intellectual property infringement claims by others, our business may be materially and adversely affected.

Our intellectual property has been and will continue to be subject to various forms of infringement, theft and misappropriation. We are also susceptible to others copying our business model and methods. Our courseware and course materials have significant value and could be copied. We devote substantial resources to the development of platform support and courseware for online degree programs, the course materials and systems support for our online tutoring programs, and implementation of the Polytechnic programs and the English language programs we support. The legal protection of intellectual property in China is significantly more limited than in the United States and many other countries and may afford us little or no effective protection.

In addition, we also could face potential claims that we have infringed the intellectual property rights of third parties. For example, with regard to the intellectual property rights to courseware used in online programs from which we derive service revenue, the professors who assisted in developing the courseware could claim that they have rights to such courseware. If such claims are brought against us or the universities conducting the online degree programs, or if we are required to bring litigation to protect our intellectual property, we could face expensive litigation that could divert management resources and materially and adversely affect our results of operations.

Our university customers may be liable for refunds to students, which could adversely affect our revenue.

Most university online degree programs require students to pre-pay for a set number of courses at the outset of their enrollment; however, these students may not enroll in all of these courses in the same period for which they have prepaid tuition. We receive service fees from each university for technology and support services that we render to our university customers during a given semester to support their online degree programs. Our contracts are typically structured so that our service fees are based upon the cash tuition receipts of the university during a given semester. To the extent students request that the universities refund any unused prepaid tuition, our revenue could be adversely affected because the universities are entitled to deduct these refunds from the cash receipts upon which our fees are based. In 2009, the average refund rate, which was refund expressed as a percentage of cash receipts, of the majority of the university online degree programs that we service was approximately 1%. Increases in this rate could increase our revenue volatility and adversely affect the profitability of our services.

We rely heavily on our information systems, and if we fail to further develop our technology, or if our systems contain “bugs” or other undetected errors, our operations may be seriously disrupted.

To achieve our strategic objectives and to remain competitive, we must continue to develop and enhance our technology and our use of information that is available within our online systems. This may require us to acquire additional equipment and software and to develop new applications within our online systems. Our success in the development of new service offerings, such as community features and improved student management systems, depends in large part upon our ability to store, retrieve, process and manage substantial amounts of information. Our online systems and the technology platform upon which online degree programs operate, and our other databases, products and systems could contain undetected errors or “bugs” that could adversely affect their performance. In addition, our systems supporting online degree programs and online tutoring programs occasionally experience peak demands during which they are unable to provide the responsiveness expected by students enrolled in these programs. If we encounter errors or other service quality or reliability issues, or if we are unable to design, develop, implement and utilize information systems and the data derived from these systems, our ability to realize our strategic objectives and our profitability could be adversely affected, and this may cause us to lose market share, harm our reputation and brand names, and materially and adversely affect our business.

The successful operation of our business depends upon the performance and reliability of the Internet infrastructure and telecommunications networks in China.

Our services to online degree programs and our online tutoring programs depend on the performance and reliability of China’s Internet infrastructure. In China, almost all access to the Internet is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of China’s Ministry of Information Industry, or the MII. In addition, the national networks in China are connected to the Internet through international gateways controlled by the Chinese government. These international gateways are the only channels through which a user in China can connect to the Internet. We cannot assure you that a more sophisticated Internet infrastructure will be developed in China. We may not have access to alternative networks in the event of disruptions, failures or other problems with China’s Internet infrastructure. In addition, China’s Internet infrastructure may not support the demands associated with continued growth in Internet usage.

We rely on China Telecommunications Corporation, or China Telecom, and China Network Communications Corporation, or China Netcom, to provide us with data communications capacity primarily through local telecommunications lines and their Internet data centers that host our servers. We do not have access to alternative services in the event of disruptions, failures or other problems with the fixed telecommunications networks of China Telecom and China Netcom, or if China Telecom or China Netcom otherwise fail to provide such services. Any unscheduled service interruption could damage our reputation and result in a decrease in our revenue. Furthermore, we have no control over the costs of the services provided by China Telecom and China Netcom. If the prices that we pay for telecommunications and Internet services increase significantly, our profitability could be adversely affected. In addition, if Internet access fees or other charges to Internet users increase, the users of our online tutoring services may find our services less affordable, which may in turn reduce our revenue.

Computer viruses and “hacking” may cause delays or interruptions on our systems and may reduce use of our services and damage our reputation and brand names.

Our online degree program platforms contain substantial information about students, their attendance and performance, and the administration of the entire student life cycle from enrollment to graduation. As such, these online systems and records may become attractive targets for either dissatisfied students, or hackers in general, who seek to access and modify records maintained on these systems, or to disrupt the online degree programs. “Hacking” involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions, loss or corruption of data, hardware or other computer equipment. Computer viruses and hacking may cause delays or other service interruptions on our systems. In addition, the inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation. Hacking and computer viruses could result in significant damage to our systems and databases, disruptions to our business activities, including to our e-mail and other communications systems, breaches of security and the inadvertent disclosure of confidential or sensitive information, interruptions in access to our website and the websites for online degree programs and our online tutoring programs, and other material adverse effects on our operations. We may incur significant costs to protect our systems and equipment against the threat of, and to repair any damage caused by, computer viruses and hacking. Moreover, if a computer virus or hacking affects our systems and is highly publicized, our reputation could be materially damaged and usage of our services may decrease.

We incur increased costs as a result of being a public company.

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company prior to our initial public offering in December 2007. Moreover, under the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC, public companies are required to follow certain corporate governance rules, including requirements for internal control over financial reporting. In addition, NASDAQ has imposed additional requirements on corporate governance practices of public companies. These rules and regulations increase our legal and financial compliance costs and make certain corporate activities more time-consuming and costly. It may also be difficult for us to attract and retain qualified persons to serve on our board of directors due to increased risks of liability to our directors under the new rules and regulations.

Although our results of operations, cash flows and financial condition reflected in our consolidated financial statements include all expenses allocable to our business, because of the additional administrative and financial obligations associated with operating as a publicly traded company, they may not be indicative of the results of operations that we would have achieved had we operated as a public entity for all periods presented or of future results that we may achieve as a publicly traded company with our current holding company structure. Such variations may be material to our business.

Risks Related to China’s Regulation of the Education and Telecommunication Sectors and Our Corporate Structure

If the Chinese authorities determine that our organizational structure for operating our business does not comply with Chinese regulations, we could be subject to sanctions, including being required to discontinue all or a portion of our business.

We and our Chinese subsidiaries are considered foreign persons or foreign invested enterprises under Chinese laws, and, as a result, we are required to comply with Chinese laws and regulations applicable to foreign investment, including those restricting foreign participation in the education and telecommunications industries. For example, foreign entities that are not educational institutions, such as our company, cannot operate schools or education programs in China, and all foreign persons, including foreign educational institutions, are precluded from operating primary and middle schools in China, such as our private primary and secondary schools. Similarly, there are limitations on the ability of foreign parties such as our company and our Chinese subsidiaries with regard to owning Internet content provider, or ICP, licenses, which are necessary for the operation of our corporate website and the website for our online tutoring business. Because of these restrictions, we have developed a corporate structure in which we do not have an ownership interest in the entities involved in activities in which foreign entities’ and foreign invested enterprises’ participation is prohibited, and we function as a service provider to Chinese universities with respect to their online degree programs. For a discussion of the limitations on foreign ownership and participation governing our businesses, see “Item 4. Information on the Company—B. Business Overview—Regulation—Limitations on Foreign Ownership of Our Businesses.” For a description of our corporate structure, see “Item 4. Information on the Company—C. Organizational Structure.”

The Chinese laws and regulations applicable to online university degree programs require that the university offering such a program be responsible for the recruitment, operations, curriculum and management of the online program. Because of these restrictions, we provide services to Chinese universities’ online degree programs either through a contractual relationship between the university and us, or through a collaborative alliance established by the university and us specifically to provide services to that university’s online degree program. For some of our university partners, our services also include the licensing of certain of our domain names for their use to operate their online degree programs. If the relevant Chinese regulatory authorities were to find that the services we provide to our university partners, or that our service contract relationships, our collaborative alliance service provider structures or both of these structures, violate the regulations requiring that these online degree programs be controlled by the universities, our business model might require extensive revision or be unworkable and we could be subject to sanctions and be required to discontinue all or a portion of this business. These developments would adversely affect our business, financial condition and results of operations.

If the ICP license for the operation of our business website is suspended or revoked by the MII due to non-compliance with its requirements, we may have to shut the website down, which could have an effect on our business and market perception.

In July 2006, the MII issued the Notice on Strengthening Management of Foreign Investment in Operating Value-Added Telecom Services. The notice prohibits Chinese ICPs engaged in providing value-added telecom services from leasing, transferring or selling their ICP licenses or providing facilities or other resources to foreign investors operating in violation of restrictions on foreign investment. The notice requires that Chinese ICPs must directly own the trademarks and domain names for websites operated by them, as well as servers and other infrastructure used to support these websites. The notice also requires Chinese ICPs to evaluate their compliance with the notice by November 1, 2006 and correct any non-compliance. A Chinese ICP’s failure to complete the procedures by November 1, 2006 could be the basis for revocation of its ICP license. Due to a lack of interpretative materials from the MII, the impact of this circular on us is unclear. Xiandai Xingye Network Technology Co., Ltd., or Xiandai Technology, holds the ICP license for our business website, www.chinaedu.net. We have not transferred the domain name and trademark for www.chinaedu.net to Xiandai Technology, and we may be required to make such transfer in the future. If we are unable to do so, the ICP license held by Xiandai Technology could be suspended or revoked by MII. If Xiandai Technology’s ICP license is suspended or revoked, we would have to shut down our business website, which may have an adverse effect on our business and market perception.

Some of our university partners for online degree programs have not received all of the required approvals for their websites.

Currently, websites established by universities for their online degree programs approved by the MOE are generally considered by the MII to be not-for-profit operations, and therefore the MII only requires the universities to make an ICP filing, rather than the more burdensome process of obtaining an ICP license, for the operation of the websites related to their online degree programs. The MII could, however, require the universities to obtain ICP licenses in the future. Some of our university partners for online degree programs have not made the required filing with the MII. In addition, our university partners may be required in the future to make other filings or obtain other approvals to maintain their online degree programs. If our university partners fail to make these filings, or obtain these licenses or other approvals, their online degree programs may be sanctioned or suspended, which would have a material adverse effect on our results of operations.

Our online tutoring business was acquired through a transaction that did not comply with applicable Chinese regulations; we may therefore face regulatory challenges, including fines and other sanctions, with respect to this business.

Notwithstanding certain restructuring activities and the acquisition of 100% of the equity interest in Gotop Electronic, the entity that provides our online tutoring services and the ICP services related to such online tutoring services our initial 80% equity interest in Gotop Electronic was originally acquired in 2005 through a separate subsidiary, Hongcheng Liye. That acquisition required approvals from the MII, the MOE and the Ministry of Commerce, and these approvals were not obtained. Although in 2007, the 80% equity interest held by Hongcheng Liye was transferred to Xiandai Technology, and we acquired the remaining 20% equity interest in Gotop Electronic in 2008 through our affiliated entity, Hongcheng Education, any challenge by the Chinese government to our initial acquisition or the imposition of sanctions against us for our activities before the restructuring could adversely affect our results of operations. In 2009, our online tutoring business accounted for 5.5% of our net revenue. There is no assurance that we will not be sanctioned for our non-compliance before these corrective measures were taken. These sanctions can range from monetary fines and penalties to suspension of our licenses or services that we provide to our customers.

Certain of our Chinese subsidiaries, Chinese affiliated entity and customers may face regulatory challenges, including fines and other sanctions, as a result of their failure to comply with certain licensing and regulatory approval requirements.

When Gotop Electronic, a subsidiary of Xiandai Technology, that holds the ICP license for our online tutoring business, was approved by relevant Chinese authorities to engage in the ICP business, its registered capital did not meet the minimum requirement specified under Chinese law for ICP license holders. We have since increased the registered capital of Gotop Electronic to satisfy this requirement. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Internet Information Services.” In addition, two of our Chinese subsidiaries, Gotop Hongcheng and Xuezhi Shidai, were previously engaged in the sale of products and services for our online tutoring programs which exceeded the scope of their business licenses. We have subsequently transferred the sales activities to third party distributors and our sales centers which have the required business licenses. There is no assurance that we will not be sanctioned for our non-compliance before these corrective measures were taken. These sanctions can range from monetary fines and penalties to suspension of our licenses or services that we provide to our customers.

Our online tutoring business may be deemed to be engaged in “Internet publishing,” “Internet culture activities” and “broadcasting audio-video programs through the Internet,” which, under Chinese regulations, would require Gotop Electronic to obtain three additional licenses, the online publication license, the Internet culture business operation license and the license for broadcasting audio-video programs through the Internet. At present, there is no official or publicly-available definition of “Internet publishing” or “Internet culture activities.” Based on verbal confirmations from the relevant regulatory authorities, our online tutoring business currently does not fall into the scope of “Internet publishing,” “Internet culture activities” or “broadcasting audio-video programs through the Internet.” However, there is no assurance that Gotop Electronic will not be required to obtain these licenses in the future as a result of changes in interpretation of the relevant rules or changes in position of the relevant authorities. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Online Publications” “—Regulations on Internet Culture Activities” and “—Regulations on Broadcasting Audio-Video Programs through the Internet or Other Information Network.” If Gotop is required to obtain these licenses in the future and is unable to do so, we may face regulatory challenges, including fines, suspensions of service and other sanctions, in respect of our online tutoring business.

Our contractual arrangements with our Chinese affiliated entity and its shareholders may not be as effective in providing operational control and economic benefits as direct ownership.

We rely on our Chinese affiliated entity, Hongcheng Education, to operate our private primary and secondary schools and to provide services to some of our university customers. And through Xiandai Technology, which is a wholly owned subsidiary of Hongcheng Education, we hold and maintain certain ICP licenses for operating our websites. Hongcheng Education is owned by Chinese citizens with whom we have entered into contractual arrangements to provide us with control over and substantially all the economic benefits from the entity. Hongcheng Education is our variable interest entity, but we have no direct ownership interest in it. Our contractual arrangements with the Chinese affiliated entity and the shareholders of the Chinese affiliated entity include technical consulting and services agreements, loan agreements, shareholder voting rights entrustment agreements, call option agreements, equity pledge agreements and powers of attorney. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Our Corporate Structure and Contractual Arrangements.” There are considerable uncertainties regarding the interpretation and application of Chinese laws and regulations governing these contractual arrangements. Accordingly, we cannot guarantee that these arrangements will not be challenged by Chinese regulatory authorities or found to violate existing Chinese laws or regulations or new laws and regulations that may be adopted in the future. In addition, under the State Administration of Foreign Exchange, or SAFE, regulations, all foreign denominated loans are required to be registered with SAFE. Our U.S. dollar loans to the shareholders of Hongcheng Education to fund the registered capital requirements of Hongcheng Education were not registered with the SAFE at the time they were made. As a result, we could be subject to sanctions for these loans and these loans may not be enforceable under Chinese laws.

Our contractual arrangements with our Chinese affiliated entity may not be as effective in providing us with control over them as direct ownership of the entity would be. In addition, our Chinese affiliated entity or its shareholders may breach the contractual arrangements we have with them. For example, our Chinese affiliated entity may distribute dividends to its shareholders who may decide not to remit these dividends to us in accordance with our contractual arrangements. Moreover, our Chinese affiliated entity or its shareholders may refuse to renew these contractual arrangements. In addition, in the event of the death or disability of any of the shareholders of our Chinese affiliated entity, there is uncertainty under Chinese law whether the shareholder voting rights entrustment agreements that we have entered into with them would be enforceable against their legal heirs or assigns. Furthermore, although our loans to shareholders of our Chinese affiliated entity specify that they may only be repaid with the shares of those companies held by the shareholders, it is unclear whether this provision is enforceable under Chinese law. If disputes under these contractual arrangements were to arise, we would have to rely on legal remedies under Chinese law. These remedies may not always be effective, particularly in light of uncertainties in the Chinese legal system, and may be significantly more limited than the legal remedies available in the legal systems of the United States and many other countries. See “—Risks Related to the People’s Republic of China—China’s legal system has inherent uncertainties that could materially and adversely affect us.” If we are unable to enforce our rights, we may be unable to operate certain of our businesses through Hongcheng Education, or we may be unable to receive all of the economic benefits to which we are entitled from the entity.

Our equity pledge agreements with the shareholders of our Chinese affiliated entity may not be enforceable until they are registered with the relevant administration for industry and commerce pursuant to the Chinese Property Rights Law.

Under the equity pledge agreements, the shareholders of the Chinese affiliated entity pledged their equity interests in the entity to Hongcheng Technology, our Chinese subsidiary. These pledges were created by recording the pledge on the shareholder registry of the Chinese affiliated entity in accordance with the then effective Chinese laws. However, according to the Chinese Property Rights Law, which became effective as of October 1, 2007, these pledges may not be enforceable until they are registered with the relevant administration for industry and commerce. Hongcheng Technology applied for such registration, but the application was denied as no registration procedures were yet available. Hongcheng Technology will continue to endeavor to register these pledges when the administration for industry and commerce implements registration procedures in accordance with the Chinese Property Rights Law in the future. But we cannot assure you that Hongcheng Technology will be able to register the pledges, and if Hongcheng Technology is unable to do so, the effectiveness of the pledges may be affected.

The shareholders of our Chinese affiliated entity may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

The shareholders of Hongcheng Education are Mr. Changqing Xie, one of our officers, and Mr. Xueshan Yang, our former director. In the case of Mr. Changqing Xie, conflicts of interests between his duties to our company and to Hongcheng Education may arise. In the case of Mr. Xueshan Yang, a former director of our company, he does not owe any fiduciary duty to our company, he has not entered into any non-competition or employment agreements with our company and he does not have any relationship with us or our business except through these contractual arrangements and he is not our shareholders. These individuals may breach or cause our Chinese affiliated entity and its subsidiaries to breach or refuse to renew the existing contractual arrangements that allow us to effectively control our Chinese affiliated entity and its subsidiaries, and receive economic benefits from them. Currently, we do not have existing arrangements to address potential conflicts of interest between these individuals and our company. We cannot assure you that any or all of these individuals will act in the best interests of our company or that conflicts of interests will be resolved in our favor. If we cannot resolve any conflicts of interest or disputes between us and the owners of our Chinese affiliated entity, we would have to rely on legal proceedings, which could result in disruption of our business and substantial uncertainty as to the outcome of any such legal proceedings.

Our Chinese affiliated entity and its subsidiaries may be subject to significant limitations on its ability to operate private schools or make payments to related parties or otherwise be materially and adversely affected by changes in Chinese laws and regulations.

Under the Chinese laws and regulations applicable to private schools, a private school is one that does not require reasonable return unless it elects to be treated as a school that requires reasonable returns. At the end of each fiscal year, every private school is required to allocate a certain amount to its development fund for the construction or maintenance of the school or procurement or upgrade of educational equipment. For a private school that requires reasonable returns, this amount must be at least 25% of the school’s annual net income, and for other private schools this amount must be at least 25% of the school’s annual increase in its net assets, if any. Private schools that require reasonable returns must publicly disclose their election of that status and provide additional information required under the regulations such as the school’s tuition and other fees and admission standards. A private school is required to consider factors such as the school’s tuition, ratio of the funds used for education-related activities to the course fees collected, admission standards and educational quality when determining the percentage of the school’s net income to be distributed to investors as reasonable returns. However, none of the current Chinese laws and regulations provides a formula or guidelines for determining “reasonable returns.” When the formula or the guidelines for determining “reasonable returns” are issued by the relevant authorities, they may not permit returns to us that will be commercially reasonable and may limit our expected return on investment in our schools.

Private schools that have not elected to require reasonable returns are entitled to the same preferential tax treatment as public schools, while preferential tax treatment policies applicable to private schools requiring reasonable returns are to be separately formulated by the relevant authorities. To date, however, no separate regulations or policies have been promulgated in this regard. As a result, our private primary and secondary schools are subject to the specific requirements of their respective local tax authorities, which vary from location to location.

Our Anqing School was established as a school that requires reasonable returns. We anticipate adopting articles of association for the Pingdingshan School in 2010 in order to designate it as a school that requires reasonable returns. After the completion of the construction of the new campus for our Jingzhou School (Southern Campus), we also plan to adopt articles of association to designate it as a school that requires reasonable returns.

Current laws and regulations governing private education may be amended or replaced by new laws and regulations that (i) impose significant limitations on the ability of our schools to operate their business, charge course fees or make payments to related parties for services received, (ii) specify the formula for calculating “reasonable returns” or (iii) change the preferential tax treatment policies applicable to private schools. We cannot predict the timing and effects of amendments or new laws and regulations. Changes in Chinese laws and regulations governing private education or otherwise affecting our Chinese affiliated entity’s and its subsidiaries’ operations could materially and adversely affect our business prospects and results of operations.

Contractual arrangements among our subsidiaries and Chinese affiliated entity and its subsidiaries may be subject to scrutiny by the Chinese tax authorities and we or our Chinese affiliated entity and its subsidiaries could be required to pay additional taxes, which could substantially reduce our consolidated net income and the value of your investment.

Arrangements and transactions among related parties may be subject to audit or challenge by the Chinese tax authorities. We could face material and adverse tax consequences if the Chinese tax authorities determine that the contractual arrangements among our subsidiaries and our Chinese affiliated entity and its subsidiaries do not represent arm’s-length terms. If this were to occur, the tax authorities could adjust our Chinese affiliated entity’s or any of its subsidiaries’ income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction, for Chinese tax purposes, of expense deductions recorded by our Chinese affiliated entity or any of its subsidiaries, which could in turn increase their tax liabilities. The Chinese tax authorities could also impose late payment fees and other penalties on our Chinese affiliated entity for under-paid taxes. In addition, any challenge by the Chinese tax authorities may limit the ability of our Chinese affiliated entity to maintain any preferential tax treatments and other financial incentives it currently enjoy. Our consolidated net income may be materially and adversely affected if our Chinese affiliated entity’s tax liabilities increase or if it is found to be subject to late payment fees or other penalties.

Regulatory agencies could commence investigations of the private primary and secondary schools directly owned and operated by a subsidiary of our Chinese affiliated entity, and if the results of the investigations were to be unfavorable to us, we could be subject to fines, penalties, injunctions or other censure that could have an adverse impact on our results of operations.

Chinese laws and regulations currently prohibit foreign ownership of primary and middle schools in China. Through Hongcheng Education and contractual arrangements with our Chinese affiliated entity, we own and/or operate private primary and secondary schools. As the provision of private primary and middle school services is heavily regulated in China, our private primary and secondary schools and any new primary schools that our Chinese affiliated entity and its subsidiaries may acquire or establish may be subject from time to time to investigations, claims of non-compliance or lawsuits by governmental agencies, which may allege statutory violations or regulatory infractions. If the results of these investigations were to be unfavorable to us, we could be subject to fines, penalties, injunctions or other censure that could have an adverse impact on our results of operations. Even if we were to adequately address any issues raised by a government investigation, we might have to devote significant financial and management resources to resolve these issues, which could harm our business.

We may in the future rely on dividends and other distributions on equity paid by our Chinese subsidiaries to fund any cash and financing requirements we have, and any limitation on the ability of our Chinese subsidiaries and Chinese affiliated entity to make payments to us could have a material adverse effect on our ability to conduct our business.

We are a holding company, and we may rely in the future on dividends from our Chinese subsidiaries and service, license and other fees paid to our Chinese subsidiaries by our Chinese affiliated entity and its subsidiaries for our cash requirements, including servicing any debt we may incur. Current Chinese regulations permit our Chinese subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our Chinese subsidiaries and Chinese affiliated entity (other than our schools, which are subject to different regulations) in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Currently, all of our Chinese subsidiaries comply with this reserve requirement except four of our Chinese subsidiaries because their statutory reserves have reached 50% of their registered capital. Furthermore, if our Chinese subsidiaries and Chinese affiliated entity incur debt on their own behalf in the future, the terms of that debt may restrict their ability to pay dividends or make other payments to us. Moreover, at the end of each fiscal year, every private school in China is required to allocate a certain amount to its development fund for the construction or maintenance of the school or procurement or upgrade of educational equipment. For private schools that require reasonable returns, this amount must be at least 25% of the annual net income of the school, if any. As a result, our return on investment in our private schools will be limited by this reserve requirement. See “—Our Chinese affiliated entity and its subsidiaries may be subject to significant limitations on its ability to operate private schools or make payments to related parties or otherwise be materially and adversely affected by changes in Chinese laws and regulations.” Any limitation on the ability of our Chinese subsidiaries and Chinese affiliated entity to distribute dividends or other payments to us in the future could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends, or otherwise fund and conduct our business.

We may be treated as a “resident enterprise” for PRC tax purposes under the Enterprise Income Tax Law, which may subject us to PRC income tax for our income originated both within and outside the PRC.

Under the Enterprise Income Tax Law (the “EIT Law”) that went into effect on January 1, 2008, enterprises established under the laws of non-PRC jurisdictions but whose “de facto management” body is located in the PRC, may be treated as “resident enterprises” for PRC tax purposes. The EIT Law’s implementing rules define “de facto management” as having substantial and overall management and control over the production and operations, personnel, accounting, and properties of the enterprise. Based on our analysis of the current facts, we believe that we and our overseas subsidiaries should not be treated as “resident enterprises” for PRC tax purposes. It remains unclear, however, as to how tax authorities will determine tax residency based on the facts of each case. For the year ended December 31, 2009, our calculation of income taxes generally reflects our status as a non-China tax resident company. If the PRC governmental authorities hold that we and our overseas subsidiaries should be treated as a resident enterprise for PRC tax purposes after January 1, 2008, the effective date of the EIT Law, our worldwide income will be subject to PRC income tax at the 25% uniform tax rate, which could have an impact on our effective tax rate and an adverse effect on our net income and results of operations, although dividends distributed from our PRC subsidiaries to us could be exempt from Chinese dividend withholding tax, since such income is exempted under the new EIT Law to a PRC resident recipient.

If we are treated as a “resident enterprise” under the EIT Law, dividends payable by us to our foreign investors and gain on the sale of our ADSs or ordinary shares may become subject to taxes under PRC tax laws.

Under the EIT Law and implementation regulations issued by the State Council, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises,” which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends have their sources within the PRC. Similarly, any gain realized on the transfer of ADSs or shares by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC. If we are considered a PRC “resident enterprise,” it is unclear whether dividends we pay with respect to our ordinary shares or ADSs, or the gain you may realize from the transfer of our ordinary shares or ADSs, would be treated as income derived from sources within the PRC and be subject to PRC tax. If we are required under the EIT Law to withhold PRC income tax on dividends payable to our non-PRC investors that are “non-resident enterprises,” or if you are required to pay PRC income tax on the transfer of our ordinary shares or ADSs, the value of your investment in our ordinary shares or ADSs may be materially and adversely affected.

If we are treated as a “non-resident enterprise” under the EIT Law, dividends that we receive from our operating subsidiaries located in the PRC may be subject to PRC withholding tax.

Under the EIT Law and its implementation rules, dividends declared on earnings generated after January 1, 2008 and payable by a foreign invested entity (“FIE”) in China to its foreign investors who are non-resident enterprises are subject to a 10% withholding tax, unless any such foreign investor's jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where we are incorporated, does not have a tax treaty with China. In the future, our income may be derived from dividends we receive from our operating subsidiaries located in the PRC. Thus, dividends paid to us by our subsidiaries in China may be subject to the 10% income tax if we are considered a “non-resident enterprise” under the EIT Law. If we are required to pay a 10% withholding tax for dividends we may receive from our subsidiaries in the future, it would materially and adversely affect our financial condition and results of operations.

Chinese regulation of loans and direct investment by offshore holding companies to Chinese entities may delay or prevent us from using the proceeds of our initial public offering to make loans or additional capital contributions to our Chinese subsidiaries and Chinese affiliated entity, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

Since we are an offshore holding company for our Chinese subsidiaries and Chinese affiliated entity, we may make loans to our Chinese subsidiaries and Chinese affiliated entity, or we may make additional capital contributions to our Chinese subsidiaries. Any loans we make to our Chinese subsidiaries or our Chinese affiliated entity are subject to Chinese regulations and approvals. For example:

loans by us to any of our Chinese subsidiaries, each of which is a FIE, to finance their activities cannot exceed the difference between the total investment amount and the registered capital of the Chinese subsidiary, each as set forth in its articles of association, and must be registered with the SAFE; and

loans by us to our Chinese affiliated entity or its subsidiaries must be approved by the relevant government authorities including, the SAFE and the NDRC, and must also be registered with the SAFE.

We may also decide to finance our Chinese subsidiaries by means of capital contributions. These capital contributions would have to be approved by the Ministry of Commerce or its local counterpart. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to our Chinese subsidiaries or our Chinese affiliated entity or any of their respective subsidiaries. If we fail to receive these registrations or approvals, our ability to finance our Chinese operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

If our Chinese affiliated entity or its subsidiaries become the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy those assets, which could reduce the size of our operations and materially and adversely affect our business, ability to generate revenue and the market price of our ADSs.

To comply with Chinese laws and regulations relating to foreign ownership in the education and telecommunications sectors, we currently conduct our operations in China through contractual arrangements with our Chinese affiliated entity and its shareholders and subsidiaries. As part of these arrangements, our Chinese affiliated entity and its subsidiaries hold some of the assets that are important to the operation of our business. If any of these entities goes bankrupt and all or part of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If any of our Chinese affiliated entity or its subsidiaries undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, which would hinder our ability to operate our business, which could materially and adversely affect our business, our ability to generate revenue and the market price of our ADSs.

Risks Related to the People’s Republic of China

Our business may be adversely affected by the economic, political and social conditions in China.

Substantially all of our assets are located in China and all of our revenue is derived from our operations in China. Accordingly, our business, financial condition, results of operations and prospects are subject, to a significant extent, to economic, political and social developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the Chinese economy has experienced significant growth over the past two decades, growth has been uneven, both geographically and among various sectors of the economy.

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although the Chinese government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese government. The Chinese government also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. The Chinese government implements a number of measures to slow down specific segments of China’s economy that it believes to be overheating. Since the demand for our services is affected by a number of factors, including the spending power of Chinese students and their families on education, which in turn is affected by the condition of the Chinese economy, the foregoing actions, as well as future actions and policies of the Chinese government, could materially affect the demand for our services, our prospects and results of operations.

If preferential tax treatments currently available to us are reduced or repealed, our business and results of operations could suffer.

On January 1, 2008, the EIT Law became effective, pursuant to which FIEs, such as our Chinese subsidiaries, and domestic companies are both subject to a uniform statutory tax rate of 25%. Preferential tax treatments will continue to be granted to entities that are classified as “high and new technology enterprises strongly supported by the State” or to entities that conduct business in encouraged sectors, whether FIEs or domestic companies. Pursuant to Circular 172, which was issued on April 14, 2008, in order for applicant enterprises to be classified as “high and new technology enterprises strongly supported by the State”, certain requirements must be met, such as ownership of the core intellectual property, products or services within “State-Encouraged High Technology Areas.” Pursuant to the EIT Law and regulations thereunder, enterprises that were established before March 6, 2007, and were enjoying preferential tax rates according to previous tax laws, administrative regulations, and other circulars with equivalent effect, will have their preferential tax rates gradually transitioned to the new uniform tax rate over a five-year period starting from January 1, 2008. Enterprises that were also enjoying preferential tax exemptions and/or reductions for a specified term, however, may continue to enjoy those exemptions and/or reductions in accordance with the implementation of transitional preferential tax policies for enterprise income tax.

On April 14, 2008, Measures on the Classification of High and New Technology Enterprises, a discussion and interpretation of the detailed standards applicable to the classification of “high and new technology enterprises” status, was promulgated. Currently eight of our subsidiaries and affiliated entity have been approved and classified as “high and new technology enterprises.” Each approval is valid for three years conditional upon successfully meeting criteria and filing requirements on an annual basis, and each classified entity can then apply to renew for an additional three years provided their business operations continue to qualify for the new HNTE status. However, as the procedures for obtaining classification as “high and new technology enterprises” are very complicated and time consuming, and the standards for classification as a “high and new technology enterprise” are not easy to achieve, we cannot assure you that our entities currently classified as “high and new technology enterprises” will continue to be classified as such.

China’s legal system has inherent uncertainties that could materially and adversely affect us.

We are a holding company, and we conduct our business primarily through our subsidiaries and Chinese affiliated entity incorporated in China. We and our subsidiaries are generally subject to laws and regulations applicable to foreign investment in China. We depend on our Chinese affiliated entity to honor its agreements with us. Most of our contractual arrangements with our Chinese affiliated entity are governed by Chinese law and disputes arising out of these agreements are expected to be decided by arbitration in China.

China’s legal system is based upon written statutes. Prior court decisions may be cited for reference but are not binding on subsequent cases and have limited value as precedents. Since 1979, the Chinese legislative bodies have promulgated laws and regulations dealing with economic and other matters such as foreign investment, corporate organization and governance, commerce, taxation, trade and education. However, China has not developed a fully integrated legal system and the array of new laws and regulations may not be sufficient to cover all aspects of economic and other activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, published governmental policies and internal rules may have retroactive effect and, in some cases, the policies and rules are not published at all. As a result, we may be unaware of our violation of these policies and rules until some time later. See “—Risks Related to China’s Regulation of the Education and Telecommunication Sectors and Our Corporate Structure—If the Chinese authorities determine that our organizational structure for operating our business does not comply with Chinese regulations, we could be subject to sanctions, including being required to discontinue all or a portion of our business.”

Regulation and censorship of information disseminated over the Internet in China may adversely affect our business and subject us to liability for information linked to our websites.

The Chinese government has adopted regulations governing Internet access and the distribution of news and other information over the Internet. Under these regulations, ICPs and Internet publishers are prohibited from posting or displaying over the Internet content that, among other things, violates Chinese laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses to provide Internet content and other licenses and the closure of the concerned websites. In the past, failure to comply with these requirements has resulted in the closure of websites found to be in violation of these regulations. The website operator may also be held liable for such censored information displayed on or linked to the website. There have been instances in which the Chinese government has blocked the access in China to the websites of foreign universities as a result of its concern with regard to the content on such sites, and the same actions could be taken against websites of the online degree programs for which we provide services and derive revenue, as well as our online tutoring program’s website and other websites that form part of our business. In addition, the MII has published regulations that subject website operators to potential liability for content displayed on their websites and the actions of users of their systems, including liability for violations of Chinese laws prohibiting the dissemination of socially destabilizing content. The Ministry of Public Security can order any local Internet service provider to block any Internet website at its sole discretion. From time to time, the Ministry of Public Security has stopped Internet dissemination of information that it believes to be socially destabilizing. The State Secrecy Bureau can also block any website leaking state secrets or failing to meet the relevant regulations relating to the protection of state secrets in the dissemination of online information.

If Chinese regulatory authorities determine that any of our websites or the websites of our university customers providing online degree programs is in violation of law or policy and takes action to close any such website or impose other sanctions, our business, financial condition and results of operations would be materially and adversely affected.

Our insurance coverage may be inadequate to protect us against losses.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products and do not, to our knowledge, offer business liability insurance or coverage for business interruption. As a result, we do not have any business liability, loss of data or business interruption insurance coverage for our operations in China. If any claims for injury are brought against us, or if we experience any business disruption, litigation or natural disaster, we might incur substantial costs and diversion of resources.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us, our management or the experts named in this annual report.

We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, the majority of our directors and executive officers and some of the experts named in this annual report reside within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon us, our directors or executive officers or upon some of the experts named in the annual report. In addition, it may be difficult or impossible to bring an original action against us or our directors or executive officers in a Chinese court if rights have been infringed under the U.S. federal securities law or otherwise. Moreover, we have been advised that China does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts.

Governmental restrictions of currency conversion may limit our ability to receive and use our revenue or financing effectively.

The Chinese government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Substantially all of our revenue and expenses are denominated in Renminbi, which is currently not freely convertible to the extent of capital account items, such as direct equity investments, loans and repatriation of investment. Under our current structure, substantially all of our income will be derived from dividend payments from our Chinese subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our Chinese subsidiaries to remit sufficient foreign currency to pay dividends to us, or otherwise satisfy their foreign currency dominated obligations. Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions and interest payments, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, the Chinese government may in the future restrict access to foreign currencies for current account transactions. If we are unable to obtain sufficient foreign currency under the Chinese foreign exchange control system to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

Foreign exchange transactions by our subsidiaries in China under the capital account continue to be subject to significant foreign exchange controls and require the approval of, or registration with, Chinese governmental authorities. In particular, if our subsidiaries in China borrow foreign currency loans from us or other foreign lenders, these loans must be registered with the SAFE, and if we finance them by means of additional capital contributions using, for instance, proceeds from our initial public offering these capital contributions must be approved or registered by certain government authorities including the appropriate offices of SAFE and the Ministry of Commerce. These limitations could affect the ability of these entities to obtain foreign exchange through debt or equity financing, and could adversely affect our business and financial condition.

The fluctuation of the Renminbi may materially and adversely affect your investment.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. Since July 2005, the Renminbi is no longer pegged solely to the U.S. dollar. Instead, its value is measured against a basket of currencies, determined by the People’s Bank of China. For example, on August 26, 2008, the Renminbi appreciated against the U.S. dollar to approximately RMB6.78 to US$1.00, representing an upward revaluation of 0.99% of the Renminbi against the U.S. dollar, as compared to the exchange rate on the previous day. The Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the future. As of June 22, 2010, the Renminbi per U.S. dollar exchange rate was RMB6.8267 to U.S.$1.00. Fluctuations in the exchange rate will also affect the relative value of any dividend we may issue, which will be exchanged into U.S. dollars, and earnings from and the value of any U.S. dollar-denominated investments we make in the future.

Limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by Chinese exchange control regulations that restrict our ability to convert Renminbi into foreign currency.

We face risks related to health epidemics and other outbreaks that could result in school closures or other similar disruptions, which could adversely impact our revenue and results of operations.

Our business could be adversely affected by an outbreak of a contagious disease, such as the H5N1 strain of avian flu, the recent H1N1 strain of swine flu or Severe Acute Respiratory Syndrome, or SARS. During the spring of 2003, China experienced an outbreak of SARS that resulted in the closure of schools, Internet cafes, and many office buildings and caused a general slowdown of business activity and the economy. China also reported a number of cases of SARS in April 2004. There have also been recently reported cases of swine flu in China and there are concerns that a pandemic could develop rapidly if the swine flu spreads broadly in China. A reoccurrence of the SARS epidemic or the occurrence of another epidemic or outbreak could adversely affect the demand for our products and services or our ability to market and service our customers and could require the closure of our private primary and secondary schools. Our business operations could be disrupted if any of our employees is suspected of having SARS, the avian flu, the swine flu or other contagious diseases, which would require that a certain number of our employees be quarantined and/or our offices be disinfected. In addition, our results of operations could be adversely affected to the extent that an outbreak of SARS, the avian flu or other contagious diseases harms the Chinese economy in general.

Recent Chinese regulations relating to the establishment of offshore special purpose companies by Chinese residents may subject our Chinese resident shareholders to personal liability and limit our ability to acquire Chinese companies or inject capital into our Chinese subsidiaries, limit our Chinese subsidiaries’ ability to distribute profits to us, or otherwise materially and adversely affect us.

The SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-Raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies in October 2005, which became effective in November 2005, and an implementing rule in May 2007, collectively the SAFE Rules. According to the SAFE Rules, Chinese residents, including both legal persons and natural persons and Chinese citizens and foreign citizens who reside in China, are required to register with the SAFE or its local branch before establishing or controlling any company outside China, referred to in the SAFE rules as an “offshore special purpose company,” for the purpose of financing that offshore company with their ownership interests in the assets of or their interests in any Chinese enterprise. In addition, a Chinese resident that is a shareholder of an offshore special purpose company is required to amend its SAFE registration with the local SAFE branch with respect to that offshore special purpose company in connection with the injection of equity interests or assets of a Chinese enterprise in the offshore company or overseas fund raising by the offshore company, or any other material change in the capital of the offshore company, including any increase or decrease of capital, transfer or swap of share, merger, division, long-term equity or debt investment or creation of any security interest. The SAFE Rules apply retroactively. As a result, Chinese residents who have established or acquired control of offshore companies that have made onshore investments in China in the past were required to complete the relevant registration procedures with the competent local SAFE branch. If any resident of China failed to file its SAFE registration for an existing offshore entity, any dividends remitted by the onshore entity to its overseas parent since April 21, 2005 will be considered to be an evasion of foreign exchange purchase rules, and the payment of the dividend will be illegal. As a result of any illegal action of this type, both the onshore entity and its actual controlling person(s) can be fined. In addition, failure to comply with the registration procedures may result in restrictions on the relevant onshore entity, including prohibitions on the payment of dividends and other distributions to its offshore parent or affiliate and capital inflow from the offshore entity. Chinese resident shareholders of the offshore entity may also be subject to penalties under Chinese foreign exchange administration regulations.

We have asked our shareholders and beneficial owners who are Chinese residents to make the necessary applications and filings as required under Notice 75 and other related rules. However, due to uncertainty concerning the reconciliation of Notice 75 with other approval or registration requirements, it remains unclear how Notice 75, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We will attempt to comply, and attempt to ensure that our shareholders and beneficial owners who are subject to these rules comply, with the relevant requirements. However, we cannot provide any assurances that all of our shareholders and beneficial owners who are Chinese residents will comply with our request to make or obtain any applicable registrations or comply with other requirements required by Notice 75 or other related rules. In addition, certain of the holders of options to purchase our ordinary shares are Chinese residents. It is unclear under the SAFE Rules whether these optionholders would be deemed to be beneficial owners of our company for purposes of these rules as a result of holding these options. The failure or inability of our Chinese resident shareholders or beneficial owners to register with the SAFE in a timely manner pursuant to the SAFE Rules, or the failure or inability of any future Chinese resident shareholders or beneficial owners to make any required SAFE registration or comply with other requirements under the SAFE Rules, may subject these shareholders or beneficial owners to fines or other sanctions and may also limit our ability to contribute additional capital into or provide loans to our Chinese, limit our Chinese subsidiaries’ ability to pay dividends to us, repay shareholder loans or otherwise distribute profits or proceeds from any reduction in capital, share transfer or liquidation to us, or otherwise adversely affect us.

We may be subject to fines and legal sanctions imposed by SAFE, State Administration of Taxation or other Chinese government authorities if we or our Chinese employees fail to comply with recent Chinese regulations relating to employee stock options granted by offshore listed companies to Chinese citizens.

On March 28, 2007, the SAFE issued the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Stock Option Plan of Overseas-Listed Company , or the Stock Option Rule. Under the Stock Option Rule, Chinese citizens who are granted stock options by an offshore listed company are required, through a Chinese agent or Chinese subsidiary of the offshore listed company, to register with the SAFE and complete certain other procedures. In addition, the Ministry of Finance and State Administration of Taxation issued the Issues Relevant to the Levy of Individual Income Tax on the Income from Stock Option of Individuals Circular or Caishui [2005] No. 35, which was effective as of July 1, 2005. Under this rule, enterprises in China that operate stock option schemes as the withholding agent for individual income tax should submit certain information to the competent tax authority and fulfill the obligations for withholding and making payment of individual income. As an offshore listed company, we and our Chinese employees may be subject to fines and legal sanctions imposed by the SAFE, State Administration of Taxation or other Chinese government authorities, if they determine that we fail to comply with the relevant requirements. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation of Foreign Currency Exchange and Dividend Distribution—SAFE regulations on overseas investment of Chinese residents and employee stock options.”

Risks Related to Our ADSs

The market price for our ADSs may be volatile.

The market price for our ADSs is highly volatile and may be subject to wide fluctuations in response to factors including the following:

actual or anticipated fluctuations in our quarterly operating results;

announcements of new services by us or our competitors;

changes in financial estimates by securities analysts;

changes in the business, regulatory and other conditions in the education services market in China;

significant acquisitions, strategic partnerships, collaborative alliances or capital commitments by us or our competitors;

additions or departures of key personnel;

termination or release of lock-up or other transfer restrictions on our outstanding ADSs or ordinary shares or sales of additional ordinary shares or ADSs;

potential litigation or regulatory investigations;

general economic or political conditions in China;

price fluctuations of publicly traded securities of other China-based companies engaging in similar businesses; and

general economic, business and other market conditions in the global economy.

In addition, a number of Chinese companies and companies with substantial operations in China that offered and sold securities in the United States have experienced significant volatility in their share prices after their initial public offerings due to market fluctuations and other issues. Furthermore, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our ADSs.

The future sales, or perceived future sales, by our existing shareholders of a substantial number of our ADSs in the public market could adversely affect the price of our ADSs.

If our shareholders sell, or are perceived as intending to sell, substantial amounts of our ordinary shares or ADSs, including those issued upon the exercise of outstanding options, the market price of our ADSs could fall. Such sales, or perceived potential sales, also might make it more difficult for us to sell equity or equity related securities in the future at a time and price that we deem appropriate. Ordinary shares held by our existing shareholders and any ADSs held by our affiliates may be sold in the public market under, and subject to the restrictions contained in, Rule 144 and Rule 701 under the Securities Act of 1933, as amended, or the Securities Act, and applicable lock-up agreements.

In addition, certain holders of our ordinary shares have the right to cause us to register the sale of those shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of that registration. Sales of additional registered shares in the public market could cause the price of our ADSs to decline.

Your right to participate in any future rights offerings may be limited, which may cause dilution of your holdings.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary bank will not offer you those rights unless the distribution to ADS holders of both the rights and any related securities is either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

We may need additional capital and may sell additional ADSs or other equity securities and/or incur indebtedness, which could result in additional dilution to our shareholders or increase our debt service obligations.

We believe that our current cash and cash equivalents, term deposits and anticipated cash flows from operations will be sufficient to meet our presently anticipated cash needs through the end of fiscal year 2010. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We have no current plans to undertake or secure any such equity or debt financing, and we can provide no assurance that any such financing would be available in amounts or on terms acceptable to us, if at all.

You may not be able to exercise your right to vote.

As a holder of ADSs, you may only exercise voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement between us and The Bank of New York, the depositary of our ADSs. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying ordinary shares in accordance with your instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the shares from the depositary. Under our fifth amended and restated memorandum and articles of association, the minimum notice period required for convening general shareholders’ meetings is 10 days. When a general shareholders’ meeting is convened, you may not receive sufficient advance notice to withdraw the shares to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and the shares underlying your ADSs may not be voted as you requested.

You may not receive distributions on ordinary shares or any value for them if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive any distributions we make on our ordinary shares or any value for them if it is illegal or impractical to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

You may be subject to limitations on transfer of your ADSs.

Your ADSs represented by the ADRs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands law.

We are a company incorporated under the laws of the Cayman Islands, and our corporate affairs are governed by our memorandum and articles of association, the Cayman Islands Companies Law (2007 Revision) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by noncontrolling shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands, as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

The Cayman Islands courts are also unlikely:

to recognize or enforce against us judgments of courts of the United States based on the civil liability provisions of U.S. securities laws; and

to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature.

There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

As a result of all of the above, holders of our ADSs may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company.

Item 4. Information on the Company

A.	History and Development of the Company

We were incorporated as an exempted company in the Cayman Islands with limited liability on September 6, 1999 and began our online degree services business in the same year, providing services to Renmin University of China. Since our inception, we have rapidly grown our online degree program services business and have added three new business lines through a series of acquisitions in 2005 (online tutoring, private primary and secondary schools and international curriculum services) and in 2006 (vocational post-secondary international curriculum programs).

On December 14, 2007, we and certain selling shareholders of our company completed an initial public offering of 6,820,000 ADSs representing 20,460,000 of our ordinary shares. Our ADSs are listed on the NASDAQ Global Market under the symbol “CEDU.”

Our principal executive offices are located at 4 th Floor-A, GeHua Building, No. 1 QinglongHutong, Dongcheng District, Beijing, 100007, People’s Republic of China. Our telephone number at this address is 86-10-84186655. Our registered office in the Cayman Islands is located at the offices of Codan Trust Company (Cayman) Limited at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.

Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website is www.chinaedu.net . The information contained on our website and our other websites is not a part of this annual report. Our agent for service of process in the United States is CT Corporation System located at 111 Eighth Avenue, 13/F, New York, New York 10011.

For a description of our principal capital expenditures, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures.”

B.	Business Overview

We are a leading educational services provider in China, incorporated as an exempted limited liability company in the Cayman Islands. Established in 1999, our primary business is to provide comprehensive services to the online degree programs of leading Chinese universities. These services include academic program development, technology services, enrollment marketing, recruiting, student support services and finance operations. Our other lines of businesses include online tutoring services, the operation of private primary and secondary schools, and marketing and support for international curriculum programs. We believe we are the largest service provider to online degree programs in China in terms of the number of higher education institutions that are served and the number of student enrollments supported.

We currently have strategic relationships with 29 universities, 17 of which are under long-term contracts that generally vary from 10 to 50 years in length. Twelve of our university partners, including GRTU and FRTU, currently operate their own online degree programs and five universities are awaiting regulatory approval to begin their online degree programs. We also perform recruiting service for 18 universities through our nationwide learning centers network. As of December 31, 2009, there were approximately 287,000 revenue students in the online degree programs that we service through these relationships. A revenue student is counted when a student makes a payment in the semester. These online degree programs are marketed under the brand names of these leading Chinese universities, which allow us to benefit from the significant brand equity that these higher education institutions have established.

Our business has experienced significant growth since its inception in 1999. This growth has been driven by the increased number of universities that we serve, the increased enrollment of the online degree programs of our university partners, and our expansion into other education-related lines of business. We generate our revenue from service fees and tuition payments derived from students who are enrolled in, or served by, our businesses. As of December 31, 2009, we provided services to online degree programs that had an aggregate of approximately 287,000 revenue students, and we served approximately 47,570 revenue students in our other businesses. Our net revenue increased from RMB265.0 million in 2007 to RMB317.7 million in 2008, and RMB354.7 million ($52.0 million) in 2009, representing a compound annual growth rate, or CAGR, of 15.7%. Net revenue from our online degree programs contributed 76.3%, 80.4% and 80.4% of our total net revenue for the years ended December 31, 2007, 2008 and 2009, respectively.

Our income from operations decreased from RMB40.3 million in the year ended December 31, 2007 to a loss of RMB13.1 million for the year ended December 31, 2008. Our income from operations increased from a loss of RMB13.1 million in the year ended December 31, 2008 to RMB79.4 million ($11.6 million) for the year ended December 31, 2009. Our net income attributable to ChinaEdu Corporation shareholders declined from RMB2.5 million for the year ended December 31, 2007 to a net loss attributable to ChinaEdu Corporation shareholders of RMB43.0 million for the year ended December 31, 2008. Our net income attributable to ChinaEdu Corporation shareholders increased from a loss of RMB43.0 million for the year ended December 31, 2008 to RMB34.8 million ($5.1 million) for the year ended December 31, 2009.

The decline in both income from operations and net income attributable to ChinaEdu Corporation shareholders from 2007 to 2008, was primarily due to an increase in impairment losses. Our goodwill impairment and intangible assets impairment losses were RMB70.1 million for the year ended December 31, 2008, compared to goodwill impairment losses of RMB16.2 million for the year ended December 31, 2007. There was no goodwill and intangible assets impairment in 2009.

Our Strengths

We believe that we possess the following competitive strengths:

Market leadership and proven track record. We are one of the market leaders in the education services market due to our early mover advantage, proven track record and delivery of innovative services that are in high demand. We believe we are the leading company in China providing comprehensive services, technology and operating support to universities offering online degree programs, in terms of both number of institutions served and the number of enrollments that we support. Our experienced management team, established technology platform and capabilities, operational expertise and content portfolio allow us to effectively attract and retain customers as well as identify new opportunities in the private education market.

Substantial knowledge of our customers and the Chinese education market. Through our ten-year operating history, early efforts to develop an online technology platform and comprehensive service offering for Chinese universities, we have acquired substantial knowledge of the Chinese education market and the needs of its consumers. As we have expanded our service offerings, we have been able to take advantage of our market knowledge to address additional areas in which we believe we can leverage our experience, processes and technology to meet the needs of the market. As a result, we have expanded our business to include the distribution and support of international curriculum, private primary and secondary schools and an online tutoring platform.

Provider of premier services for online degree programs. We believe our products position us as an attractive choice for both academic institutions and students for online degree programs. We have provided comprehensive services and support to universities for their online degree programs since 1999. Our service model and technology platform have proven to be successful, as shown by our leading position in terms of number of institutions served. In addition, we have developed a wide array of proprietary courseware, from which we currently tailor over 1,550 courses for our university partners based on their different requirements. Many of these courses can be used as a basis to develop similar courses when we add new university customers, thus enabling us to benefit from economies of scale. We use this service model with our reliable technology platforms, comprehensive library of courseware and operational and marketing expertise to help universities achieve their academic and financial goals.

Experienced management team with proven track record. We have an experienced management team with an average of over 11 years of experience in either the education services industry or the online services industry. We have recruited strong leaders with proven skills to serve in key positions within our management team, and our team includes members with substantial experience in education, technology, marketing and finance.

Our Strategy

Our strategy consists of the following key elements:

Expand the penetration of our online degree program services. We plan to take advantage of our established leadership position and track record to expand the penetration of our services to online degree programs by increasing the number of universities that use our online degree program services and by helping our existing university customers to increase enrollment in their programs. We are actively targeting new universities to become our partners for their online education programs. In addition, we plan to help our existing university customers to increase enrollment in their online programs by helping them to expand their course offerings, to assist them in improving their marketing and recruitment initiatives and to assist them in reducing student attrition. We are also continually working to enhance our technology platform to improve the students’ online learning experience.

Expand our network of learning centers. To strengthen our ability to assist our customers’ online degree programs in recruiting students and improving student service quality, we established our learning centers network in 2008. Currently we have 65 learning centers. We believe that the opening of these learning centers will allow us to significantly enhance our brand recognition, increase access to potential students for online degree programs and enhance profitability. We also are actively seeking to establish strategic relationships with universities that currently are not our online degree program customers to provide our learning center services to their online degree programs.

Improve our online tutoring business. We continue to focus our growth in the development and improvement of our online tutoring business. Leveraging on our strength in sales channels, development of products and offerings and improvements in customer service, we believe we will be able to expand our customer base and gain additional traction and market share in the fragmented online tutoring business.

Develop our interactive learning community. In an effort to provide an integrated platform for all of our services and offerings we started to develop our interactive learning community in 2009. Our learning community will combine both educational content management system and social networking services in creating an interactive vertical learning platform for students, teachers and educational institutions.

Continue to strengthen our brand name and our reputation . We are focused on continuing to build our brand name and our reputation among our existing customers, as well as among other Chinese and foreign education institutions. We believe that building our brand and reputation will allow us to attract new schools and students to our current business lines. We are also increasing awareness of our online tutoring programs and learning centers by increasing advertising to continue to build brand recognition. We are taking part in a wide range of activities to promote our brand and reputation, such as participating in conferences, sponsoring industry events and publishing articles in education trade journals.

Develop new products and services to further enhance the learning experience of existing students and attract new students. We plan to increase our research and development efforts to develop new products and services with respect to our online tutoring and online degree programs to introduce more robust online learning programs, to enhance the students’ learning experience and to improve their sense of community. We further plan to enhance our online tutoring programs by recruiting additional high quality teachers, expanding the type of programs offered and incorporating more interactive technology to increase student retention and student usage rates for our programs.

Pursue strategic acquisitions. During the past several years, we have made strategic acquisitions to broaden our service offerings and to expand into additional segments of the Chinese educational market. We will continue to consider and seek acquisition opportunities that are complementary to our existing lines of business or that can further expand the services that we can provide to our customers.

Our Business

We are a leading educational service provider in China. Our primary business is to provide comprehensive services to the online degree programs of leading Chinese universities. We also offer online tutoring services to primary and secondary school students, operate primary and secondary schools, market international post-secondary and English language curriculum programs to established learning institutions.

Online Degree Programs

Our primary business is to assist universities in China to establish, operate and expand their online degree programs. We currently provide services to 24 universities with their online degree programs and to five additional universities awaiting regulatory approval to begin their programs. These online degree programs had approximately 287,000 revenue students as of December 31, 2009. The online degree programs we currently service offer associate and bachelor degree programs in a wide range of subjects, including, but not limited to, accounting, marketing, finance, business administration, international business, law, civil engineering, education, computer science, literature, project management, marketing and administrative management. These online degree programs are aimed primarily at working adults who have sufficient economic means to support their studies and who value the flexibility of a self-paced online educational process. For the years ended December 31, 2007, 2008 and 2009, we generated 76.3%, 80.4% and 80.4 %, respectively, of our net revenue from online degree programs.

Online degree programs in China must be approved by the MOE. At present, 67 universities in China have received approvals from the MOE to operate online degree programs, as well as the China Central Radio and TV University, which functions primarily as a distance learning facility. The China Central Radio and TV University delivers its courses to students primarily over satellite and television, and we believe it currently does not compete with the other 67 universities in the online degree program market. As of December 31, 2009, most of these 67 universities had registered students in their online degree programs, and we provided services to 22 out of the 67 universities that have been approved to offer online degree programs in China. In addition we also entered into exclusive collaborative alliance agreements with GRTU in February 2009 and FRTU in June 2009. Students registered in online degree programs can pursue either associate degrees or bachelors degrees. They must generally prepay tuition for a minimum number of credits upon admission and subsequent enrollment, which can be applied to credits sought after their initial semester. The total number of credits required to graduate from an online degree program offered by these universities generally ranges from 80 credits for associate degrees to 160 credits for bachelor degrees. The tuition per credit ranges from approximately RMB60 to RMB180. The tuition charged to students is subject to the review and approval of the pricing administration authority and the filing with the relevant education authority.

Learning centers assist universities with a number of vital functions for their online degree programs, including marketing, enrollment administration, student services and tuition collection. Learning centers also provide academic review sessions and technical support for students. The physical presence of learning centers is complementary to online distance learning, since it facilitates face-to-face tutorial sessions, student consultations and course material distribution. Learning centers also ensure the integrity of examinations, as entrance exams and final exams are conducted on site at the learning centers, allowing testing to occur under controlled environments. Learning centers are generally operated by third parties that have entered into agreements with universities. Many learning centers are owned by polytechnic, or vocational, schools, allowing these institutions to leverage their infrastructures to serve the higher education market.

In February 2007, we received provisional approval from the MOE to operate 10 learning centers in the provinces of Beijing, Shanghai, and Jiangsu and Zhejiang for a trial period of up to 18 months. Although this provisional approval has since expired, the MOE has not ordered us to terminate operations at our learning centers, although no assurance can be given that the MOE will not do so. To date, we have also obtained provincial level approval from the Beijing, Shanghai, Jiangsu, Zhejiang and Jiangxi provinces to operate a total of 23 learning centers, which include the 10 that received provisional approval from the MOE in February 2007. We have also entered into agreements to establish four cooperative learning centers in the provinces of Jilin, Hainan, Guangdong and Henan. Although these learning centers are not branded under the ChinaEdu name, we derive revenue from them by contributing significantly to their operations. In addition to the 27 learning centers discussed above, we have also entered into agreements with 38 third party learning centers pursuant to which we provide assistance applying for approval from provincial level education authorities as well as securing additional university online degree programs. In return, we receive a percentage of the tuition earned by these third party learning centers. We believe that the opening of these learning centers will allow us to significantly enhance our brand recognition, increase access to potential students for online degree programs and enhance profitability. We also are actively seeking to establish strategic relationships with universities that currently are not our online degree program customers to provide our learning center services to their online degree programs.

Our Services

Through collaborative alliances and other revenue-sharing arrangements, we offer a comprehensive service platform to our university customers, including academic program development, technology services, enrollment marketing, recruiting, student support services and finance operations. We also provide the initial capital resources needed to establish their online degree programs. We believe we are the only service provider in China that offers a comprehensive set of services to online universities that supports virtually all aspects of a student’s progression through an online degree program. Through these services, we enable our customers to quickly establish an online degree program with a high level of student service quality and to significantly expand or improve existing initiatives with minimal initial investment. Our strategic relationships with universities are based upon long-term contracts that generally vary in length from 10 to 50 years.

Academic Program Development. Academic program development entails the design and development of instructional materials, multimedia learning materials and quality assurance processes. The overall development time for a single course can range from as little as three weeks to as long as four months, depending on the subject matter and complexity of the course materials. To date, we have developed over 1,550 online courses for our university partners’ programs, all of which are proprietary to us or to our university collaborative alliances. As such, many of our previously developed courses can be used as the basis to develop similar courses when we add new university customers, thus enabling us to benefit from economies of scale.

Technology. Our technological capabilities consist of a series of proprietary systems and tools, including our Learning Management System, or LMS, which enables the online degree programs to manage the entire student life cycle from application to graduation by providing system support to the student’s learning process and the university staff’s daily management process. We believe that our LMS is one of the most advanced offering systems in the market. This system manages courseware, including multimedia lectures, assignments and quizzes, and provides management information tools supporting the course offerings. We also provide certain customers a learning content creation and management system, which enables the team working on courseware development to bring the courseware from the concept and design stage to production and implementation. Our technology also supports an interactive, community-based learning environment through chat rooms, online forums and bulletin board systems. We also host and support all of the software and hardware and software requirements of our online degree university partners.

Enrollment Marketing. Our support for universities’ student recruitment efforts includes the development and implementation of online and offline marketing strategies and promotional events, as well as the creation of collateral material to support those efforts. We further assist universities in identifying, retaining and supervising learning centers, including training learning center staff on executing our marketing programs. We constantly revise our marketing programs to maximize demand for our university partners’ programs. Our marketing programs emphasize the unique characteristics of each of our university partners’ offerings.

Student Support Services. We employ significant resources in developing student support services for our university partners’ programs to assist students in completing their course work and improving retention. Support services that we provide to students include online and offline tutorial resources, academic review sessions, student consultations and mock examinations. We also maintain a dedicated staff of student service counselors whom students may call upon to address any questions they may have regarding the student support services.

Recruiting Services. We currently offer recruiting services to 18 university partners through our learning centers network. We have a total of 65 learning centers in operation. The learning centers perform a number of essential functions such as marketing, enrollment administration, student services and tuition collection.

Structure and Revenue Model

Our relationships with our university partners are structured as collaborative alliances, long-term contractual service arrangements, licensing of online education technology platform agreements and recruiting and technology agreements.

Collaborative Alliances. Our relationships with 10 of our university partners, including GRTU, FRTU and three universities seeking regulatory approval to operate their online degree programs, are structured as collaborative alliances. In our collaborative alliance structures, we establish a collaborative alliance with the university (or a commercial subsidiary of the university), which in turn provides services and support to the university’s online degree program. The collaborative alliances with our university partners have terms ranging from 10 to 50 years and are exclusive in nature. We have a majority interest in each of these collaborative alliances and treat them as our consolidated subsidiaries. We are generally responsible for contributing the initial capital required for the establishment and startup of the collaborative alliances, which has historically ranged from approximately RMB0.5 million to approximately RMB20.0 million. Our university partner pays to the collaborative alliance a service fee equal to a portion of its tuition receipts from its online degree program, after deducting certain operating expenses, administrative fees paid by our university partners, including fees paid to learning centers, refunds paid to students and, in some cases, licensing or technical consulting fees paid to us.

Long-Term Contractual Service Agreement s. We also have entered into long-term contractual service arrangements with four of our university partners. Pursuant to these agreements we provide services and technology to support each respective university’s online degree program for a fixed period of time. We receive service fees equal to an agreed portion of tuition collected by the university from students in their online degree programs. The amount of the payments is based on a negotiated formula, which may depend on the number of students in the program or students registered from certain geographic territories.

Licensing of Online Education Technology Platform Agreements . We have licensed our online education technology platform and also provided post contract customer support ("PCS") to three of our university partners, including two universities which are still seeking regulatory approval to operate their online degree programs. Upon their receiving approvals to operate the online degree programs, we will establish a collaborative alliance with one of the two universities to serve the online degree program and enter into a long-term contractual service agreement with the other to serve the online degree program. We recognize revenue from licensing of online education technology platform when persuasive evidence of an agreement exists, delivery of the services has occurred, the fee is fixed or determinable, and collectability is probable.

Recruiting and Technology Agreements. We have also entered into non-exclusive contractual service arrangements with 18 university partners. Pursuant to these agreements, we provide recruiting services and technology support for a period of time, generally ranging from 2 to 3 years, through our network of learning centers. We receive service fees equal to an agreed portion of the tuition collected from the students by the learning centers, which are subject to annual re-negotiation.

University Partners

The number of revenue students in the online degree programs we service has grown rapidly, from approximately 192,000 revenue students at 2007 calendar year-end to approximately 287,000 revenue students at our 27 existing university customers at 2009 calendar year-end. In 2007, 2008 and 2009, 68.2%, 67.3% and 63.6%, respectively, of our net revenue was derived from our services to our five largest online degree program customers. Our three largest customers, Renmin University of China, China Agricultural University and Dongbei University of Finance and Economics, accounted for 20.2%, 13.3%, 12.0%, respectively, of our net revenue in 2009.

Type of Structure	Number of University Partners
Collaborative Alliances	8	(including 3 waiting for approval)
Radio and TV Collaborative Alliances	2
Long-Term Contractual Service Agreements	4
Licensing of Online Education Technology Platform Agreements	3	(including 2 waiting for approval)
Recruiting and Technology Agreements	18	(including 6 which we have established collaborative alliances or entered into long-term contractual service agreements)
Total	29

The following map shows our 29 university partners:

Sales and Marketing Strategy

The two main aspects of our sales and marketing strategy are increasing the number of university online degree programs utilizing our services and helping our customers recruit and retain more online degree students.

We employ a business development team to establish new relationships with universities, both those with existing online programs and others that are interested in developing new programs. We are in continuous discussions with additional universities regarding their online programs .

The university’s relationship, as well as our relationship, with the learning centers is essential to the sales and marketing of online degree programs to new students. The learning centers assist the online programs with a number of vital functions, including recruitment, marketing and student services for such programs. To provide a nationwide physical presence and to strengthen our sales network, we have assisted our university partners in developing relationships with approximately 464 learning centers, which cover most major cities in China. We provide student support training to many learning centers and assist learning centers in advertising to solicit students. The relationships between the learning center operator and the university are typically governed by non-exclusive compensation arrangements that are subject to annual re-negotiation. The majority of the learning centers are owned and operated by independent third parties.

In 2008, we established our learning centers network, currently we have 65 learning centers. We believe that the opening of these learning centers will allow us to significantly enhance our brand recognition, increase access to potential students for online degree programs and enhance profitability. We also actively seek to establish strategic relationships with universities that currently are not our online degree program customers to provide our learning center services to their online degree programs.

Competition

There are three main components of competition within the online degree program market: (i) competition among service providers to attract and retain additional university partners; (ii) competition among online degree programs seeking to enroll students; and (iii) competition between our learning centers network and other national learning centers network. In addition to GRTU and FRTU, we currently serve 22 out of the 67 universities that have been approved to offer online degree programs in China and we have contracted with five additional universities that are awaiting regulatory approval to start their programs. There are 45 other universities currently offering online degree programs that either independently run their programs or outsource services for their programs to other service providers. While we are trying to establish relationships with additional universities with respect to their online programs, several companies offer services that compete with our service offerings generally on a service-by-service basis. We compete with these companies primarily on the scope and quality of our service offerings to university partners, and to a lesser extent, price.

The online degree programs that we service must compete with other online programs, as well as with other education and training programs that are seeking to enroll students. Recruitment of students for online degree programs relies heavily on learning centers, most of which are owned and operated by third parties. We have assisted our university customers in developing relationships with approximately 464 learning centers, which can be subject to varying degrees of customer loyalty. Many learning centers assist with recruitment on behalf of multiple online degree programs, and, as a result, the online degree programs that we support face considerable competition for recruiting at the learning centers.

Our nationwide learning centers network faces competition with Open Online and China Cyber Learning which have the nationwide learning center operator licenses. Open Online is the largest learning centers operator in China, having signed recruiting contracts with 41 out of the 67 online degree programs, with approximately 1,600 third party learning centers and 23 proprietary learning centers. Currently our learning centers network has signed recruiting contracts with 18 out of the 67 online degree program and operates 65 learning centers. China Cyber Learning has signed recruiting contracts with eight of the 67 online universities and operates 12 proprietary learning centers.

Online Tutoring Programs

We provide online tutoring and test preparation services to primary and secondary school students in China through a separately branded program known as the “101 Distance Learning Center” or the “101 Online School”. The 101 Online School was originally founded in 1996, and over the past thirteen years has developed a strong reputation as a valuable learning tool with students and teachers alike. The 101 Online School is a leading online tutoring education website in China, for elementary school, middle school and high school students in China, for which we currently have over 1.1 million users. The website address for our 101 Online School is www.chinaedu.com .

As of December 31, 2009, the 101 Online School served more than 39,890 revenue students. In 2007, 2008 and 2009, we generated 6.8%, 4.8% and 5.5%, respectively, of our net revenue from the 101 Online School through subscription fees paid by students for the online tutoring service.

Using our proprietary e-learning platform, the 101 Online School provides interactive tutoring services to primary and secondary school students in virtually all academic subjects offered to these students in China. Our online tutoring and test preparation services also assist secondary school students in preparing for key examinations administered in China, including the national college entrance examination. All of the tutoring and test preparation materials used by our 101 Online School are developed by qualified teachers and subject to review by our quality control staff. By providing tutoring and test preparation services online, the 101 Online School makes the tutoring and test preparation process more convenient and accessible for students, especially those with limited access to traditional tutoring or test preparation services. In addition, we continue to innovate new services designed to attract and retain students for our 101 Online School. In 2009, we began hiring an entire staff for the development of our 101tutor question and answer product for students.

We currently market our 101 Online School through regional third-party distributors and our own sales centers in Beijing, Tianjin and other cities and provinces in China. Approximately 237 distributors located in major cities in China purchase bulk subscriptions to our 101 Online School and resell these subscriptions to students. Bulk subscription sales to distributors accounted for 62.3%, 68.2% and 50.4% of our 101 Online School revenue in 2007, 2008 and 2009, respectively.

In addition, we have entered into an arrangement with Lenovo Group Limited, a personal computer manufacturer in China, to distribute our online tutoring services in various lines of Lenovo personal computers .

Private Primary and Secondary Schools

The market for private primary and secondary schools in China is growing rapidly. We believe that private primary and secondary schools will play an increasingly important role in providing quality education in China, particularly to the children of the emerging middle class. Parents in China, as in the rest of the world, are continuously searching for the best educational solutions for their children. We believe the private primary and secondary school business represents a compelling business opportunity for us. We owned three private primary and secondary schools and generated 5.0%, 6.1% and 8.6% of our net revenue from the private primary and secondary school business in 2007, 2008 and 2009, respectively.

Anqing Foreign Language School

Through our Chinese affiliated entity, Hongcheng Education, we have been operating the Anqing Foreign Language School, or the Anqing School, a private primary school, grades 1 to 12 since 2005. The Anqing School is regarded as one of the leading schools in the market that it serves, especially well known for its English language program and foreign English language teachers. We completed construction of the new campus by the fall of 2009, which approximately doubled the capacity of the school and expanded the grades offered in elementary school, middle school (equivalent of grades 7 to 9), as well as high school, covering grades 1 through 12. During the 2007-2008 academic year, the Anqing School had an enrollment of approximately 1,600 which increased to approximately 2,500 students during the 2008-2009 academic year. During the 2009-2010 academic year, the Anqing School had an enrollment of approximately 3,500 students.

Pingdingshan Bilingual School

Through our Chinese affiliated entity, Hongcheng Education, we acquired all of the rights and interests in the Pingdingshan Bilingual School, or Pingdingshan School in 2005. The Pingdingshan School is a private primary school, grades 1-9, in Pingdingshan, Henan province. The Pingdingshan School is regarded as one of the leading schools in its market. In 2009, we completed the construction of a new building and other facility improvements. During each of the 2007-2008 and 2008-2009 academic years, the Pingdingshan School had an enrollment of approximately 1,200 students. During the 2009-2010 academic year, the Pingdingshan School had an enrollment of approximately 1,400 students.

Jingzhou School (Southern Campus)

Through our Chinese affiliated entity, Hongcheng Education, we acquired rights to construct a new private secondary school, Jingzhou School (Southern Campus), for students in grades 9-12 in Jingzhou, Hubei province in 2005. The Jingzhou School (Southern Campus) will be established as a partnership with Jingzhou High School. We, our partner, Jingzhou High School, and a noncontrolling shareholder will own 54.4%, 25% and 20.6% of the new school, respectively. Under the cooperation agreement between Hongcheng Education and Jingzhou High School, we will undertake construction of the new campus and Jingzhou High School will contribute its brand as well as management and teaching resources to the school. We initially planned to complete construction of the new campus by the fall 2006 recruiting season, however, we have encountered delays in obtaining the land-use rights for the new campus site, resulting in an increase in construction costs, and we cannot assure you that we will be able to begin construction in the near future, or at all. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business – We may not be able to successfully execute future acquisitions or efficiently manage the businesses we have acquired to date or may acquire in the future.”

International Curriculum Programs

We distribute and support English language programs to secondary schools and international polytechnic programs to vocational schools in China. We provide all aspects of delivery and support for these programs, including program development and implementation, English teacher recruitment and administration, and other ancillary services. We generate revenue based on the enrollment fees students pay to the participating schools with whom we have entered into revenue sharing arrangements, based either on a fixed fee per student or a percentage of the enrollment fee per student. For the 2007-2008, 2008-2009 and 2009-2010 academic years, respectively, approximately 5,000, 4,000 and 2,800 students were enrolled in the international curriculum programs. In 2007, 2008 and 2009, we generated 11.9%, 8.7% and 5.5%, respectively, of our net revenue from international curriculum services.

The BCIT Program . We entered into an exclusive agreement with the British Columbia Institute of Technology, or BCIT, a leading polytechnic institute in Canada, in February 2006. Through this program, we provide services to BCIT in implementing international post-secondary education programs and market these programs to selected polytechnic colleges in China approved by BCIT from time to time, enabling these colleges to offer up-to-date courses across a wide variety of majors and subjects to their students. We are BCIT’s exclusive service provider in China for these selected polytechnic colleges until 2020. At present, we provide services to the BCIT programs of six polytechnic colleges approved by BCIT to offer these programs. The BCIT program provides a three-year associate degree program to high school graduates seeking international vocational education within the environment of a Chinese polytechnic college. Through the participating colleges in China, the program offers a wide variety of majors and subjects such as business, computing and information technology, manufacturing, electronics, construction, environment, transportation and health science, all developed by BCIT. The program is unique in that entry-level courses and related course materials are in Chinese, but instruction and course materials for more advanced courses are transitioned to English.

The SCC Program. We have provided services with respect to English language programs since September 2005. In February 2009, we entered into a partnership agreement with Howe Sound Secondary School, located in School District No. 48 in British Columbia, Canada, which we refer to as the SCC program. The SCC program, for which we are currently in the process of signing local high school partners, provides secondary schools in China with high-quality English language instruction programs using native English speakers. Students at schools that participate in the SCC program must choose to be enrolled in the SCC program when applying for admission to the school.

The FEC Program. In 2005, we acquired the right to serve as the exclusive service provider to the English language programs of Western Institute of Technology at Taranki or “WITT” within China until September 2020. We refer to this program as the FEC program. In 2008, we mutually terminated our agreement with WITT due to ongoing regulatory challenges that have prevented many of our contracted schools from obtaining necessary regulatory re-approvals. Schools that have been receiving support from us under the FEC program, however, can continue to recruit students even after termination of our agreement with WITT if they choose, since all education related support is provided by us. However, we cannot assure you that any or all of the FEC contracted schools will continue to work with us in the future, and our partner schools may face additional challenges obtaining re-approvals for replacing WITT with other overseas education institutions with whom we may partner. While we believe that some of our existing contracted schools participating in the FEC program may switch to either our newly established SCC program or to other programs that we may provide, there can be no assurance they will. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Our international curriculum programs, which include our Polytechnic and English language programs, are heavily regulated, and our ability to conduct business in this area is highly dependent on regulatory policies and our compliance with these policies.”

Seasonality

We have experienced, and expect to continue to experience fluctuations in our revenue and results of operations, due to a number of reasons including seasonal changes in the number of students who are enrolled in, or served by, our businesses. Generally, more new revenue student enrollments occur in the fall, and more existing student enrollments occur in the spring upon selection of additional course credits. We generally recognize revenue over the six-month period following these enrollments. Our expenses and costs, however, do not necessarily correspond with changes in our revenue or the number of students who are enrolled in, or served by, our businesses. We expect quarterly fluctuations in our revenue and results of operations to continue. As our revenue grows, these seasonal fluctuations may become more pronounced.

Regulation

The Chinese government regulates the education services industry and the provision of Internet content. This section summarizes the principal Chinese regulations relating to our businesses.

We operate our business in China under a legal framework that consists of the State Council, which is the highest executive authority of the Chinese central government, and several ministries and agencies under its authority, including the Ministry of Education, or MOE, the State Administration of Foreign Exchange, or SAFE, the General Administration of Press and Publication, or GAPP, the Ministry of Information Industry, or MII, the State Administration for Industry and Commerce, or SAIC, the Ministry of Civil Affairs, or MCA, and their respective authorized local counterparts.

Regulations on Online Education

Pursuant to the Administrative Regulations on Educational Websites and Online and Distance Education Schools , issued by the MOE in 2000, educational websites and online education schools may provide educational services in relation to higher education, elementary education, pre-school education, teacher education, occupational education, adult education, other education and public educational information services. “Educational websites” refers to organizations providing education or education-related information services to website visitors by means of a database or online education platform connected via the Internet or an educational television station. “Online education schools” refers to education websites that issue educational certificates in connection with their providing academic education services or training services.

On June 29, 2004, the State Council issued the Decision on Setting Down Administrative Licenses for the Administrative Examination and Approval Items Really Necessary to be Retained , which provides that an administrative license is required for “online education schools” that provide degree education to students, but not for “educational websites” that do not provide degree education to students.

The MOE issued Certain Opinions on the Pilot Program of Supporting Certain Higher Education Institutions to Establish Online Education Colleges to Develop Modern Long-Distance Education in 2000 and Certain Opinions regarding the Enhancement of the Administration of Higher Education Institution Online Education Colleges and the Improvement of Education Quality in 2002 to regulate online higher education. And, on February 1, 2010, the MOE issued a Circular on the Student Enrollment of Online Degree Education by the Pilot Universities which are Permitted to Operate Online Degree Education , or the 2009 circular, to regulate the recruitment of online degree students. The 2009 circular prohibits universities from recruiting existing full-time students and instructs schools offering online degrees to recruit only working adults for their programs. The 2009 circular also required universities to tighten their admission criteria for their online programs and to improve the quality of their recruiting materials. As of December 31, 2009, 67 universities and colleges had been approved by the MOE to operate online education programs as part of the MOE pilot program. Twenty two of the universities to which we currently provide, or have entered into agreements to provide, online degree program services are included within the pilot program. Central University of Finance and Economics, Beijing Forestry University, Shanghai University of Finance and Economics, Jiangxi Normal University and Jiangsu University, five other universities that we serve, are not in the pilot program and are currently in the process of applying for the MOE approval to offer online degrees.

To regulate the learning centers that provide services to online degree programs, the MOE issued the Principles on the Establishment and Administration of Modern Distance Education Off-campus Learning Center (Pilot) , in January 2002, and, in March 2003, promulgated the Interim Provisions on Administration of Modern Distance Education Off-campus Learning Center . According to these two regulations, learning centers are not authorized to independently carry out activities such as recruiting students, teaching and issuing degrees for modern distance education—all activities that must be done in conjunction with the universities offering the degrees. These regulations also require learning centers not to pursue business that is irrelevant to online education services. Each learning center is required to be associated with at least one educational institution or other entity approved by the MOE to provide online education services, and can only provide logistics services for recruitment and examination administration to educational institution(s).

Each learning center and the educational institution with which it is associated must jointly apply to the education authorities for approval before the learning center can provide services to any online education program. Additional approvals are required for a learning center if it intends to provide support services to additional educational institutions. The education authorities have the authority to supervise, inspect and evaluate the learning centers from time to time. A learning center’s approvals may be withdrawn by the education authorities if during a periodic inspection they determine that the learning center is unqualified to continue operations.

In February 2007, we received provisional approval from the MOE to operate 10 learning centers in the provinces of Beijing, Shanghai, and Jiangsu and Zhejiang for a trial period of up to 18 months. To date, we have also obtained provincial level approval from the Beijing, Shanghai, Jiangsu, Zhejiang and Jiangxi provinces to operate a total of 23 learning centers, which include the 10 that received provisional approval from the MOE in February 2007. We have also entered into agreements to establish four cooperative learning centers in the provinces of Jilin, Hainan, Guangdong and Henan. In addition to the 27 learning centers discussed above, we have also entered into agreements with 38 third party learning centers pursuant to which we provide assistance applying for approval from provincial level education authorities as well as securing additional university online degree programs. The MOE has not yet issued to us a final approval to operate learning centers on a nationwide basis in China based on the performance and operation of our learning centers during the trial period.

Regulations on Operating Private Schools

The principal regulations governing private education in China consist of the Education Law of China , The Law for Promoting Private Education (2003), The Implementation Rules for the Law for Promoting Private Education (2004) and the Regulations on Chinese-Foreign Cooperation in Operating Schools . These regulations are summarized below.

Education Law of China

The Education Law of China , or the Education Law , was enacted on March 18, 1995. The Education Law sets forth provisions relating to the fundamental education systems of China, including a system of pre-school education, primary education, secondary education and higher education, a system of nine-year compulsory education and a system of education certificates. The Education Law requires the government to formulate plans for the development of education and the establishment and operation of schools and other education institutions. In principle, enterprises, social organizations and individuals are encouraged to operate schools and other types of educational organizations in accordance with Chinese laws and regulations. Nevertheless, no school or any other educational institution may be established for profit-making purposes. However, private schools may be operated for “reasonable returns,” as described in more detail below.

The Law for Promoting Private Education (2003) and The Implementation Rules for the Law for Promoting Private Education (2004)

The Law for Promoting Private Education (2003) became effective on September 1, 2003, and its implementing regulations, The Implementation Rules for the Law for Promoting Private Education (2004) , became effective on April 1, 2004. Under these regulations, “private schools” are defined as schools established by individuals or private social organizations using private funds. Private schools providing degree education, pre-school education, education for self-study aid and other academic education are subject to approval by the education authorities, while private schools engaging in occupational qualification training and occupational skill training are subject to approvals from the authorities in charge of labor and social welfare. An approved private school will be granted an operating permit, and it must be registered with the MCA or its local counterpart as a privately run non-enterprise legal person. Two of our private primary and secondary schools, the Anqing School and the Pingdingshan School, have obtained operating permits and have been registered with the relevant local office of the MCA. Since construction for Jingzhou School southern campus has been delayed indefinitely, it has not applied for registration with the MCA yet.

The operation of private schools is highly regulated. For example, the types and amounts of fees charged by private schools offering certifications must be approved by the relevant governmental authority and be publicly disclosed, and the types and amounts of fees charged by private schools that do not offer certifications need only be filed with the relevant governmental authority and be publicly disclosed. Our Anqing School and Pingdingshan School currently offer certifications to students.

Private education is treated as a public welfare undertaking under the regulations. Nonetheless, investors in a private school may elect to require “reasonable returns” from the schools. Under the regulations, an election to establish a private school as one requiring reasonable returns must be made in the articles of association of the school. For schools that have made this election, the amount of reasonable return that can be distributed to investors each year is determined based on a percentage of the school’s “operating surplus,” which is equal to the school’s annual net income less the aggregate amount of donations received, government subsidies, if any, the amount required to be reserved for the school’s development fund and other expenses as required by the regulations. This percentage is determined by the school’s board of directors, taking into consideration the following factors: (i) the school’s tuition and other fees, (ii) the ratio of the school’s expenses used for educational activities and improving the educational conditions to the total fees collected; and (iii) the school’s admission standards and educational quality. Information relating to these factors must be publicly disclosed before the school’s board determines the percentage of the school’s annual net balance that can be distributed as reasonable returns. This disclosed information and the decision to distribute reasonable returns must also be filed with the approval authorities within 15 days from the decision made by the board. However, none of the current Chinese laws and regulations provides a formula or other guidelines for determining “reasonable returns.” In addition, none of the current Chinese laws and regulations sets forth different requirements or restrictions on a private school’s ability to operate its education business based on such school’s status as a school that requires reasonable returns or a school that has not made this election. The Anqing School was established as a school that requires reasonable returns. We are in the process of changing the status of the Pingdingshan School to a school that requires reasonable returns. At the end of each fiscal year, private schools are required to allocate a certain amount to their development fund for the construction and maintenance of the school and the procurement and upgrade of educational equipment. For private schools that require reasonable returns, this amount must be no less than 25% of the annual net income or the annual increase in the net assets of the school, while for other private schools, this amount must be no less than 25% of the annual increase in the net assets of the school, if any. Private schools that have not elected to require reasonable returns are entitled to the same preferential tax treatment as public schools. The regulations require that preferential tax treatment policies applicable to private schools requiring reasonable returns to be formulated by the finance authority, taxation authority and other authorities under the State Council, but to date no such regulations have been promulgated by the relevant authorities.

Regulations on Chinese-Foreign Cooperation in Operating Schools

Chinese-foreign cooperation in the operation of schools and training programs is governed by the Regulations on Operating Chinese-Foreign Schools , issued by the State Council in 2003 in accordance with the Education Law , the Occupational Education Law and the Law for Promoting Private Education .

The Regulations on Operating Chinese-foreign Schools and its implementing regulations, the Implementing Rules for the Regulations on Operating Chinese-foreign Schools , or the Implementing Rules , which were issued by the MOE in 2004, encourage substantive cooperation between overseas educational organizations, which are required to have relevant qualifications and experience in providing high-quality education, and Chinese educational organizations to jointly operate various types of schools in China.

Permits for Chinese-foreign cooperation in operating schools must be obtained from the relevant education authorities or the authorities that regulate labor and social welfare in China. Since all of our private primary and secondary schools are operated by our Chinese affiliated entity and not by us, we believe, based on the advice of our Chinese counsel, that we are not required to apply for these permits.

Additionally, the Regulations on Operating Chinese-Foreign Schools and its Implementing Rules require that the foreign party to Chinese-foreign cooperative educational institutions or programs be a “foreign educational institution,” and under those regulations, a for-profit company, such as us, cannot qualify as a foreign educational institution. As a result, we cannot directly operate the SCC, FEC or BCIT programs, and instead we are a service provider to these programs.

In August 2004, the MOE promulgated the Announcement Regarding Re-Approval of Chinese-foreign Cooperative Educational Institutions and Programs , which requires Chinese-foreign cooperative educational institutions and programs that were established before July 1, 2004 (the effective date for the Implementing Rules ) to obtain re-approval from the MOE. Since not all of our contracted schools have obtained re-approval from the MOE, as a result, in 2008 we mutually terminated our agreement with WITT.

In April 2007, the MOE issued the Circular on Further Regulating Chinese-foreign Cooperative Education Programs. The circular directs the local education authorities generally to suspend the approval of any new Chinese-foreign cooperative polytechnic education programs until the end of 2008. To ensure the quality of the Chinese-foreign education programs, the circular emphasizes the regulatory supervision of these programs and advises local education authorities to closely supervise and monitor the existing programs, especially in recruiting materials, advertisement, and issuance of degrees and diplomas, and directs them to report and remedy any non-compliance by existing programs of the applicable regulations. As a result of this circular, our BCIT program has not been able to contract new schools for the program, and we do not expect it to until at least 2010. Although the circular only discusses the suspension of approvals through the end of 2008, we cannot assure you that our BCIT program will be able to contract new schools during 2010, or at any time after that.

Regulations on Internet Information Services

Following the State Council’s issuance of the Telecom Regulations and the Internet Information Services Administrative Measures , or the Internet Information Measures , on September 25, 2000, the MII and other regulatory authorities have issued a number of Internet-related regulations, including the Internet Electronic Bulletin Board Service Administrative Measures , or the BBS Measures .

The Internet Information Measures require that commercial Internet content providers, or ICPs, must either obtain a license for Internet information services, or an ICP license, from, or make an ICP filing with, the appropriate telecommunications authorities to carry on any commercial Internet information services in China. Generally, an ICP license is required to provide Internet information services for profit-making purposes, whereas only an ICP filing is required to provide Internet information services on a non-profit basis. The telecommunications authorities generally consider that the online degree programs established by universities are not for profit-making purposes, and the universities are only required to make an ICP filing, rather than obtain an ICP license, for their online degree programs. The telecommunications authorities could, however, require the universities to obtain ICP licenses in the future. In addition, some of our university partners for online degree programs have not made the required filing with the telecommunications authorities. If our university partners fail to make an ICP filing, or obtain an ICP license (if required), these online degree programs may be sanctioned or suspended.

The 101 Online School, a profit-making business, is required to obtain an ICP license. Gotop Electronic, a subsidiary of Xiandai Technology, holds the ICP license for our 101 Online School. Before we acquired Gotop Electronic, it had already obtained an ICP license. Following our initial acquisition of Gotop Electronic, a subsidiary of our affiliate entity, Xiandai Technology, directly held an 80% equity interest of Gotop Electronic. Although approvals of the MII, the MOE and the MOC were required for this transaction, we did not apply for or obtain these approvals. Subsequent to the acquisition, we have transferred our equity interests in Gotop Electronic to our Chinese affiliated entity. In addition, at the time when Gotop Electronic was approved by relevant Chinese authorities to engage in the ICP business, its registered capital did not meet the minimum requirement specified under Chinese law for ICP license holders. We have subsequently increased the registered capital of Gotop Electronic to satisfy this requirement. As a result, we believe that any regulatory issues relating to our interest in Gotop Electronic have been resolved.

Under the Internet Information Measures , Internet information service providers are prohibited from producing, copying, publishing or distributing information that insults or slanders a third party or that infringes the lawful rights and interests of others. Depending on the nature of a violation, ICPs that violate this provision may face criminal charges or be sanctioned by security authorities. In addition, they may be ordered to temporarily suspend their service, or their licenses may be revoked.

The BBS Measures provide that ICPs engaged in providing online bulletin board services, or BBS, must comply with a special approval process and make a specific filing with the relevant telecommunications industry authorities. ICPs that provide electronic messaging services must not disclose user personal information to any third party without the consent of the user, unless the law otherwise requires that the data be disclosed. The regulations authorize the relevant telecommunications authorities to require ICPs to rectify any unauthorized disclosure. ICPs could be liable if unauthorized disclosure causes damages or losses to users. The Chinese government can require ICPs to provide the government with Internet users’ personal information if the users post any prohibited content or engage in illegal activities on the Internet. Our 101 Online School provides BBS or similar services. Gotop Electronic, the ICP license holder and website operator of our 101 Online School, has obtained the BBS license, which is valid until September 24, 2011 and is subject to annual inspection.

We operate www.chinaedu.com , the operating website for our 101 Online School, through Gotop Electronic, a subsidiary of Xiandai Technology, a subsidiary of our Chinese affiliated entity. Gotop Electronic holds the ICP license for this website. The ICP license is valid until 2011 and is subject to annual inspection. Gotop Electronic passed the annual inspection in 2009. We operate our corporate websites, www.chinaedu.net and www.prcedu.com, through Xiandai Technology, which holds the ICP license for these websites. The ICP was renewed in 2010 and will be valid for five years beginning in February, 2010 and is subject to annual inspection. Xiandai Technology passed the annual inspection in 2009. We have not transferred the domain name and trademark for our www.chinaedu.net and www.prcedu.com websites to Xiandai Technology. We may be required to make such transfer in the future and, if we are unable to do so, the ICP license held by Xiandai Technology may be suspended or revoked by MII.

Regulations on Online Publications

The General Administration of Press and Publication of People’s Republic of China, or GAPP and the MII jointly promulgated the Tentative Internet Publishing Administrative Measures, or the Internet Publishing Measures , which took effect on August 1, 2002. The Internet Publishing Measures require Internet publishers to obtain approval from the GAPP. The term “Internet publishing” is defined in these regulations as online dissemination through which Internet information service providers select, edit and process works created by themselves or others (including content from books, newspapers, periodicals, audio and video products, electronic publications, and other sources that have already been formally published or works that have been made public in other media) and subsequently post this content on the Internet or transmit it to users over the Internet for browsing, use or downloading by the public.

Gotop Electronic, a subsidiary of Xiandai Technology, that operates our 101 Online School, received verbal confirmation from the GAPP that the online content services that it provides do not fall within the scope of “Internet publishing” that would require approval or a license from GAPP. Obtaining an online publication license requires compliance with certain conditions, including having five or more qualified editors, which Gotop Electronic cannot satisfy. However, because there is no further official or publicly-available interpretation of “Internet publishing,” we cannot assure you that Gotop Electronic will not require an online publication license in the future.

Regulations on Internet Culture Activities

The Ministry of Culture of China promulgated the Internet Culture Administration Tentative Measures, or the Internet Culture Measures , on May 10, 2003. These measures became effective on July 1, 2003 and were amended on July 1, 2004. The Internet Culture Measures require ICPs engaging in Internet culture activities to obtain an Internet culture business operations license from the Ministry of Culture in accordance with the Internet Culture Measures . As defined under the Internet Culture Measures , the term “Internet culture activities” includes, among other things, acts of online dissemination of Internet cultural products, such as audio-visual products, games, performances of plays or programs, works of art and cartoons, and the production, reproduction, importation, sale (wholesale or retail), leasing and broadcasting of Internet cultural products.

Gotop Electronic, a subsidiary of our Chinese affiliated entity that operates our 101 Online School, is engaged in the distribution of certain audio-visual products through the Internet. Gotop Electronic received verbal confirmation from the Ministry of Culture that its products do not fall within the definition of “Internet culture products” and its operations do not fall within the definition of “Internet culture activities” as defined under the Internet Culture Measures . Accordingly, Gotop Electronic is not required to obtain an Internet culture business operations license. However, because there is no further official or publicly-available interpretation of these definitions, we cannot assure you that Gotop Electronic will not need an Internet culture business operations license in the future.

Regulations relating to Information Security

On December 28, 2000, the National People’s Congress enacted the Decisions Regarding Maintaining Internet Security , which prohibits any use of the Internet that results in a breach of public security, dissemination of socially destabilizing content or divulgence of state secrets. The conduct prohibited is broadly defined under the decisions.

According to other relevant regulations, ICPs must complete mandatory security filing procedures with local public security authorities and must also report any public dissemination of prohibited content. According to the Interim Measures for the Administration of Filings for Commercial Web Sites promulgated by the Beijing Administration of Industry and Commerce, or the Beijing AIC, and other related regulations, we must file and register our websites with Beijing AIC and obtain electronic registration marks. We have filed and registered our websites, www.chinaedu.com , www.chinaedu.net and www.prcedu.com with Beijing AIC and obtained electronic registration marks.

Regulations on Broadcasting Audio-Video Programs through the Internet or Other Information Network

The State Administration of Radio, Film and Television, or SARFT, and MII promulgated the Rules for Administration of Internet Video-Audio Programs Service , or the Video-Audio Programs Rules , which became effective on January 31, 2008. The Video-Audio Programs Rules apply to the activities of broadcasting, integration, transmission, downloading of audio-video programs with computers, televisions or mobile phones as the main terminals and through various types of information networks. Pursuant to the Video-Audio Programs Rules , a permit for broadcasting audio-video programs through an information network is required to engage in these Internet broadcasting activities. On April 13, 2005, the State Council announced a policy on private investments in businesses in China that relate to cultural matters, which prohibits private investments in businesses relating to the dissemination of audio-video programs through information networks. As these regulations are relatively new, there are significant uncertainties relating to their interpretation and implementation, including the definition of “audio-video programs” as specified in these regulations. Gotop Electronic, a subsidiary of our Chinese affiliated entity engaging in online tutoring services, does not now possess a permit for broadcasting audio-video programs, and we cannot assure you that it will not be required to obtain one in the future.

Regulations on Protection of the Right of Dissemination through Information Networks

On May 18, 2006, the State Council issued the Regulations on Protection of the Right of Dissemination through Information Networks , and they became effective on July 1, 2006. These regulations require that every organization or individual who disseminates a third party’s work, performance, audio or visual recording products to the public through an information network must obtain permission from, and pay compensation to, the copyright owner of these products, unless otherwise provided under relevant laws and regulations. The copyright owner may take technical measures to protect his or her right of dissemination through information networks and any organization or individual may not intentionally evade, destroy or otherwise assist others in evading these protective measures unless permissible under law. These regulations also provide that permission from and compensation for the copyright owner are not required in the event of limited dissemination to teaching or research staff for the purpose of school teaching or scientific research.

We own the copyrights to all of the educational materials of our 101 Online School, and the copyrights to all of the online courses for our university partners’ online degree programs are either owned by us or by collaborative alliances with the university partners. However, users of our BBS for our 101 Online School may post copyrighted materials from time to time, without our prior knowledge. We actively monitor the contents posted on our BBS and will remove any materials that we believe may infringe the copyrights of third parties.

Regulations on Copyright and Trademark Protection

China has adopted legislation governing intellectual property rights, including copyrights and trademarks. China is a signatory to the main international conventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights , or TRIPS , upon its accession to the World Trade Organization in December 2001.

Copyright . The National People’s Congress amended its Copyright Law in 2001 to widen the scope of works and rights that are eligible for copyright protection. The amended Copyright Law extends copyright protection to Internet activities, products disseminated over the Internet and software products. In addition, there is a voluntary registration system administered by the China Copyright Protection Center.

To address the problem of copyright infringement related to content posted or transmitted over the Internet, the National Copyright Administration and the MII jointly issued the Administrative Measures for Copyright Protection Related to the Internet on April 30, 2005. These measures became effective on May 30, 2005.

We own the copyrights to all of the educational materials of our 101 Online School, and the copyrights to all of the online courses for our university partners’ programs are either owned by us or by our university collaborative alliances.

Trademark. The Chinese Trademark Law , adopted in 1982 and revised in 2001, protects the proprietary rights to registered trademarks. The Trademark Office, which is under the SAIC, handles trademark registrations and grants a ten-year term to registered trademarks, subject to renewal for another ten years. Trademark license agreements must be filed with the Trademark Office for record. We have registered nine trademarks with the Trademark Office and are in the process of registering additional marks. In addition, if a registered trademark is recognized as a well-known trademark, the proprietary right of the trademark holder may be extended beyond the registered sphere of products and services of the trademark.

On November 5, 2004, the MII amended the Measures for Administration of Domain Names for the Chinese Internet , or the Domain Name Measures . The Domain Name Measures regulate the registration of domain names, such as the first tier domain name “.cn.” In February 2006, China Internet Network Information Center, or CINIC, issued the Implementing Rules for Domain Name Registration and the Measures on Domain Name Disputes Resolution , pursuant to which CINIC can authorize a domain name dispute resolution institution to decide disputes. We have registered the domain names for our main websites, www.chinaedu.net , www.chinaedu.com and www.prcedu.com, with CINIC. We are also the registered owner of several other domain names such as www.prc-edu.com, www.ecustmde.com, www.edufe.com.cn, www.edufe.net.cn, www.cmjnu.com.cn, www.cmr.com.cn, www.ruc.com.cn, and www.cmr.net.cn . We license certain of our domain names to some of our university partners for them to operate their online degree programs, and some of our university partners are the registered owners of the domain names under which their programs operate.

Limitations on Foreign Ownership of Our Businesses

The Foreign Investment Industry Guidance Catalogue (amended in 2007), the Regulations on Chinese-Foreign Cooperation in Operating School, the Implementation Measures for the Regulations on Sino-Foreign Cooperation in Operating Schools and other applicable laws and regulations limit foreign ownership in entities, or foreign participation in entities, engaging in specified education activities by:

requiring that the foreign party in any Chinese-foreign cooperation in operating schools be a qualified foreign educational institution;

requiring regulatory approval for any Chinese-foreign cooperation in operating schools;

prohibiting foreign investment in schools providing compulsory education (that is, the first grade through the ninth grade, or primary school and junior high school education); and

restricting foreign investment in educational websites.

Moreover, from a practical perspective, the MOE will not approve any foreign investment or participation in online degree education.

Our corporate structure is designed to comply with current regulatory limitations on foreign ownership and participation while engaging in our core business activities. For details, see “—C. Organizational Structure.”

Compliance with Chinese Regulations on the Education Services Industry, Publishing, Internet Activities and Copyrights and Trademarks

We believe that, except for the online publication license, the Internet culture business operations license and the license for broadcasting audio-video programs through the Internet discussed above, no consent, approval or license other than those already obtained by our Chinese subsidiaries and affiliate is required under any of the existing laws and regulations of China for our business and operations.

Regulation of Foreign Currency Exchange and Dividend Distribution

Foreign currency exchange

The principal regulations governing foreign currency exchange in China are the Foreign Currency Administration Regulations (1996), as amended. Under these regulations, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of the Renminbi for capital account items, such as direct investment, loans, repatriation of investment and investment in securities outside China, however, is still subject to SAFE approval.

Dividends paid by a subsidiary to its shareholder are deemed income of the shareholder and are taxable in China. Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange, subject to a cap approved by the SAFE, for settlement of current account transactions without the approval of the SAFE. Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, the SAFE and other relevant Chinese governmental authorities.

Dividend distribution

The principal regulations governing distribution of dividends of foreign holding companies include the Foreign Investment Enterprise Law (1986), as amended, and the Administrative Rules under the Foreign Investment Enterprise Law (2001). Under these regulations, foreign investment enterprises, or FIEs, in China may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, FIEs in China are required to allocate at least 10% of their accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends. Our Chinese subsidiaries, which are all FIEs, are restricted from distributing any dividends to us until they have met the requirements set out in these regulations.

Under PRC tax laws in effect prior to January 1, 2008, dividends paid to foreign investors by foreign-invested enterprises, such as dividends paid to overseas holding companies by PRC subsidiaries, were exempt from PRC withholding tax. Under the EIT Law and its implementation rules which became effective on January 1, 2008, dividends declared on earnings generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign investors who are non-resident enterprises are subject to a 10% withholding tax, unless any such foreign investor's jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where the Company is incorporated, does not have a tax treaty with China.

SAFE regulations on overseas investment of Chinese residents and employee stock options

The SAFE issued The Notice on Issues Relating to the Administration of Foreign Exchange in Fund-Raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies in October 2005, which became effective in November 2005, and an implementing rule in May 2007, collectively the SAFE Rules. According to the SAFE Rules, Chinese residents, including both legal persons and natural persons and Chinese citizens and foreign citizens who reside in China, are required to register with the SAFE or its local branch before establishing or controlling any company outside China, referred to in the SAFE rules as an “offshore special purpose company,” for the purpose of financing that offshore company with their ownership interests in the assets of or their interests in any Chinese enterprise. In addition, a Chinese resident that is a shareholder of an offshore special purpose company is required to amend its SAFE registration with the local SAFE branch with respect to that offshore special purpose company in connection with the injection of equity interests or assets of a Chinese enterprise in the offshore company or overseas fund raising by the offshore company, or any other material change in the capital of the offshore company, including any increase or decrease of capital, transfer or swap of share, merger, division, long-term equity or debt investment or creation of any security interest. The SAFE Rules apply retroactively. As a result, Chinese residents who have established or acquired control of offshore companies that have made onshore investments in China in the past were required to complete the relevant registration procedures with the competent local SAFE branch. If any resident of China failed to file its SAFE registration for an existing offshore entity, any dividends remitted by the onshore entity to its overseas parent since April 21, 2005 will be considered to be an evasion of foreign exchange purchase rules, and the payment of the dividend will be illegal. As a result of any illegal action of this type, both the onshore entity and its actual controlling person(s) can be fined. In addition, failure to comply with the registration procedures may result in restrictions on the relevant onshore entity, including prohibitions on the payment of dividends and other distributions to its offshore parent or affiliate and capital inflow from the offshore entity. Chinese resident shareholders of the offshore entity may also be subject to penalties under Chinese foreign exchange administration regulations.

We have asked our shareholders and beneficial owners who are Chinese residents to make the necessary applications and filings as required under Notice 75 and other related rules. However, due to uncertainty concerning the reconciliation of Notice 75 with other approval or registration requirements, it remains unclear how Notice 75, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We will attempt to comply, and attempt to ensure that our shareholders and beneficial owners who are subject to these rules comply, with the relevant requirements. However, we cannot provide any assurances that all of our shareholders and beneficial owners who are Chinese residents will comply with our request to make or obtain any applicable registrations or comply with other requirements required by Notice 75 or other related rules. In addition, certain of the holders of options to purchase our ordinary shares are Chinese residents. We have been advised that it is unclear under the SAFE Rules whether these option holders would be deemed to be beneficial owners of our company for the purposes of these rules as a result of holding these options. The failure or inability of our Chinese resident shareholders or beneficial owners to register with the SAFE in a timely manner pursuant to the SAFE Rules, or the failure or inability of any future Chinese resident shareholders or beneficial owners to make any required SAFE registration or comply with other requirements under the SAFE Rules may subject these shareholders or beneficial owners to fines or other sanctions and may also limit our ability to contribute additional capital into or provide loans to our Chinese subsidiaries, limit our Chinese subsidiaries’ ability to pay dividends to us, repay shareholder loans or otherwise distribute profits or proceeds from any reduction in capital, share transfer or liquidation to us, or otherwise adversely affect us.

On March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Option Holding Plan or Stock Option Plan of Overseas Listed Company , or the Stock Option Rule . The purpose of the Stock Option Rule is to regulate foreign exchange administration of Chinese citizens who participate in employee stock holding plans and stock option plans of offshore listed companies. According to the Stock Option Rule , if a Chinese citizen participates in any employee stock holding plan or stock option plan of an offshore listed company, a Chinese domestic agent or the Chinese subsidiary of the offshore listed company is required to file, on behalf of the individual, an application with the SAFE to obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises. This restriction exists because a Chinese citizen may not directly use offshore funds to purchase stock or exercise stock options. Concurrent with the filing of the required application with the SAFE, the Chinese domestic agent or the Chinese subsidiary must obtain approval from the SAFE to open a special foreign exchange account at a Chinese domestic bank to hold the funds required in connection with the stock purchase or option exercise, any returned principal profits upon sales of stock, any dividends issued on the stock and any other income or expenditures approved by the SAFE. The Chinese domestic agent or the Chinese subsidiary also is required to obtain approval from the SAFE to open an offshore special foreign exchange account at an offshore trust bank to hold offshore funds used in connection with any employee stock holding plans.

All proceeds obtained by a Chinese citizen from dividends acquired from the offshore listed company through employee stock holding plans or stock option plans, or sales of the offshore listed company’s stock acquired through other methods, must be remitted back to China after relevant offshore expenses are deducted. The foreign exchange proceeds from these sales can be converted into Renminbi or transferred to the individuals’ foreign exchange savings account after the proceeds have been remitted back to the special foreign exchange account opened at a Chinese bank. If stock options are exercised in a cashless exercise, the Chinese individuals exercising them are required to remit the proceeds to the special foreign exchange account. Although the Stock Option Rule was promulgated recently and many issues require further interpretation, we and our Chinese employees who have been granted stock options have been subject to the Stock Option Rule when our company became an offshore listed company. If we or our Chinese employees fail to comply with the Stock Option Rule , we and/or our Chinese employees may face sanctions imposed by foreign exchange authority or any other Chinese government authorities.

C. Organizational Structure

Overview

We were incorporated as an exempted company in the Cayman Islands with limited liability in 1999. We are a holding company, and we conduct our business primarily through our subsidiaries and Chinese affiliated entity incorporated in China. Chinese laws and regulations limit the ability of foreign-owned entities to participate in the education and telecommunication sectors in China. Our corporate structure is designed to comply with current Chinese limitations on foreign ownership of, and participation in, companies operating in the education and telecommunication sectors in China. For a discussion of these restrictions see “—B. Business Overview—Regulation—Limitations on Foreign Ownership of Our Businesses” and “Item 3. Key Information—D. Risk Factors—Risks Related to China’s Regulation of the Education and Telecommunication Sectors and Our Corporate Structure.”

Our Corporate Structure and Contractual Arrangements

Our primary business is to provide services to the online degree programs of leading Chinese universities. We conduct this business through our three Chinese subsidiaries, except for three online degree programs that are serviced through our Chinese affiliated entity. Due to restrictions on the foreign ownership and operation of our online tutoring business and our private primary and secondary school business, we conduct these businesses through arrangements with our Chinese affiliated entity or variable interest entity. We direct these companies’ business affairs and receive substantially all of their net income through our contractual arrangements. We also conduct our international curriculum program business through one of our three Chinese subsidiaries. In 2009, 82.5% of our net revenue was derived from businesses conducted by our three principal Chinese subsidiaries.

Our principal subsidiaries in China currently are:

Beijing Hongcheng Liye Technology Co., Ltd., or Hongcheng Liye, our wholly owned subsidiary, which has established collaborative alliances with five Chinese universities to provide services to the universities for the establishment, operation, and expansion of their online degree programs. These collaborative alliances are majority owned subsidiaries of Hongcheng Liye. Hongcheng Liye’s collaborative alliance partners for online degree programs are Beijing Language and Culture University, China Agricultural University, Dongbei University of Finance and Economics, Central University of Finance and Economics and Beijing Forestry University. Hongcheng Liye also provides our learning-based products and services, which include our English language training, online tutoring services and post-secondary vocational educational programs. Our service revenue from Hongcheng Liye in aggregate accounted for 43.3% of our net revenue in 2009;

Hongcheng Technology Development Co., Ltd., or Hongcheng Technology, our wholly owned subsidiary, which has established four collaborative alliances with Chongqing University, Shanghai University of Finance & Economics, GRTU and FRTU to provide services for the establishment, operation, and expansion of these universities’ online degree programs. Hongcheng Technology also provides services to four other universities, Jiangnan University, Nanjing University, Jiangxi Normal University and Huazhong Normal University for their online degree programs; and Hongcheng Technology also operates 23 learning centers providing recruiting service to 16 universities. Our service revenue from Hongcheng Technology in aggregate accounted for 18.7% of our net revenue in 2009.

CMR Web Learning Co., Ltd., or CMR Web, our 70% owned subsidiary, which established a collaborative alliance with Renmin University of China to provide services to Renmin University of China for the operation of its online degree program. The remaining 30% of CMR Web is owned by Rendashiji Technology Development Co., Ltd., a wholly owned subsidiary of Renmin University of China. Our service revenue from Renmin University of China accounted for 20.5% of our net revenue in 2009.

Our current Chinese affiliated entity or variable interest entity is:

Beijing Hongcheng Education Technology Co., Ltd., or Hongcheng Education, through which we own and operate three private primary and secondary schools and provide services to Lanzhou University, East China University of Science and Technology and Jiangsu University for their online degree programs, and Hongcheng Education also operates 42 learning centers providing recruiting service to 8 universities. Our service revenue from Hongcheng Education in aggregate accounted for 17.5% of our net revenue in 2009.

Xiandai Xingye Network Technology Co., Ltd., or Xiandai Technology, used to be another Chinese affiliated entity of us. In September 2009, the two shareholders of Xiandai Technology transferred their equity interest in Xiandai Technology to Hongcheng Education. Xiandai Technology thus became a wholly owned subsidiary of Hongcheng Education. Xiandai Technology, and its subsidiary, Gotop Electronic, hold the ICP licenses for the operation of our websites, www.chinaedu.net and www.prcedu.com , and www.chinaedu.com , respectively.

The following diagram illustrates our corporate structure as of December 31, 2009.

We have been, and expect to continue to be, dependent on our Chinese subsidiaries and Chinese affiliated entity to conduct our core businesses in China. Through one of our subsidiaries, we have entered into a series of contractual arrangements with our Chinese affiliated entity and its shareholders that are intended to provide us with the control over, and the economic benefits enjoyed by, this Chinese affiliated entity. Pursuant to the terms of these contractual arrangements:

we effectively control our Chinese affiliated entity and its respective subsidiaries;

substantially all of the economic benefits of our Chinese affiliated entity are transferred to us; and

our Chinese subsidiaries or their respective designees have an exclusive option to purchase all or substantially all of the equity interests in our Chinese affiliated entity, to the extent permitted by Chinese law.

Technical Consulting and Services Agreement. Through our wholly owned subsidiary, Hongcheng Technology, we have entered into exclusive technical consulting and service agreement with each of Hongcheng Education and Xiandai Technology. This consulting and service agreement has an initial term of ten years and will be automatically renewed for successive periods of ten years thereafter, unless Hongcheng Technology provides written notice to the other party prior to the expiration of the then current term of its election not to renew the agreement. Under the agreement with Hongcheng Education, Hongcheng Technology provides courseware and product development services, website design services, maintenance and security services, employee training services and any other services that may be agreed upon by the parties. Under the agreement with Xiandai Technology, Hongcheng Technology provides network technology development services, website design services, maintenance and security services and employee training services, as well as any other services that may be agreed upon by the parties. Under these agreements the fees payable to Hongcheng Technology are based on the gross revenue of the service recipient and are paid once annually within 30 days of the year-end.

We operate three private primary and secondary schools through Hongcheng Education, and have entered into a series of agreements with the shareholders of Hongcheng Education, Mr. Changqing Xie, one of our officers, and Mr. Xueshan Yang, one of our former directors, to maintain effective control over Hongcheng Education. Currently, Mr. Xie and Mr. Yang hold 72% and 28%, respectively, of the equity interest in Hongcheng Education.

Loan Agreements . In 2005, we loaned approximately $4.8 million to Mr. Xie and approximately $1.8 million to Mr. Yang to fund the registered capital requirements of Hongcheng Education. The terms of these loans are 20 years and may be extended with the consent of the parties. To the extent permitted by Chinese law, each loan may be repaid only by the transfer by Mr. Xie or Mr. Yang of his equity interests in Hongcheng Education to us or our designee. Mr. Xie and Mr. Yang each have granted us the right to appoint all directors to the board of Hongcheng Education, a right that they otherwise would be entitled to as shareholders.

Shareholder Voting Rights Entrustment Agreements . In connection with the Hongcheng Education loan agreements described above, in 2005, Mr. Xie and Mr. Yang entered into shareholder voting rights entrustment agreements with Hongcheng Technology. Pursuant to these agreements, Mr. Xie and Mr. Yang each irrevocably entrusted Hongcheng Technology with the right to act as their proxy and vote all of their shares in Hongcheng Education. Each of these agreements will remain effective as long as Mr. Xie or Mr. Yang remains a shareholder in Hongcheng Education.

Call Option Agreements . Mr. Xie and Mr. Yang each entered into call option agreements with Hongcheng Technology in 2005. Pursuant to these agreements, Mr. Xie and Mr. Yang each granted irrevocable options to purchase all of their respective equity interests in Hongcheng Education to Hongcheng Technology at the lowest price permitted under applicable Chinese laws.

Equity Pledge Agreements and Powers of Attorney . As security for their obligations under their call option agreements and shareholder voting rights entrustment agreements with Hongcheng Technology and Hongcheng Education’s obligations under the technical consulting and services agreement with Hongcheng Technology, in 2005, Mr. Xie and Mr. Yang entered into equity pledge agreements with Hongcheng Education to pledge all of their equity interests in Hongcheng Education and all distributions arising from those interests to Hongcheng Technology.

Through our Chinese subsidiary, we also entered into similar contractual arrangements with our prior affiliated entity, Xiandai Technology, and its shareholders, including loan agreements, shareholder voting rights entrustment agreements, call option agreements, and equity pledge agreements, with similar terms as those described above. As a result of Xiandai Technology shareholders’ transfer of their equity interests in Xiandai Technology to Hongcheng Education in September 2009, these contractual arrangements have been terminated.

Our Significant Subsidiaries

A summary of our subsidiaries and Chinese affiliated entity or variable interest entity and its subsidiaries as of December 31, 2009 is as follows:

Name	Date of incorporation or acquisition	Percentage of legal ownership	Place of incorporation
Subsidiaries of the Company
CMR Web-learning Co., Ltd. ("CMR Web")	July 29, 1999	70%	PRC
Hongcheng Technology Development Co., Ltd. ("Hongcheng Technology")	July 31, 2000	100%	PRC
Beijing Xuezhi Times Education Science Co., Ltd. ("Beijing Xuezhi")	October 18, 2001	100%	PRC
Zhong Nongda Networks Development Co., Ltd. ("Zhongnongda Networks")	October 30, 2001	55%	PRC
Beijing Hongcheng Liye Technology Co., Ltd. ("Hongcheng Liye")	April 15, 2003	100%	PRC
Dalian Dongcai Technology Co., Ltd. ("Dongcai")	June 4, 2003	70%	PRC
Beijing WITT Education Consultant Management Co., Ltd. ("WITT Education")	July 4, 2003	100%	PRC
BJ-WITT EDU MAN. LTD. ("BJ-WITT")	July 4, 2003	100%	BVI

Name	Date of incorporation or acquisition	Percentage of legal ownership	Place of incorporation
Chongqing Chongda Yuanxing Co., Ltd. ("Chongda")	December 24, 2003	51%	PRC
Beijing BCIT Science and Education Management Consulting Limited ("Beijing BCIT")	January 13, 2005	100%	PRC
Beijing WITT Science Co., Ltd. ("WITT Science")	December 26, 2005	100%	PRC
Beijing Gotop Education Co., Ltd. ("Gotop Hongcheng")	December 26, 2005	100%	PRC
Beijing BCIT Science and Education Management Consulting Limited ("BJ-BCIT")	February 10, 2006	100%	BVI
Beijing Distance Education Technology Co., Ltd. ("Yuancheng Education")	March 31, 2006	65%	PRC
Tianjin Gaotuo Hongcheng Education Technology Co., Ltd. ("Tianjin Gaotuo Hongcheng")	June 26, 2006	100%	PRC
Beijing Beiyuda Education Technology Co., Ltd. ("Beiyuda")	September 26, 2006	51%	PRC
Beijing Mingdaoyuan Technology Co., Ltd. ("Beijing Mingdao")	March 27, 2007	51%	PRC
Shanghai Shangcai Education Technology Co., Ltd. ("Shanghai Shangcai")	April 18, 2008	51%	PRC
Dongcai Online Training Center ("Dongcai Online")	July 10, 2008	70%	PRC
Beijing Zhonglin Technology Co., Ltd. ("Zhonglin")	November 3, 2008	51%	PRC
Guangxi Hongcheng Times Technology Development Co., Ltd. ("Guangxi Hongcheng")	February 10, 2009	51%	PRC
Fuzhou Haojiaoshi Distance Education Service Co., Ltd. ("Fuzhou Good Teacher")	December 7, 2009	51%	PRC

Variable Interest Entity of the Company
Beijing Hongcheng Education Technology Co., Ltd. ("Hongcheng Education")	March 7, 2005	N/A*	PRC

Subsidiaries of Variable Interest Entity
Beijing Gotop Electronic Science Co., Ltd. ("Gotop Electronic") (1)	November 29, 1995	N/A	PRC
Xiandai Xingye Network Technology Co., Ltd. ("Xiandai Technology") (1)	November 7, 2000	N/A	PRC
Pingdingshan Wellent Bilingual School ("Pingdingshan") (1)	September 3, 2002	N/A	PRC
Anqing Foreign Language Middle School ("Anqing Foreign Language") (1)	August 2, 2004	N/A	PRC
Jingzhou Tianchang Investment Co., Ltd. ("Tianchang") (2)	September 6, 2005	N/A	PRC
Jingzhou Middle School South Campus ("South Campus") (3)	December 28, 2005	N/A	PRC
Beijing Hongcheng YoYo Technology Co., Ltd. ("Hongcheng YoYo") (1)	November 3, 2009	N/A	PRC

* PRC regulations currently limit foreign ownership of entities that provide Internet content and engage in primary and junior high school education. To comply with PRC laws and regulations, we provide such services in China through our variable interest entity, Hongcheng Education, and its subsidiaries.

(1) Wholly owned subsidiary of Hongcheng Education (variable interest entity of the Company)

(2) 72.5% of its equity interest is held by Hongcheng Education (variable interest entity of the Company)

(3) 54% of its equity interest is held by Hongcheng Education (variable interest entity of the Company)

D. Property, Plants and Equipment

Our principal executive office is located at 4 th Floor-A, GeHua Building, No. 1 QinglongHutong, Dongcheng District, Beijing, 100007, People’s Republic of China, where we own approximately 3,450 square meters. We also own other operating space in Beijing, Shanghai, Wuxi, Chongqing, Zhengzhou, Nanchang and Dalian. Each of our three schools (Pingdingshan School, Anqing School and Jingzhou School (Southern Campus)) has associated properties that we own or lease. We believe that our existing facilities, together with the facilities under construction, are adequate for our current and foreseeable future operations.

Since 2007, we undertook a capital improvements program at our Anqing School and Pingdingshan School. The renovations and improvements include a new campus for Anqing School to accommodate larger student population and general facility upgrades and a new building for Pingdingshan School to improve the level of education. We spent a total of RMB27.6 million, RMB25.5 million and RMB41.6 million in 2007, 2008 and 2009 respectively, on the renovation of these schools, and we anticipate incurring additional capital expenditures associated with the contracted commitment related to such improvements of approximately RMB11.1 million in 2010.

In addition, although we initially planned to complete construction of a new campus at the Jingzhou School (Southern Campus) by the fall 2006 recruiting season, we have encountered delays obtaining the land-use rights for the new campus site. There is no assurance we will begin construction in the near future, or at all. As of December 31,2009, we had capital commitments related to the acquisition and further expansion of Jinzhou School (Southern Campus) of RMB64.8 million. If we do not fulfill these commitments by the end of the contract term, our partner Jingzhou High School has the right to seek compensation from us. For further discussion of these capital expenditures and commitments, please refer to “ Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources . ”

The following table lists the properties that we owned or leased as of December 31, 2009:

Property Address	Use of Property	Owned/Leased	Approximate Size (m 2 )
Suites 501 and 503, Tower A, Jin Feng He Office Building, No. 8 Xinjiekouwai Road, Beijing	Office	Leased	99
Suite 416-2, F4, Tower C, Hui Long Sem, International Enterprise Technology Park, Beijing Economic and Technology Zone, 18 South West Ring Road, Beijing	Office	Leased	50
Suite 205, F2, Tower B, Hui Long Sem, International Enterprise Hatch Park, Beijing Economic and Technology Zone, No. 14 Zhong He Jie, Beijing	Office	Leased	68
17 F, 19F Renda Technology and Education Centre, No. 59, Zhongguancun Road, Haidian District, Beijing	Office	Leased	225
Qingshanwan Rest House, Wuxi, Jiangsu	Office	Leased	45
F2, Gao’an Building, No. 107 Gao’an Road, Shanghai	Office	Leased	30
R303, No. 1 Suite, No. 2 Building, Shangdijiayuan, Beijing	Office	Leased	126
R0107, Tower 2, Songzhuang Town, Songjiazhuang, Fengtai District, Beijing	Office	Owned	136
R 809, Tower C, No. 9, Shangdi Sanjie, Haidian District, Beijing	Office	Leased	90
R201, No. 10, Xinghuo Road, Science Town, Fengtai District, Beijing	Office	Leased	11
No.5, Jinnan Road, Jinzhou District, Jingzhou, Hubei	Office	Leased	400
F2, F4, No. 83, Shabei Street, Technology Square, Chongqing	Office	Leased	630
Northeast corner, Cross of Qingyuan Road and Qianjiang Road, Anqing, Anhui	School	Owned	159,119
No. 22, Guanyuemiao Street, Anqing, Anhui (1)	School	Leased	2,500
Northwest corner, Cross of Nanhuan Road and Yingdu Road, Jingzhou, Hubei	School	Owned	191,865
C809, C810, C811, C812, Tower C, No. 9, Shangdi Sanjie, Haidian District, Beijing	Office	Owned	1,349
R3, F2, No.2-3, Qixianling Xuezijie, Gaoxinyuan District, Dalian, Liaoning	Office	Owned	413
Headquarters—4th Floor-A, GeHua Building, No. 1 QinglongHutong, Dongcheng District, Beijing	Office	Owned	3,450

Property Address

Use of

Property

Owned/Leased

Approximate

Size (m 2 )

R630, Tower 1, No.1, Furong South Road, Tianxin District, Changsha, Hunan	Office	Owned	167
R307, F3, Tower A, No.1, Zhuzhai North Road, Jinshui District, Zhengzhou, Henan	Office	Owned	73
R402, Tower 10, Guanting Square, Huilongguan Town, Changping District, Beijing	Office	Owned	122
No.2000, Huashan Road, Xuhui District, Shanghai	Office	Leased	328
F1, F7, Ximatai Building, No.193, Jiefang Road, Xuzhou, Jiangsu	Office	Leased	430
F6, Jinluan Building, No.101, Zhongshan South Road, Nanjing, Jiangsu	Office	Leased	470
R601, 602, 603, No.66, Gongyuan Road, Changzhou, Jiangsu	Office	Leased	300
F11, Longshi Center, No.2, Guangzhou Road, Nanjing, Jiangsu	Office	Leased	433
R609, R610, No.151, Yangyu Alley, Suzhou, Jiangsu	Office	Leased	170
R1303, No.6, Dasha East Road, Huangpu District, Guangzhou, Guangdong	Office	Leased	45
R2, F1, Greatwall Building, No.62, Zhongguancun East Road, Haidian District, Beijing	Office	Leased	333
No.7, South Business Room, Cangwu Community, Jinpu District, Lianyungang, Jiangsu	Office	Leased	85
F4, No.285, Qiannan Middle Road, Nantong, Jiangsu	Office	Leased	600
No.150, Renmin Road, Jiangbei District, Ningbo, Zhejiang	Office	Leased	110
G8, G9, F1, Xinfuxiong Building, Yuexiu District, Guangzhou, Guangdong	Office	Leased	51
No.1596, Ziyou Road, Changchun, Jilin	Office	Leased	40
No.653, Suofeiya Warehouse, Wanziying, Heizhuanghu Village, Chaoyang District, Beijing	Warehouse	Leased	104
R1608, No.11, Maliandao Road, Xuanwu District, Beijing	Office	Leased	35
R6088, Tower 1, No.2, Hengfu Middle Road, Science City, Fengtai District, Beijing	Office	Leased	34
Zhanhe South Road, Pingdingshan, Henan	School	Owned	7,848
7F, Lawyer Building, No.392, Nanmenwai Road, Nankai District, Tianjin	Office	Leased	528
R715, 716, 717 Jiyumingdu, No.299, Hongdu North Road, Qingshanhu District, Nanchang, Jiangxi	Office	Owned	120
R106, F1, Wanda square, Luguyinhe Business Zone, Shijingshan District, Beijing	Office	Owned	190
Printing Factory Yard, Coal industry Press, Shaoyaoju, Chaoyang District, Beijing	Office	Owned	1,100
N411, Gongyuanguoji Plaza, Wenchang West Road, Yangzhou, Jiangsu	Office	Leased	171
No.160, Beijing North Road, Huaian, Jiangsu	Office	Leased	160
N176-8, Xingfu South Road, Suqian, Jiangsu	Office	Leased	210
Room 508, F5, Shengshitianxi Plaza, No.81, Qingyang Road Nanchang District, Wuxi	Office	Leased	242
Tower C, F11, Huaxing Building, No.45, Zhongshan East Road, Zhenjiang, Jiangsu	Office	Leased	190
F14, No.80, Road Wenyi, Xihu District, Hangzhou, Zhejiang	Office	Leased	90
No.149, Zhongshan East Road Jiaojiang District, Taizhou, Zhejiang	Office	Leased	201
F1, City Library, No.26, Yulong East Road, Yancheng, Jiangsu	Office	Leased	70
F2, 8th Building Company, No.321, Hailing South Road, Taizhou, Jiangsu	Office	Leased	60

(1) In addition to the owned property, the Anqing School pays user fees to the Fourth Middle School of Anqing for certain state-owned campus facilities it uses.

Item 4A. Unresolved Staff Comments

Not applicable.

Item 5. Operating and Financial Review and Prospects

A.	Operating Results

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on Form 20-F. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report on Form 20-F.

Overview

We are a leading educational services provider in China, incorporated as an exempted limited liability company in the Cayman Islands. Established in 1999, our primary business is to provide comprehensive services to the online degree programs of leading Chinese universities. These services include academic program development, technology services, enrollment marketing, recruiting, student support services and finance operations. Our other lines of businesses include the operation of online tutoring services, private primary and secondary schools and marketing and support for international curriculum programs. We believe we are the largest service provider to online degree programs in China in terms of the number of higher education institutions that are served and the number of student enrollments supported.

We currently have strategic relationships with 29 universities, 17 of which are under long-term contracts that generally vary from 10 to 50 years in length. Twelve of our university partners including GRTU and FRTU currently operate their own online degree programs and five universities are awaiting regulatory approval to begin their online degree programs. We also perform recruiting service for 18 universities through our nationwide learning centers network. As of December 31, 2009, there were approximately 287,000 revenue students in the online degree programs that we service through these relationships. These online degree programs are marketed under the brand names of these leading Chinese universities, which allow us to benefit from the significant brand equity that these higher education institutions have established.

Our business has experienced significant growth since its inception in 1999. This growth has been driven by the increased number of universities that we serve, the increased enrollment of the online degree programs of our university partners, and our expansion into other education-related lines of business. We generate our revenue from service fees and tuition payments derived from students who are enrolled in, or served by, our businesses. As of December 31, 2009, we provided services to online degree programs that had an aggregate of approximately 287,000 revenue students, and we served approximately 47,570 students in our other businesses. Our net revenue increased from RMB265.0 million in 2007 to RMB317.7 million in 2008, and RMB354.7 million ($52.0 million) in 2009, representing a compound annual growth rate, or CAGR, of 15.7%. Net revenue from our online degree programs contributed 76.3%, 80.4% and 80.4% of our total net revenue for the years ended December 31, 2007, 2008 and 2009, respectively.

General Factors Affecting Our Results of Operations

We have benefited greatly from the rapid growth of the Chinese education market. This growth has been driven by several factors, including favorable demographic trends, overall economic growth and the increase in per capita income, the imbalance between supply and demand for traditional post-secondary education, the emphasis that Chinese culture places on higher education and the growing number of Internet users, especially those with broadband access. China’s accelerating integration into the global economy is providing increasing career opportunities for those with post-secondary qualifications. These factors have led to significant increases in education spending in China and in the number of people interested in obtaining post-secondary education, including through online degree programs and other forms of private education services. We anticipate that the Chinese education market will continue to grow, including the demand for post-secondary degree programs that can be delivered online. However, any adverse changes in the economic conditions in China may adversely affect the demand for post-secondary degree programs, and regulatory changes could adversely affect the ability of companies such as ours to service this market.

Specific Factors Affecting Our Results of Operations

While the general factors affecting the Chinese education market influence us, we believe that company specific and regulatory factors more directly affect our business. Company specific factors include the number of online degree programs we service, the number of registered students and the number of revenue students in the programs that we service, the amount of tuition fees these programs can charge, the amount of fees that we can derive from tuition fees collected by these programs, the amount of expenses paid by our university partners for their online degree programs, particularly fees they pay to learning centers, and our cost of revenue and operating expenses. Because the online degree programs that we service, which constitute our largest business segment, are operated by our university partners to whom we provide services, the number of student enrollments, the number of revenue students and tuition fees, are largely driven by the demand for the course offerings and recruitment efforts of our partners. We do, however, provide a technology and service platform that helps drive enrollment through the quality of the course offerings and we assist in enrollment marketing as well as recruiting for the university programs.

Regulatory factors include the number of additional universities that may be authorized by the MOE to offer online degree programs, the timing of any such approvals by the MOE, regulations related to student recruiting activities, such as establishment of learning centers which are subject to regulation by local authorities, and whether the MOE will approve and facilitate future cooperative arrangements between Chinese and foreign educational institutions. In addition, the tuition fees for all the programs we provide services to, as well as the tuition fees for our private schools, are subject to direct regulation by China’s price control authorities. Furthermore, any increase in the tax rates applicable to, or the loss of preferential tax treatments enjoyed by, our Chinese subsidiaries and Chinese affiliated entity as a result of changes in Chinese tax laws will adversely affect our results of operations. See “—Taxation.”

We expect to expand the penetration of our online program services by increasing the number of universities that use our online program services, increasing total student enrollments at the online degree programs we currently serve, as well as continuing expansion of our learning centers network. We believe that our ability to grow will be driven principally by the continued strengthening of our brand name, improvement of our service quality and development of new services. We are actively targeting other universities to become our partners for their online education programs. The targeted universities include both those already offering online degree programs and those planning to offer online degree programs.

A significant factor affecting the results of our online degree program segment is the fees that our university partners pay to the third-party learning centers. The learning centers play an important role in recruiting students and providing student services including testing services. The share of tuition revenue that we receive from our university partners is after the payment of fees to the learning centers. As a result, an increase in the portion of tuition fees paid to the learning centers will result in a decrease in the portion of tuition fees that we receive as revenue. In 2009, the majority of our university partners paid fees to independent learning centers in amounts ranging from 20% to 54% of the gross tuition revenues received by their online degree programs. For fiscal years ended December 31, 2007, 2008 and 2009, the portion of gross tuition fees that our university partners paid in aggregate to independent learning centers was approximately 40%, 39% and 40%, respectively. There can be no assurance that the amounts payable to independent learning centers, as a portion of gross tuition fees, will not increase. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We derive a majority of our revenue by providing services to online degree programs, and any adverse development in this business will materially and adversely affect our overall results of operations.”

To strengthen our ability to assist our university partners to recruit students and improve student service quality as well as to enhance our profitability, we have been building a network of learning centers across China. We believe building a national network of learning centers will enable us to significantly enhance our brand recognition and to contribute to our future revenue growth. Proprietary learning centers generally require low initial capital expenditure as most are rented locations, which require moderate remodeling and furnishing of office supplies. To date, we have a total of 65 learning centers servicing 18 universities’ online degree programs.

The future results of operations of our online tutoring services will depend significantly upon our ability to increase awareness of our online tutoring programs, to improve effectiveness and efficiency of our sales channel and to develop new products and services to further enhance the learning experience of existing students and attract new students.

The results of operations of our private primary and secondary schools will depend significantly upon our capability to continue to increase enrollment and increase price post the construction of a new campus at our Anqing School and facility improvement at our Pingdingshan School. We had initially planned to commence construction of a new campus for Jingzhou School, however, due to delays and increase in construction costs, we cannot assure you that we will begin construction in the near future, or at all.

The results of operations of our international curriculum programs will depend significantly on the number of schools and students enrolled in these programs and the amount per student that we receive. Due to regulatory developments, we expect the future results for our international curriculum programs to be adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Our international curriculum programs, which include our Polytechnic and English language programs, are heavily regulated, and our ability to conduct business in this area is highly dependent on regulatory policies and our compliance with these policies.”

Our cost of revenue and operating expenses principally consist of the salaries, courseware development costs, research and development expenses, marketing expenses, administrative expenses and, depreciation and amortization costs relating to our growing business.

Net revenue

In the fiscal years ended December 31, 2007, 2008 and 2009, we generated net revenue of RMB265.0 million, RMB317.7 million and RMB354.7 million ($52.0 million) respectively, representing a CAGR of 15.7%. Our revenue is net of Chinese business taxes and related surcharges. Our net revenue from servicing the online degree programs is net of certain expenses paid by our university partners relating to their online degree programs, including fees paid to learning centers and any tuition refunds paid to students. For the years ended December 31, 2007, 2008 and 2009, the portion of gross tuition fees that our university partners paid in aggregate to third party learning centers was approximately 40%, 39% and 40%, respectively. The revenue from our other business lines, online tutoring programs, private primary and secondary schools and international curriculum programs, is driven by the number of revenue students and the fees charged for each student.

Our revenue is reported net of business taxes and related surcharges that are levied on our total revenue. Most of our revenue, except from primary and secondary schools, is subject to Chinese business tax at rates of up to 5.5%. Our primary and secondary schools are exempted from business tax. A percentage of revenue from our online degree program services and a majority percentage from our online tutoring programs are subject to value-added taxes. Such value-added tax rebates are granted to us as part of the PRC government's strategy to encourage high technology development in the PRC, and are recorded as a component of revenue when the relevant compliance requirements are met. We are not subject to further obligations, nor to future refunds or reimbursements in connection with such value-added tax rebates. We incurred business taxes of RMB7.4 million, RMB11.0 million and RMB13.7 million ($2.0 million) in the years ended December 31, 2007, 2008 and 2009, respectively. We accrued value-added tax rebates for the years ended December 31, 2007, 2008 and 2009 in the amounts of RMB2.4 million, RMB 9.9 million and RMB6.6 million ($1.0 million), respectively.

A significant portion of our revenue is derived from a small number of customers. Our three largest customers, Renmin University of China, China Agricultural University and Dongbei University of Finance and Economics, accounted for 21.1%, 17.3% and 14.0%, respectively, of our net revenue for the year ended December 31, 2007, 22.1%, 15.2% and 13.3%, respectively, of our net revenue for the year ended December 31, 2008 and 20.2%, 13.3% and 12.0%, respectively, of our net revenue for the year ended December 31, 2009.

Segment Information

We operate through four reporting segments that offer distinct educational services: online degree programs, online tutoring programs, private primary and secondary schools and international curriculum programs.

The following table sets forth the net revenue for each segment and as a percentage of net revenue for the periods indicated.

	Years ended December 31,
	2007					2008					2009
	RMB		% of net revenue			RMB		% of net revenue			RMB		US$		% of net revenue
	(In thousands, except percentages)
Net revenue:
Online degree programs		202,185		76.3	%		255,388		80.4	%		285,178		41,779		80.4	%
Online tutoring programs		18,013		6.8	%		15,436		4.8	%		19,584		2,869		5.5	%
Private primary and secondary schools		13,356		5.0	%		19,289		6.1	%		30,627		4,487		8.6	%
International curriculum programs		31,434		11.9	%		27,607		8.7	%		19,317		2,830		5.5	%
Total		264,988		100.0	%		317,720		100.0	%		354,706		51,965		100.0	%

Online degree program revenue. We generate our online degree program revenue through various collaborative alliances and other arrangements with universities in China. We expect that we will continue to earn the substantial majority of our revenue and profits from this segment in the near future. Through collaborative alliances and other arrangements, we provide a comprehensive service platform to our university customers, including academic program development, technology services, enrollment marketing, student support services and finance operations. We currently provide services to 29 universities, ten of which are structured as collaborative alliances (including GRTU and FRTU and three universities awaiting regulatory approval), four of which are structured as long-term contractual service arrangements, and three of which are structured as licensing of online education technology platform agreements (including two universities waiting for regulatory approval). We also provide recruiting and technology service to eighteen universities (including six universities which are also our collaborative alliances or have entered into long-term contractual service agreements with us). Our collaborative alliances, long-term contractual service arrangements and licensing of online education technology platform agreements are based on long-term contracts that generally vary from 10 years to 50 years.

As of December 31, 2009, our university partners had, in the aggregate, approximately 287,000 revenue students. Majority of our service fees are determined by the revenue-sharing arrangements we have with each university, as well as the terms that each university negotiates with the learning centers that provide recruiting enrollment and other student service for their online degree programs. University online degree programs generally require students to prepay tuition fees for a set number of credits at the outset of their enrollment. Under our service contracts with the universities, our service fees are calculated based upon a share of actual cash tuition received by the university after deducting certain expenses of the university, which consist of service fees paid to learning centers as well as any tuition refunds paid to students and administrative expenses. We provide technology and support services to our university partners’ online degree programs rather than directly to students. We are not responsible for academic instructional support and its associated costs. As a result, we recognize these service fees as revenue over the course of the relevant six-month academic semester for which we provide services to our university customers rather than over the period the universities provide services and support to their students.

In 2008, we began establishing our learning centers network. We provide recruiting, enrollment marketing and other student services through our learning centers network to the online degree programs of leading Chinese universities. The amount of service fees we receive is based on the agreements we enter into with the universities, and derived from tuition fees that we collect from students on behalf of the universities. Fees received are initially recorded as deferred revenue and are recognized as revenue ratably over the six-month school semester during which we provide the services.

Online tutoring program revenue. We generate our online tutoring and test preparation services revenue from the sale to students and their parents, most of which are made through distributors, of a tutoring and test preparation program known as the 101 Online School. After paying a subscription fee based on the desired use period such as a year and the desired subjects, a student has direct access to online tutoring materials. Our service fees from this business line depend upon the number of students enrolled in the online tutoring and test preparation programs, the level of fees charged and the fees paid to the distributors. Our service fees are collected in advance of the student receiving services. We recognize this revenue ratably over the applicable period that we provide services.

Private primary and secondary schools revenue. In 2005, we acquired three private primary and secondary schools in medium-sized cities in China: the Anqing School in Anqing, Anhui province, the Jingzhou School (Southern Campus) in Jingzhou, Hubei province; and the Pingdingshan School in Pingdingshan, Henan province, Our revenue from these schools is based on the number of students enrolled and tuition fees charged. The Anqing School had approximately 3,500 students for the 2009-2010 academic year. The Pingdingshan School had an enrollment of approximately 1,400 students in the 2009-2010 academic year. Our operation of the Jingzhou School (Southern Campus) will begin only after we complete the construction of a new Southern Campus (we do not own or operate the Northern campus). As discussed previously, construction of Jingzhou School’s Southern Campus has been delayed, and as a result, there is no definite expected enrollment period.

The tuition payments for each of our private primary and secondary schools are received in advance on a semester basis, and revenue is recognized ratably over the applicable period as education services are delivered. As is the case with most private schools in China, our tuition rates are subject to review and approval by the pricing authority and education authority, and are set for a particular entering class of students and remain the same through completion of the students’ studies.

International curriculum programs revenue. Historically, we generated our revenue in this segment through a contractual arrangement with WITT, to provide the FEC program that we offer to secondary schools in China, and a contractual arrangement with BCIT, to provide the BCIT program that we offer to polytechnic colleges in China. In February 2009, we entered into a partnership agreement with Howe Sound Secondary School, located in British Columbia, Canada, which we refer to as the SCC program, to provide English programs to secondary schools in China. Our revenue in this segment depends upon the number of schools participating in the international curriculum programs, the fees charged for the programs and the number of students enrolled in the programs. During the 2009-2010 academic year, approximately 2,800 students were enrolled in the international curriculum programs. Our service fees from these programs are received from schools in the fall of each year on the basis of the number of students enrolled in the program at each school and are recognized ratably over the twelve-month period as our services are delivered.

We incurred a goodwill impairment charge of RMB16.2 million related to the international curriculum programs segment during the year ended December 31, 2007 and an impairment charge of RMB68.2 million related to the international curriculum programs during the year ended December 31, 2008, of which RMB39.1 million was related to goodwill impairment and RMB29.1 million was related to intangible assets impairment. In 2009, we did not incur any impairment charges. Our management continues to believe in the long-term prospect of the international curriculum programs as we develop and provide new English language related programs given our belief that our English language program has historically been well-received by parents and students due to the high quality of the English language instruction. We also believe that there is a vast market of students in China whose needs for high quality English language instruction and access to foreign educational institutions is not currently being met by the Chinese public schools.

Cost of Revenue

We record cost of revenue separately for each of our business segments. The following table sets forth our cost of revenue for each segment and as a percentage of our net revenue for the periods indicated.

	Years ended December 31,
	2007					2008					2009
	RMB		% of net revenue			RMB		% of net revenue			RMB		US$		% of net revenue
	(In thousands, except percentages)
Cost of revenue:
Online degree programs		58,027		21.9	%		76,224		24.0	%		95,428		13,980		26.9	%
Online tutoring programs		3,875		1.5	%		4,017		1.3	%		5,713		837		1.6	%
Private primary and secondary schools		10,944		4.1	%		17,572		5.5	%		26,109		3,825		7.4	%
International curriculum programs		23,503		8.9	%		19,920		6.3	%		11,112		1,628		3.1	%
Total		96,349		36.4	%		117,733		37.1	%		138,362		20,270		39.0	%

Online degree programs . Cost of revenue for our online degree services consists primarily of employee compensation and benefits, including performance-based compensation, for our project management teams and technical personnel that directly support our university partners’ programs, and for our learning centers network, employees that directly engage in recruiting related activities. Our cost of revenue also includes rent, academic program development, courseware development and other direct costs associated with maintaining our service offerings as well as fees paid to third-party distributors at our learning centers network. Depreciation of facilities and equipment and amortization of intangible assets acquired through business combination are also included in cost of revenue for this segment.

Online tutoring programs. Cost of revenue for our online tutoring and test preparation services consists primarily of employee compensation and benefits for our employees working in this line of business, including those involved in courseware development and maintenance, and outsourcing fees we pay to non-employee contract teachers developing courseware and related materials, as well as costs associated with the amortization of intangible assets acquired through business combination.

Private primary and secondary schools. Cost of revenue for our private primary and secondary schools consists primarily of employee compensation and benefits for the teachers and administrative staff employed at the schools, depreciation for the facilities and equipment, lease payments for premises and payments of user fees for the use by our Anqing School of certain facilities of the Fourth Middle School of Anqing.

International curriculum programs. Cost of revenue for international curriculum program services consists primarily of compensation and benefits for the English-speaking teachers contracted for the program and licensing and registration fees payable to WITT and BCIT. Cost of revenue for our SCC program is currently low. The licensing fees payable to WITT are generally determined on the basis of a fixed fee for each participating student. The registration fees that we pay to BCIT are determined on the basis of the number of students enrolled in the program, and the licensing fees we pay to BCIT are based on the number and selection of subjects provided to the polytechnic schools. Our cost of revenue also include travel and lodging costs of students participating in the summer and winter programs abroad and travel and lodging related to training for senior employees, as well as costs associated with the amortization of intangible assets acquired through business combination.

Our cost of revenue also includes share-based compensation cost for employees directly engaged in revenue generation. Those costs were RMB0.3 million, RMB0.5 million and RMB0.5 million ($0.07 million) in fiscal years 2007, 2008 and 2009, representing 0.4%, 0.4% and 0.4% of our total cost of revenue in each of these periods, respectively.

In addition, the amortization of intangible assets acquired through business combinations directly used in revenue generation is included in our cost of revenue. Those costs from the amortization of intangible assets were RMB4.0 million, RMB4.0 million, and RMB3.0 million ($0.44 million) in fiscal years 2007, 2008 and 2009, representing 4.1%, 3.4% and 2.2% of our total cost of revenue in each of these periods, respectively.

Operating Expenses

Our operating expenses consist of general and administrative expenses, selling and marketing expenses, research and development expenses and share-based compensation is allocated to each item based on the nature of the service rendered by the employees who received the benefit. In 2007 and 2008, we also incurred goodwill impairment and intangible assets impairment charges primarily related to our international curriculum programs. The following table sets forth our operating expenses for each item and as a percentage of net revenue for the periods indicated.

	Years ended December 31,
	2007					2008					2009
	RMB		% of net revenue			RMB		% of net revenue			RMB		US$		% of net revenue
	(In thousands, except percentages)
Operating expenses
General and administrative		76,893		29.0	%		86,908		27.4	%		82,858		12,139		23.4	%
Selling and marketing		14,277		5.4	%		29,851		9.4	%		23,688		3,470		6.7	%
Research and development		21,021		7.9	%		26,185		8.2	%		30,385		4,451		8.5	%
Goodwill impairment		16,192		6.1	%		41,036		12.9	%		—		—		—
Intangible assets impairment		—		—			29,057		9.2	%		—		—		—
Total		128,383		48.4	%		213,037		67.1	%		136,931		20,060		38.6	%

General and administrative

Our general and administrative expenses consist primarily of employee compensation and benefits for the executive management team and employees not directly engaged in revenue generation such as human resources, finance, legal and investor relations functions. Our general and administrative expenses also include rent, administrative office expenses, depreciation and amortization of land use right. In addition, our general and administrative expenses also include share-based compensation expense for employees not directly engaged in revenue generation. Our share-based compensation expense included in general and administrative expenses was RMB3.0 million in 2007, RMB4.1 million in 2008 and RMB6.0 million ($0.88 million) in 2009 representing 3.8%, 4.7% and 7.2% of our total general and administrative expenses in these periods, respectively.

Selling and marketing

Our selling and marketing expenses consist primarily of employee compensation and benefits, advertising, industry conferences and travel. Other selling and marketing expenses include expenses associated with promotional activities and consulting fees.

Our selling and marketing expenses include the share-based compensation expense for employees working in sales and marketing. Our share-based compensation expense included in selling and marketing expenses was RMB0.2 million, RMB0.5 million and RMB0.7 million ($0.10 million) in each of the years ended December 31, 2007, 2008 and 2009, respectively, representing 1.6%, 1.7% and 2.9% of our total selling and marketing expenses in these periods, respectively.

Our selling and marketing expenses also include the amortization of intangible assets acquired through business combinations which benefited our sales and marketing efforts. Those costs were RMB3.3 million in 2007, RMB3.3 million in 2008, and RMB0.8 million ($0.11 million) in 2009, representing 23.0%, 10.9% and 3.3% of our total selling and marketing expenses in each of these periods, respectively.

Research and development

Our research and development expenses consist primarily of employee compensation and benefits and other personnel-related costs associated with development of new or enhanced technologies, products and services. Our research and development expenses also include share-based compensation expense for employees working in research and development. In 2007, 2008 and 2009, our research and development expenses have largely been related to our online degree programs. We expense all research and development costs when incurred.

Our share-based compensation expenses included in research and development were RMB0.1 million, RMB0.2 million, and RMB0.3 million ($0.04 million) in the years ended December 31, 2007, 2008 and 2009, respectively. These amounts represent less than 1% of our total research and development expenses in each of these periods.

Goodwill impairment and intangible assets impairment

In fiscal year 2008, we recorded total goodwill and intangible assets impairment charges of RMB70.1 million compared to RMB16.2 million related to goodwill impairment in 2007. Of the RMB70.1 million impairment recorded in 2008, RMB41.0 million related to goodwill impairment and RMB29.1 million related to intangible assets impairment. We did not incur any impairment charges in 2009.

Goodwill impairment. Based on annual goodwill impairment assessments performed by management as of December 31, 2007, 2008 and 2009, we recorded goodwill impairment losses of RMB16.2 million, RMB41.0 million and RMB nil for the years ended December 31, 2007, 2008 and 2009, respectively. The goodwill impairment charge for the year ended December 31, 2007 was due to management’s significantly reduced profit forecast for our FEC program, which is a component of our international curriculum programs. Of the RMB41.0 million goodwill impairment loss for the year ended December 31, 2008, RMB39.1 million was related to our international curriculum programs, for which management significantly reduced its profitability forecast due to adverse changes in the PRC government regulatory environment and the resulting early mutual termination of our agreement with WITT. The remaining goodwill impairment charge of RMB1.9 million for the year ended December 31, 2008 was related to a goodwill impairment charge for our private primary and secondary schools, primarily due to management's assessment that construction of Jingzhou School's South campus would be further delayed, and as a result there was no definite expected enrollment period.

Intangible assets impairment. No impairment of intangible assets was recorded in fiscal years 2007 and 2009, respectively. For fiscal year 2008, we recorded an impairment loss of intangible assets of RMB29.1 million. The intangible assets impairment loss for the year ended December 31, 2008 was also related to our international curriculum programs, for which we have significantly reduced our profitability forecast due to the adverse changes in the PRC government regulatory environment and the resulting mutual termination of our agreement with WITT.

Share-Based Compensation Expenses

We incurred share-based compensation expenses of RMB3.6 million, RMB5.2 million and RMB7.4 million ($1.1 million) for the years ended December 31, 2007, 2008 and 2009, respectively. As of December 31, 2009, our unrecognized share-based compensation costs totaled RMB12.8 million ($1.9 million), which was expected to be recognized over a weighted average vesting period of 2.25 years.

Our share-based compensation charges have been allocated to cost of revenue, general and administrative, selling and marketing and research and development expenses in line with the nature of the service rendered by the employee who received the benefit.

The allocation of share-based compensation expenses is listed in the table below:

	Years ended December 31,
	2007					2008					2009
	RMB		% of net revenue			RMB		% of net revenue			RMB		US$		% of net revenue
	(In thousands, except percentages)
Share-based compensation expenses:
Cost of revenue		346		0.1	%		474		0.15	%		489		72		0.14	%
General and administrative		2,960		1.1	%		4,073		1.28	%		5,982		876		1.69	%
Selling and marketing		222		0.08	%		506		0.16	%		676		99		0.19	%
Research and development		115		0.04	%		178		0.06	%		269		39		0.07	%
Total		3,643		1.3	%		5,231		1.65	%		7,416		1,086		2.09	%

Taxation

Cayman Islands

We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gain. In addition, upon payments of dividends by us to our shareholders, no Cayman Islands withholding tax will be imposed.

British Virgin Islands

Under the current BVI law, income from BJ-BCIT and BJ-WITT are not subject to taxation.

PRC

Our PRC entities, including subsidiaries and affiliated entity or variable interest entity, were subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws. In 2007, the EIT rate for companies operating in the PRC was 33%.

Prior to January 1, 2008, our PRC entities which qualified as “high and new technology enterprises” (“HNTE”) under the EIT Law included CMR Web, Hongcheng Technology, Hongcheng Liye, Hongcheng Education, Beijing Xuezhi, WITT Education, Zhongnongda Network, Beijing Mingdao, Beiyuda, Dongcai and Chongda. Among those, CMR Web, Hongcheng Technology, Hongcheng Liye, Hongcheng Education, Beijing Xuezhi, WITT Education, Zhongnongda Network, Beijing Mingdao and Beiyuda were entitled to a preferential tax rate of 15% with three-year exemption followed by a reduced tax rate of 7.5% for the subsequent three years. Dongcai and Chongda were entitled to a preferential tax rate of 15% with two-year exemption followed by a reduced tax rate of 7.5% for the subsequent three years.

On March 16, 2007, the National People’s Congress adopted the Enterprise Income Tax Law (“the New EIT Law”) which became effective on January 1, 2008. The New EIT Law applies a uniform 25% enterprise income tax rate to both foreign invested enterprises and domestic enterprises.

Under the New EIT Law, an enterprise which qualifies as a “high and new technology enterprise” (“the new HNTE”) is entitled to a tax rate of 15%. CMR Web, Hongcheng Liye, Hongcheng Education, Gotop Hongcheng, Beiyuda, Dongcai, and Zhongnongda Network obtained the new HNTE status in 2008, Hongcheng Technology obtained the new HNTE status in 2009.

One of our subsidiaries, Chongda, which qualified as a “software enterprise” under the new EIT law is entitled to a preferential tax rate of 12.5% for 2008, 2009 and 2010.

The preferential tax rates of our PRC entities, different from the statutory rates, which were used to calculate the tax provision based on our interpretation of the New EIT Law as of the balance sheet date, are presented in the following table.

PRC entities	2007			2008			2009			2010			2011

CMR Web (1)		15.0	%		15.0	%		15.0	%		15.0	%		15.0	%
Hongcheng Technology (1)		15.0	%		25.0	%		15.0	%		15.0	%		15.0	%
Hongcheng Liye (1)		7.5	%		7.5	%		15.0	%		15.0	%		15.0	%
Hongcheng Education (1)		0.0	%		7.5	%		7.5	%		7.5	%		15.0	%
Beijing Xuezhi		7.5	%		25.0	%		25.0	%		25.0	%		25.0	%
WITT Education		7.5	%		25.0	%		25.0	%		25.0	%		25.0	%
Zhongnongda Network (1)		7.5	%		15.0	%		15.0	%		15.0	%		15.0	%
Beijing Mingdao		0.0	%		25.0	%		25.0	%		25.0	%		25.0	%
Beiyuda (1)		0.0	%		0.0	%		0.0	%		7.5	%		15.0	%
Dongcai (1)		7.5	%		15.0	%		15.0	%		15.0	%		15.0	%
Chongda		0.0	%		12.5	%		12.5	%		12.5	%		25.0	%
Gotop Hongcheng (1)		33.0	%		0.0	%		7.5	%		7.5	%		7.5	%

(1) The new HNTE status obtained by CMR Web, Hongcheng Technology, Hongcheng Liye, Hongcheng Education, Zhongnongda Network, Beiyuda, Dongcai and Gotop Hongcheng under the New EIT Law is valid for three years and qualifying entities can then apply to renew for an additional three years provided their business operations continue to qualify for the new HNTE status. We believe it is highly likely that our qualifying entities will continue to obtain the renewal in the future. Accordingly, in calculating deferred tax assets and liabilities, we assumed our qualifying entities will continue to renew the new HNTE status at the conclusion of the initial three year period.

On April 21, 2010, the State Administration of Taxation issued Circular 157 Further Clarification on Implementation of Preferential EIT Rate during Transition Periods (“Circular 157”). Circular 157 seeks to provide additional guidance on the interaction of certain preferential tax rates under the transitional rules of the New EIT Law. Prior to issuance of Circular 157, we interpreted the law to mean that if an entity was in a period where it was entitled to a 50% reduction in the tax rate and was also entitled to a 15% rate of tax due to HNTE status under the New EIT Law then it was entitled to pay tax at the rate of 7.5%. Circular 157 appears to have the effect that such an entity is entitled to pay tax at either 15% or 50% of the standard PRC tax rate. The effect of Circular 157 is retrospective and would apply to 2008 and 2009.

As a consequence of Circular 157, the preferential tax rate enjoyed by Hongcheng Liye, Hongcheng Education, Gotop Hongcheng, and Beiyuda which each qualified as a HNTE during their 50% reduction period will be 12.5% for the relevant years, rather than 7.5% which is the rate we had used prior to the issuance of Circular 157. We believe that Circular 157 is similar to a change in tax law, the cumulative effect of which should be reflected in the period of the change.

As a result, we will adjust the deferred tax asset and deferred tax liability as of December 31, 2009 for those impacted entities. The resulting additional tax charge of RMB0.7 million will be recorded in the quarter ending June 30, 2010.

The procedures for obtaining classification as “high and new technology enterprises” are very complicated and time consuming, and the standards for classification as a “high and new technology enterprise” are not easy to achieve. We cannot assure you that our entities currently classified as “high and new technology enterprises” will continue to be classified as such after the expiration of the initial three year period. Preferential tax treatments granted to our Chinese entities by Chinese governmental authorities are subject to review and may be adjusted or revoked at any time. If our subsidiaries and affiliated entity fail to maintain their preferential tax treatments, they will be subject to the 25% unified enterprise income tax rate.

The amount of income tax payable by our Chinese subsidiaries in the future will depend on various factors, including, among other things, their results of operations and taxable income, and the statutory tax rate. Our effective tax rate depends in part on the extent of each of our subsidiaries’ relative contribution to our consolidated taxable income. As our business expands, we may establish new entities from time to time that, depending on applicable law, may be entitled to certain tax incentives, including reduced tax rates. We intend to continue to explore opportunities to take advantage of available tax incentives. In addition, the expiration of our remaining tax exemptions and recognition of more share-based compensation expense in the future will cause our effective tax rate to increase, since share-based compensation is not deductible for Chinese tax purposes.

We have net operating loss carryforwards of RMB22.4 million from our PRC entities for the year ended December 31, 2009 that will expire on various dates between December 31, 2010 and December 31, 2014.

As of December 31, 2009, a valuation allowance of RMB3.5 million was provided against deferred tax assets including net operating loss carryforwards of certain of our PRC entities due to our determination that it is more likely than not that these deferred tax assets related to the respective entities will not be realized. Adjustments will be made to the valuation allowance if events occur in the future that indicate changes in the amount of deferred tax assets that may be realized.

We operate through multiple PRC entities and the valuation allowances are considered separately for each PRC entity. We do not file consolidated tax returns, and, therefore, losses and deferred taxes from one PRC entity may not be used to offset another entity’s earnings or deferred taxes.

We recognized RMB3.7 million accumulated impact of unrecognized tax benefit to accumulated deficits as of January 1, 2007 and the accumulated unrecognized tax benefits was RMB5.5 million and RMB7.7 million as of December 31, 2008 and 2009, respectively. We recognized RMB0.1 million interest and RMB0.9 million penalties for the year the ended December 31, 2009.

The EIT Law includes a provision specifying that legal entities organized outside China will be considered residents for Chinese income tax purposes if their place of effective management or control is within China. If legal entities organized outside China were considered residents for Chinese income tax purpose, they would become subject to the EIT Law on their worldwide income. This would cause any income that legal entities organized outside China earned to be subject to China’s 25% EIT. The Implementation Rules to EIT Law provide that non-resident legal entities will be considered China residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. resides within China. Pursuant to the additional guidance released by the Chinese government on April 22, 2009, we do not believe that the legal entities organized outside China should be characterized as China tax residents for EIT Law purposes.

Under the PRC tax laws effective prior to January 1, 2008, dividends paid to foreign investors by foreign-invested enterprises, such as dividends paid to the overseas holding companies by the PRC subsidiaries, were exempt from PRC withholding tax. Under the EIT Law and its implementation rules which became effective on January 1, 2008, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign investors who are nonresident enterprises are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

Our subsidiaries located in PRC had aggregate accumulated gain of approximately RMB38.5 million as of December 31, 2009. Since we have decided to reinvest those profits for future development, no provision has been made for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to us. Accordingly, no deferred tax liability has been accrued for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to us as of December 31, 2009.

Under applicable accounting principles, a deferred tax liability should be recorded for taxable temporary differences attributable to the excess of carrying amount over tax basis, including those differences attributable to a more than 50% interest in a domestic subsidiary. However, recognition is not required in situations where the tax law provides a means by which reported amounts of such interest can be recovered tax-free and the enterprise expects that it will ultimately use that means. We have not recorded any such deferred tax liability attributable to the financial interest in our variable interest entity and its subsidiaries because they were in an accumulated loss position as of December 31, 2009.

Critical Accounting Policies

We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements, and the reported amounts of revenue and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

Since we generate all of our revenue from customers in China, we do not account for our results of operations on a geographical basis.

Revenue Recognition

Our revenue is principally derived from three primary sources: (i) the provision of bundled online education technical, consulting and recruiting services; (ii) the provision of online tutoring services; and (iii) the provision of traditional classroom education services. Revenue is recognized when earned and is reported net of business tax and surcharges, which totaled RMB7.4 million, RMB11.0 million and RMB13.7 million for the years ended December 31, 2007, 2008 and 2009, respectively.

Online education technical, consulting and recruiting services

Our primary business is to provide online education technical and consulting services to the online degree programs of leading Chinese universities. These services include academic program development, technology services, enrollment marketing, student support services, and finance operations. Since each of the services does not have a stand-alone value to the universities, these services are accounted for as one unit of accounting and the related revenue is recognized ratably over the service period. We primarily host the online education technology on our system and provide access to the universities to whom we provide services and their students. Any universities that prefer hosting the online education platform or courseware on their own systems must enter into separate arrangements with us.

We receive service fees from the universities each semester covering services to be provided to the universities during that semester. The amount of service fees to be received by us is derived from tuition fees collected by the universities from their students at the beginning of each semester, as adjusted for the universities' costs and expenses, such as refunds to students, fees to other service providers, and other operating costs and expenses.

We also provide recruiting, enrollment marketing and other student services through our learning centers network to the online degree programs of leading Chinese universities. The amount of service fees received is based on the agreements entered into with the universities, and derived from tuition fees that we collect from students on behalf of the universities.

Service fees received are initially recorded as deferred revenue and are recognized as revenue ratably over the six-month school semester during which we provide the services. The semesters generally begin in April and October of each calendar year.

Online tutoring services

We offer online interactive tutoring services to primary and secondary students. These services allow the customers access to the online education services over a fixed period of time, generally ranging from one month to three years, through the use of prepaid cards. The prepaid cards are sold to distributors, from whom we collect payments when the prepaid cards are delivered to the distributors. The distributors then resell the cards to end users. All prepaid fees received from distributors are initially recognized as deferred revenue and revenue is recognized ratably over the applicable period that we provide services to the end users.

Traditional classroom education services

We operate a number of private primary and secondary schools, and market and support international post-secondary and English language curriculum programs to established learning institutions. Students must register and pay for their classes at the beginning of each semester. Fees collected from private primary and secondary schools operations upfront are initially recorded as deferred revenue at the time the students register for their classes and we receive payments. Revenue is recognized ratably over the service period, which is six months for each school semester, as the education services are delivered. If a student withdraws from a class, any collected but unearned portion of the fee is recognized at that time unless the student is entitled to a refund under limited circumstances.

For the international post-secondary and English language curriculum programs, students must register and pay for their classes at the beginning of each semester. Fees collected from the provision of teaching and other support services to the learning institutions are recognized either when such services are provided, or on a straight-line basis over the service period, which is typically the six-month school semester.

Income Taxes

Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in our opinion, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.

Share-Based Compensation

The fair value of the option award was estimated on the date of grant or the date of modification using the Black-Scholes option pricing model that uses assumptions, including fair value of the ordinary shares underlying to the options, risk free interest rate, expected life, expected dividend yield and expected volatility. The Black-Scholes model is one of the most commonly used models that meet the criteria required by authoritative pronouncement regarding accounting for share-based payment in estimating fair value of employee share options.

We have historically used the following assumptions on the date of grant or modification:

	2007			2008			2009

Option granted or modified to employees:
Weighted average risk-free interest rate		4.45	%		2.62	%		2.19	%
Weighted average expected option life (years)		5.0			6.0			5.3
Weighted average volatility rate		44.1	%		46.6	%		49.4	%
Weighted average dividend yield		-			-			-

(a) Volatility

The volatility of the underlying ordinary shares during the life of the options was estimated based on the historical stock price volatility of our ordinary shares and listed shares of comparable companies over a period similar to the expected term of the options. Most of the options were granted prior to our IPO or during the year ended December 31, 2007 when we had limited historical data on the price of our publicly traded shares. Therefore we did not have sufficient company specific information regarding the volatility of our share price on which to base an estimate of expected volatility. As such, we based our estimate of expected volatility on the historical volatility of comparable entities whose share prices are publicly available.

Since our IPO in December 2007, we have had slightly less than two and a half years of historical market price data for our ADSs, the historical share price data of our ADSs was limited. The average historical volatility of the market price of our ADSs over the period from December 2007 to May 31, 2010 was 50.4%. For future grants, we will consider all relevant information in determining an appropriate volatility assumption.

(b) Risk-free interest rate

Risk-free interest rate was estimated based on the yield, as of the grant date, to maturity of treasury bonds of the United States with a maturity period close to the expected term of the options.

As we did not have sufficient historical data on the exercise of share options, we estimated the expected term with reference to the average between the weighted average vesting period of the options and the contractual term. Of the 10,703,803 options outstanding as of December 31, 2009, 8,065,670 options were granted prior to the IPO, representing 75.4% of the total. We did not believe we had sufficient historical information as at grant date of the options to make a refined estimate of expected term. Therefore, we estimate the expected life as the average between the weighted average vesting term of the options and the contractual term. In the future, should more detailed information be available to us, we would consider adoption a different method of estimating expected term.

(d) Dividend yield

We assumed a zero dividend yield based on our expected dividend policy over the expected term of the options. We anticipate growing our business with internally generated cash and do not expect to pay dividends in the foreseeable future, nor have we paid any dividends to date.

(e) Exercise price

The exercise price of the options was determined by our board of directors.

(f) Fair value of underlying ordinary shares

When estimating the fair value of the ordinary shares on the grant dates before the IPO, we considered a number of factors, including the results of our equity transactions, while taking into account standard valuation methods and the achievement of certain events. After the IPO, we used the closing market price of our ADSs as of the grant date as the fair value of the underlying ordinary shares on that date.

As of December 31, 2009, there were options outstanding for the purchase of 10,703,803 ordinary shares and options for the purchase of 289,778 ordinary shares available for future grant under our equity incentive plan. The share-based compensation expenses arising from the options we have granted are being recognized over the applicable vesting period, which typically is three years.

Basis for Consolidation and Our Relationships with Our Chinese Affiliated Entity

Substantially all of our operations are conducted in China through our three principal Chinese subsidiaries and through contractual arrangements with our Chinese affiliated entity. Our corporate structure is designed to comply with current Chinese limitations on foreign ownership of, and participation in, companies engaging in the education and telecommunication sectors in China. We consolidate 100% of the interests of our subsidiaries and Chinese affiliated entity.

We conduct some of our operations through our Chinese affiliated entity, Hongcheng Education, in which we do not directly hold any equity interest. We entered into contractual arrangements with this entity and its shareholders pursuant to which we maintain effective control over this entity, bear all of its economic risk and receive substantially all of its economic rewards. In our consolidated financial statements, we have consolidated all of the interests of Hongcheng Education under authoritative pronouncement regarding consolidation of variable interest entities.

Authoritative pronouncement regarding consolidation of variable interest entities requires a “variable interest entity” to be consolidated by the primary beneficiary of such entity. An entity is considered to be a variable interest entity if certain conditions are present, including where the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. As a result of our various agreements with Hongcheng Education and its respective shareholders, we are considered the primary beneficiary of Hongcheng Education and all of its subsidiaries; which have been consolidated in our financial statements. All significant transactions and balances between us, our subsidiaries, Hongcheng Education have been eliminated upon consolidation.

For additional information with respect to our relationships with Hongcheng Education, see “Item 4. Information on the Company—C. Organizational Structure.”

Long-lived Assets

Our accounting for long-lived assets, including property and equipment , is described in Note 2 to our consolidated financial statements included in this annual report. The recorded value of long-lived assets is affected by a number of management estimates, including estimated useful lives, residual values and impairment charges. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, we measure impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, we would recognize an impairment loss based on the fair value of the assets.

Goodwill and Acquired Intangible Assets

The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheet as goodwill.

Goodwill is not amortized but is evaluated at least annually for impairment following a two-step process. The first step compares the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit's goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.

Acquired intangible assets are carried at cost, less accumulated amortization and impairment. We amortize acquired intangible assets (other than trade names, which are discussed below) over their respective individual estimated useful lives in proportion to the economic benefits consumed in each period. Our estimates of the useful lives of identified intangible assets are based on a number of factors, including the effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, and known technological advances), and the level of maintenance expenditures required to obtain the expected future undiscounted cash flows from the asset. We determined that our trade names do not have determinable useful lives. Consequently, the carrying amounts of trade names are not amortized but are tested for impairment annually or more frequently if events or circumstances indicate that the asset may be impaired.

We evaluate intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may no longer be recoverable. When these events occur, we measure impairment by comparing the carrying value of the acquired intangible assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the acquired intangible assets, we would recognize an impairment loss based on the fair value of the assets.

The total carrying amount of goodwill is RMB38.2 million as of December 31, 2009. RMB12.9 million, RMB20.8 million and RMB4.5 million are allocated to online degree programs reporting unit, online tutoring programs reporting unit, and the international curriculum programs reporting unit, respectively. In evaluating goodwill and acquired intangible assets for impairment, we sought the assistance of independent valuation experts, perform internal valuation analyses and consider publicly available information regarding our market capitalization when assessing the reasonableness of the cumulative fair values of the reporting units. In applying the income approach, the discounted cash flow methodology was used.

We considered two generally accepted valuation approaches: market and income. In 2009, the comparability of earning multiples of public traded education companies and hence the reliability of market approach was low because most publicly traded education companies operate in the U.S. and they were adversely impacted by the global financial crisis. Therefore, we used the discounted cash flow, or DCF, method of the income approach to assess the goodwill impairment in 2009.

The following are critical assumptions in determining the fair value of the reporting units as of December 31, 2009:

The revenue growth for each reporting units is projected based on discrete five year revenue forecasts. For the year 2010-2014, the CAGR of the three reporting units are approximately 10%, 13% and 5% for the online degree programs, online tutoring programs and the international curriculum programs, respectively.

In the projection periods, the cost of revenues as a percentage of revenues is expected to remain stable, except for the international curriculum programs with a lower margin in the year 2010.

Operating expenses, including selling expenses, R&D expenses and general and administrative expenses, as a percentage of sales is expected to remain stable.

To maintain normal operations, capital expenditures are estimated to be around 5%, 1% and 1% of revenue for the three reporting units, respectively.

The working capital requirement is estimated based on main accounts turnover days.

A perpetual growth rate after 2014 is assumed to be at 3% per year for the three reporting units.

The weighted average cost of capital, or WACC, used in the calculation is 20%, 26.5% and 24% for the three reporting units, respectively.

Estimates of fair value result from a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions at a point in time. The judgments made in determining an estimate of fair value can materially impact our results of operations. The valuations are based on information available as of the impairment review date and are based on expectations and assumptions that have been deemed reasonable by management. Any changes in key assumptions, including unanticipated events and circumstances, may affect the accuracy or validity of such estimates and could potentially result in an impairment charge.

In the fiscal year 2007, we incurred a goodwill impairment charge of RMB16.2 million related to the international curriculum programs segment due to management’s significantly reduced profit forecast for our international curriculum programs. In the fiscal year 2008, we recognized total goodwill impairment and intangible assets impairment charges of RMB70.1 million. Of this amount, RMB68.2 million of impairment loss was related to the international curriculum programs, which management has significantly reduced profitability forecast due to adverse change in government regulatory environment and the resulting early mutual termination of our agreement with WITT. The remaining goodwill impairment charge of RMB1.9 million for the private primary and secondary schools was primarily due to management’s assessment that construction of Jingzhou School’s South campus would be further delayed, and as a result there is no definite expected enrollment period. There was no impairment charge of goodwill and intangible assets in the fiscal year 2009.

Royalty Fees

Royalty fees payable to a middle school increases each year from the 2005 calendar year to the 2024 calendar year. Royalty fees during this period were aggregated and recognized as royalty expense on a straight-line basis. The difference between royalty fees paid and the amount reported as expenses was included as a component of accrued expenses and other current liabilities in the consolidated financial statements.

Recent Accounting Pronouncements

In June 2009, the FASB issued an authoritative pronouncement that changes how a company determines whether an entity should be consolidated when such entity is insufficiently capitalized or is not controlled by the company through voting (or similar rights). The determination of whether a company is required to consolidate an entity is based on, among other things, the entity's purpose and design and the company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. The pronouncement retains the scope of previously issued pronouncements but added entities previously considered qualifying special purpose entities, since the concept of these entities was eliminated by FASB. The pronouncement is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2009. The adoption of this pronouncement will not have a significant impact on our financial condition or results of operations.

In October 2009, the FASB issued an authoritative pronouncement regarding the revenue arrangements with multiple deliverables. This pronouncement was issued in response to practice concerns related to the accounting for revenue arrangements with multiple deliverables under existing pronouncement. Although the new pronouncement retains the criteria from existing pronouncement for when delivered items in a multiple-deliverable arrangement should be considered separate units of accounting, it removes the previous separation criterion under existing pronouncement that objective and reliable evidence of the fair value of any undelivered items must exist for the delivered items to be considered a separate unit or separate units of accounting. The new pronouncement is effective for fiscal years beginning on or after June 15, 2010. Entities can elect to apply this pronouncement (1) prospectively to new or materially modified arrangements after the pronouncement's effective date or (2) retrospectively for all periods presented. Early application is permitted; however, if the entity elects prospective application and early adopts this pronouncement after its first interim reporting period, it must also do the following in the period of adoption: (1) retrospectively apply this pronouncement as of the beginning of that fiscal year and (2) disclose the effect of the retrospective adjustments on the prior interim periods' revenue, income before taxes, net income, and earnings per share. We are in the process of evaluating the effect of adoption of this pronouncement.

In October 2009, the FASB issued an authoritative pronouncement regarding software revenue recognition. This new pronouncement amends existing pronouncement to exclude from their scope all tangible products containing both software and non-software components that function together to deliver the product's essential functionality. That is, the entire product (including the software deliverables and non-software deliverables) would be outside the scope of software revenue recognition and would be accounted for under other accounting literature. The new pronouncement include factors that entities should consider when determining whether the software and non-software components function together to deliver the product's essential functionality and are thus outside the revised scope of the authoritative literature that governs software revenue recognition. The pronouncement is effective for fiscal years beginning on or after June 15, 2010. Entities can elect to apply this pronouncement (1) prospectively to new or materially modified arrangements after the pronouncement's effective date or (2) retrospectively for all periods presented. Early application is permitted; however, if the entity elects prospective application and early adopts this pronouncement after its first interim reporting period, it must also do the following in the period of adoption: (1) retrospectively apply this pronouncement as of the beginning of that fiscal year and (2) disclose the effect of the retrospective adjustments on the prior interim periods' revenue, income before taxes, net income, and earnings per share. We are in the process of evaluating the effect of adoption of this pronouncement.

In January 2010, the FASB issued authoritative guidance on accounting for distributions to shareholders with components of stock and cash. The objective of this new guidance is to clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected prospectively in earnings per share and is not considered a stock dividend for purposes of accounting treatment of equity and earnings per share. This new guidance is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this guidance will not have a significant effect on our consolidated financial position or results of operations.

In January 2010, the FASB issued authoritative guidance to clarify the scope of accounting and reporting for decreases in ownership of a subsidiary. The objective of this guidance is to address implementation issues related to changes in ownership provisions. This guidance clarifies certain conditions, which need to apply to this guidance, and it also expands disclosure requirements for the deconsolidation of a subsidiary or derecognition of a group of assets. This guidance is effective in the period in which an entity adopts the authoritative guidance on noncontrolling interests in consolidated financial statements. If an entity has previously adopted the guidance on noncontrolling interests in consolidated financial statements, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. Retrospective application to the first period that an entity adopted the guidance on noncontrolling interests in consolidated financial statements is required. The adoption of this guidance will not have a significant effect on our consolidated financial position or results of operations.

In April 2010, the FASB issued an authoritative pronouncement on milestone method of revenue recognition. The scope of this pronouncement is limited to arrangements that include milestones relating to research or development deliverables. The pronouncement specifies guidance that must be met for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The guidance applies to milestones in arrangements within the scope of this consensus regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting. The pronouncement will be effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early application is permitted. Companies can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. We are in the process of evaluating the effect of adoption of this pronouncement.

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

Results of Operations

The following table sets forth selected data from our consolidated statements of operations for the periods indicated.

	Years ended December 31,
	2007 (As adjusted)						2008 (As adjusted)						2009
	RMB			% of net revenue			RMB			% of net revenue			RMB			US$			% of net revenue
	(In thousands, except for percentages)
Net revenue:
Online degree programs		202,185			76.3	%		255,388			80.4	%		285,178			41,779			80.4	%
Online tutoring programs		18,013			6.8	%		15,436			4.8	%		19,584			2,869			5.5	%
Private primary and secondary schools		13,356			5.0	%		19,289			6.1	%		30,627			4,487			8.6	%
International curriculum programs		31,434			11.9	%		27,607			8.7	%		19,317			2,830			5.5	%
Total net revenue		264,988			100.0	%		317,720			100	%		354,706			51,965			100	%
Cost of revenue:
Online degree programs		58,027			21.9	%		76,224			24.0	%		95,428			13,980			26.9	%
Online tutoring programs		3,875			1.5	%		4,017			1.3	%		5,713			837			1.6	%
Private primary and secondary schools		10,944			4.1	%		17,572			5.5	%		26,109			3,825			7.4	%
International curriculum programs		23,503			8.9	%		19,920			6.3	%		11,112			1,628			3.1	%
Total cost of revenue		96,349			36.4	%		117,733			37.1	%		138,362			20,270			39.0	%
Gross profit:
Online degree programs		144,158			54.4	%		179,164			56.4	%		189,750			27,799			53.5	%
Online tutoring programs		14,138			5.3	%		11,419			3.6	%		13,871			2,032			3.9	%
Private primary and secondary schools		2,412			0.9	%		1,717			0.5	%		4,518			662			1.2	%
International curriculum programs		7,931			3.0	%		7,687			2.4	%		8,205			1,202			2.4	%
Total gross profit		168,639			63.6	%		199,987			62.9	%		216,344			31,695			61.0	%
Gross profit margin:
Online degree programs		71.3	%		—			70.2	%		—			66.5	%		66.5	%		—
Online tutoring programs		78.5	%		—			74	%		—			70.8	%		70.8	%		—
Private primary and secondary schools		18.1	%		—			8.9	%		—			14.8	%		14.8	%		—
International curriculum programs		25.2	%		—			27.8	%		—			42.5	%		42.5	%		—
Total gross profit margin		63.6	%		—			62.9	%		—			61.0	%		61.0	%		—
Operating expenses:
General and administrative		76,893			29.0	%		86,908			27.4	%		82,858			12,139			23.4	%
Selling and marketing		14,277			5.4	%		29,851			9.4	%		23,688			3,470			6.7	%
Research and development		21,021			7.9	%		26,185			8.2	%		30,385			4,451			8.5	%
Goodwill impairment		16,192			6.1	%		41,036			12.9	%		—			—			—
Intangible assets impairment		—			—			29,057			9.2	%		—			—			—
Total operating expenses		128,383			48.4	%		213,037			67.1	%		136,931			20,060			38.6	%
Income (loss) from operations		40,256			15.2	%		(13,050	)		(4.2	)%		79,413			11,635			22.4	%
Operating margin		15.2	%					(4.2	)%		—			22.4	%		22.4	%
Other income		394			0.1	%		562			0.2	%		1,748			256			0.5	%
Interest income		4,118			1.6	%		10,652			3.4	%		4,980			730			1.4	%
Interest expense		(2,130	)		(0.8	)%		(1,298	)		(0.4	)%		(2	)		—			—
Income (loss) before income tax provisions and noncontrolling intere st (1)		42,638			16.1	%		(3,134	)		(1.0	)%		86,139			12,621			24.3	%
Income tax provisions		15,003			5.7	%		3,473			1.1	%		19,287			2,826			5.5	%
Net income (loss)		27,635			10.4	%		(6,607	)		(2.1	)%		66,852			9,795			18.8	%
Less: net income contributable to the noncontrolling interests		25,148			9.5	%		36,412			11.4	%		32,073			4,699			9.0	%
Net income (loss) attributable to ChinaEdu Corporation shareholders		2,487			0.9	%		(43,019	)		(13.5	)%		34,779			5,096			9.8	%

(1) We adopted authoritative pronouncement on noncontrolling interests in consolidated financial statements on January 1, 2009, retrospectively.

Year ended December 31, 2009 compared to the year ended December 31, 2008

Net Revenue. Our total net revenue for the fiscal year ended December 31, 2009 was RMB354.7 million ($52.0 million), representing an 11.6% increase, compared to RMB317.7 million for the fiscal year ended December 31, 2008.

Online degree programs. Net revenue from online degree programs for the fiscal year 2009 was RMB285.2 million ($41.8 million), representing an 11.7% increase from RMB255.4 million for the fiscal year 2008. This increase was attributable primarily to the enrollment growth at our university partners’ online degree programs in fiscal year 2009 as compared to fiscal year 2008. In the aggregate, our university partners had approximately 287,000 revenue students during fiscal year 2009, representing an 18.1% increase from approximately 243,000 revenue students in fiscal year 2008.

Online tutoring programs. Net revenue from our online tutoring business increased approximately 26.9% from RMB15.4 million for the fiscal year 2008 to RMB19.6 million ($2.9 million) for the fiscal year 2009. The increase was primarily because we expanded our sales channels, developed additional courseware and enhanced customer service.

Private primary and secondary schools. Net revenue from our private primary and secondary school business increased approximately 58.8% from RMB19.3 million for the fiscal year 2008 to RMB30.6 million ($4.5 million) for the fiscal year 2009. This was primarily due to a 56.2% increase in enrollments at our Anqing School for the 2008-2009 academic year and a 40% increase in enrollments at Anqing School for the 2009-2010 academic year.

International curriculum programs . Net revenue from our international curriculum programs decreased approximately 30.0% from RMB27.6 million for the fiscal year 2008 to RMB19.3 million ($2.8 million) for the fiscal year 2009. This decrease was mainly attributable to the further decrease in student enrollment resulting from the termination of our agreement with WITT in the fiscal year 2009 as compared to the fiscal year 2008 Students participating in the international curriculum programs decreased from 4,000 for the fiscal year 2008 to 2,800 for the fiscal year 2009.

Cost of Revenue. Total cost of revenue for fiscal year 2009 was RMB138.4 million ($20.3 million), representing a 17.5% as compared to RMB117.7 million for fiscal year 2008.

Online degree programs. Cost of revenue from our online degree programs for fiscal year 2009 was RMB95.4 million ($14.0 million), representing a 25.2% increase from RMB76.2 million in fiscal year 2008. The increase was primarily due to the cost increase related to the expansion of our learning centers network and increase in employee related costs throughout fiscal year 2009.

Online tutoring programs. Our cost of revenue for our online tutoring programs increased approximately 42.2% from RMB4.0 million for the fiscal year 2008 to RMB5.7 million ($0.8 million) for the fiscal year 2009. This increase was the result of new product development costs incurred during the fiscal year 2009.

Private primary and secondary schools. Our cost of revenue for our private primary and secondary schools increased approximately 48.6% from RMB17.6 million for the fiscal year 2008 to RMB26.1 million ($3.8 million) for the fiscal year 2009. This was mostly attributable to the increase in the enrollment which resulted in increased employee related cost, and depreciation of property and equipment as we completed the construction of the Anqing School’s new campus.

International curriculum programs. Our cost of revenue for our international curriculum programs decreased approximately 44.2% from RMB19.9 million for the fiscal year 2008 to RMB11.1 million ($1.6 million) for the fiscal year 2009. This decrease was primarily attributable to the decrease in the related operational costs associated with the decrease in student enrollment.

Gross Profit and Gross Margin. Gross profit for the fiscal year 2009 was RMB216.3 million ($31.7 million) as compared with RMB200.0 million for the fiscal year 2008, representing an increase of 8.2%. Gross margin for the fiscal year 2009 was 61.0%, as compared with gross margin of 62.9% for the fiscal year 2008. Gross margin for the online degree programs was 66.5% in 2009 as compared with gross margin for the online degree programs of 70.2% for 2008. The decrease in gross margin was primarily due to investment in our learning centers network.

Operating Expenses Total operating expenses for the fiscal year 2009 were RMB136.9 million ($20.1 million), representing a 35.7% decrease from RMB213.0 million for fiscal year 2008. This decrease was attributable primarily to the factors discussed below:

General and administrative expenses. General and administrative expenses for the fiscal year 2009 were RMB82.9 million ($12.1 million), representing a 4.7% decrease from RMB86.9 million for fiscal year 2008. The decrease was primarily because there were almost no account receivables write-offs and exchange losses in 2009 as well as a reduction in rent in fiscal year 2009 as compared to fiscal year 2008.

Selling and marketing expenses. Selling and marketing expenses for the fiscal year 2009 were RMB23.7 million ($3.5 million), representing a 20.6% decrease from RMB29.9 million for the fiscal year 2008. The decrease was attributable primarily to a shift from conducting general sales and marketing activities to focusing on direct recruiting related activities at our learning centers network.

Research and development. Research and development expenses for the fiscal year 2009 were RMB30.4 million ($4.5 million), representing a 16.0% increase from RMB26.2 million for the fiscal year 2008. This increase was attributable primarily to technology platform upgrade and the internet & mobile applications development for the online degree and non-degree programs

Goodwill impairment and intangible assets impairment. There was no impairment charge of goodwill and intangible assets in the fiscal year 2009, while such charge was RMB70.1 million in the fiscal year 2008. See “ — Operating Expenses — Goodwill Impairment and Intangible Assets Impairment.”

Share-based compensation. Share-based compensation for the fiscal year 2009, which was allocated to the related cost of revenue and operating expense line items, was RMB7.4 million ($1.1 million), representing an increase of RMB2.2 million from RMB5.2 million for the fiscal year 2008. This increase was attributable primarily to the re-pricing for under-water options and an increase in the number and fair value of options granted in fiscal year 2009 as compared to fiscal year 2008.

Income (loss) from operations. Income from operations was RMB79.4 million ($11.6 million) for the fiscal year 2009, as compared to a loss of RMB13.1 million for the fiscal year 2008. Operating margin was 22.4% for the fiscal year 2009 as compared to a negative 4.1% for the fiscal year 2008. The increase was primarily because there was not an impairment charge of goodwill and intangible assets in the fiscal year 2009, while such charge was RMB70.1 million in the fiscal year 2008.

Interest income. Interest income decreased by 53.2% to RMB5.0 million ($0.7 million) in the fiscal year 2009, as compared to RMB10.7 million in the fiscal year 2008. This decrease was attributable primarily to (i) the reduced interest bearing cash and bank deposit balance of RMB325.4 million ($47.7 million) as of December 31, 2009, as compared to RMB417.4 million as of December 31, 2008, and (ii) a lower interest rate for the fiscal year 2009 as compared to the fiscal year 2008.

Income tax provision. Income tax expense for the fiscal year 2009 was RMB19.3 million ($2.8 million), representing a significant increase from RMB3.5 million for the fiscal year 2008. In December 2008, seven of our subsidiaries and affiliate companies obtained the “high and new technology enterprises” status under the new PRC Enterprise Income Tax Law, which came into effect on January 1, 2008. The “high and new technology enterprises” entities enjoy a 15% tax rate, which is lower than the statutory tax rate of 25%. An adjustment was recorded in the fourth quarter of 2008 to adjust our deferred income tax expenses based on the decrease in tax rate from 25% to 15%, which resulted in a low deferred income tax expense in 2008. In addition, our 2008 income tax was lower because there was a significant decrease in deferred tax liabilities related to impairment of acquired intangible assets in our international curriculum programs, while there was no such charge in 2009.

Noncontrolling interest s. Noncontrolling interests was RMB32.1 million ($4.7 million) in the fiscal year 2009, representing an 11.9% decrease, as compared to RMB36.4 million in the fiscal year 2008, which was attributable primarily to the noncontrolling interest impact related to the reduction in our deferred tax liabilities for the fiscal year 2008 resulted from change of tax rate from 25% to 15%.

Net income (loss) attributable to ChinaEdu . Net income attributable to ChinaEdu was RMB34.8 million ($5.1 million) for the fiscal year 2009, compared with a loss of RMB43.0 million for the fiscal year 2008, primarily because there was not an impairment charge of goodwill and intangible assets in the fiscal year 2009, while such charge was RMB70.1 million in the fiscal year 2008.

Year ended December 31, 2008 compared to the year ended December 31, 2007

Net Revenue. Our total net revenue for the fiscal year ended December 31, 2008 was RMB317.7 million, representing a 19.9% increase, compared to RMB265.0 million for the fiscal year ended December 31, 2007.

Online degree programs. Net revenue from online degree programs for the fiscal year 2008 was RMB255.4 million, representing a 26.3% increase from RMB202.2 million for the fiscal year 2007. This increase was attributable primarily to the solid enrollment growth at our university partners’ online degree programs in fiscal year 2008 as compared to fiscal year 2007. In the aggregate, our university partners had approximately 243,000 revenue students during fiscal year 2008, representing a 27% increase from approximately 192,000 revenue students in fiscal year 2007.

Online tutoring programs. Net revenue from our online tutoring business decreased approximately 14.3% from RMB18.0 million for the year ended December 31, 2007 to RMB15.4 million for the year ended December 31, 2008. The decrease was mostly attributable to a change in distribution channels, which resulted in short-term negative impact on net revenue.

Private primary and secondary schools. Net revenue for this business line increased approximately 44.4% from RMB13.4 million for the year ended December 31, 2007 to RMB19.3 million for the same period in 2008. This was primarily due to a 14.3% increase in enrollments at our Anqing School for the 2007-2008 academic year and a 56.2% increase in enrollments at our Anqing School for the 2008-2009 academic year.

International curriculum programs . Net revenue from our international curriculum programs decreased approximately 12.2% from RMB31.4 million for the year ended December 31, 2007 to RMB27.6 million for the same period in 2008. This decrease was mainly attributable to the decrease in student enrollment resulting from the shrinkage of our operations in this business line in the fiscal year 2008 as compared to the fiscal year 2007 due to adverse changes in the governmental regulatory environment and the related termination of our agreement with WITT. Students participating in our international curriculum programs decreased from 5,000 for the year ended December 31, 2007 to 4,000 for the year ended December 31, 2008.

Cost of Revenue. Total cost of revenue for fiscal year 2008 was RMB117.7 million, representing a 22.2% increase, from RMB96.3 million for fiscal year 2007. Cost of revenue as a percentage of net revenue increased to 37.1% in 2008 from 36.4% in 2007, primarily due to an increase in cost of revenue for the expansion of our learning centers, new courseware development and hardware upgrades in 2008 as compared to 2007. The increase in cost of revenue is discussed below.

Online degree programs. The cost of revenue from our online degree programs for fiscal year 2008 was RMB76.2 million, representing a 31.4% increase from RMB58.0 million in fiscal year 2007. The increase was attributable primarily to the following factors:

(i) In fiscal year 2008, the number of revenue students enrolled in our university partners’ online degree programs increased by 27% to approximately 243,000 from approximately 192,000 revenue students in fiscal year 2007, which resulted in an increase in recruiting-related expenses; and

(ii) In fiscal year 2008, we significantly expanded our learning centers network, increasing the number of learning centers from one operational learning center at the fiscal year end of 2007 to 37 as of fiscal year end 2008.

As a result of this significant expansion, cost of revenue related to learning centers operations was approximately RMB3.5 million for fiscal year 2008, while cost of revenue related to our learning centers operations was insignificant in 2007.

Online tutoring programs. Our cost of revenue for our online tutoring programs increased approximately 3.7% from RMB3.9 million in the year ended December 31, 2007 to RMB4.0 million in the year ended December 31, 2008. This slight increase was the result of new product development costs incurred during the year ended December 31, 2008.

Private primary and secondary schools . Our cost of revenue for our private primary and secondary schools increased approximately 60.6% from RMB10.9 million for the year ended December 31, 2007 to RMB17.6 million for the same period in 2008. This was mostly attributable to the completion Phase I construction at the Anqing School’s new campus, which resulted in increased faculty and facility costs, and depreciation of property and equipment as we commenced enrollment at the Anqing School’s new campus.

International curriculum programs . Our cost of revenue for our international curriculum programs decreased approximately 15.2% from RMB23.5 million in the year ended December 31, 2007 to RMB19.9 million for the same period in 2008. This decrease was primarily attributable to the decrease in the related operational costs associated with the decrease in student enrollment.

Gross Profit and Gross Margin. Gross profit increased by 18.6% to RMB200.0 million in 2008 from RMB168.6 million in 2007. Our gross margin decreased slightly to 62.9% in 2008 from 63.6% in 2007.

Operating Expenses. Total operating expenses for the fiscal year 2008 were RMB213.0 million representing a 65.9% increase from RMB128.4 million for fiscal year 2007. Operating expenses, as a percentage of net revenue, increased to 67.1% in 2008 from 48.4% in 2007. This increase was attributable primarily to the factors discussed below:

General and administrative expenses. General and administrative expenses for the fiscal year 2008 were RMB86.9 million, representing a 13.0% increase from RMB76.9 million for fiscal year 2007. Our general and administrative expenses, as a percentage of net revenue, decreased to 27.4% in 2008 from 29.0% in 2007. The overall increase was primarily due to expenses associated with being a new U.S. publicly listed company. In particular, in 2008 we incurred an increase of approximately RMB6.0 million in professional fees paid to auditors, lawyers, consultants assisting in compliance with the Sarbanes-Oxley Act of 2002, and other third-party service providers that provide advice and guidance regarding compliance with the regulatory requirements of a publicly listed company.

Selling and marketing expenses. Selling and marketing expenses for the fiscal year 2008 were RMB29.9 million as compared to RMB14.3 million for the fiscal year 2007. Our selling and marketing expenses, as a percentage of net revenue, increased to 9.4% in 2008 from 5.4% in 2007. The increase is attributable primarily to our learning centers network expansion. We recorded approximately RMB8.4 million in selling and marketing expenses in connection with the expansion of our learning centers network in fiscal year 2008. Selling and marketing expenses related to our learning centers were insignificant in 2007. We also incurred increased selling and marketing expenses related to our online tutoring programs and certain non-degree programs at our collaborative alliances

Research and development. Research and development expenses for the fiscal year 2008 were RMB26.2 million, representing a 24.6% increase from RMB21.0 million for the fiscal year 2007. Our research and development expenses, as a percentage of net revenue, increased to 8.2% in 2008 from 7.9% in 2007. This increase was attributable primarily to technology platform upgrade and reconfiguration activities in some of our collaborative alliances in order to further enhance and support our online degree programs.

Goodwill impairment and intangible assets impairment. In fiscal year 2008, we recorded total goodwill and intangible assets impairment charges of RMB70.1 million compared to RMB16.2 million related solely to goodwill impairment in 2007. Of the RMB70.1 million impairment recorded in 2008, RMB41.0 million related to goodwill impairment and RMB29.1 million related to intangible assets impairment. Goodwill and intangible assets impairment, as a percentage of net revenue, increased to 22.1% in 2008 from 6.1% in 2007.

Goodwill impairment. Based on management’s annual goodwill impairment assessments performed as of December 31, 2007 and 2008, we recorded goodwill impairment losses of RMB16.2 million and RMB41.0 million for the years ended December 31, 2007 and 2008, respectively. The goodwill impairment charge for the year ended December 31, 2007 was due to management’s significantly reduced profit forecast for our FEC program, which is a component of our international curriculum programs. Of the RMB41.0 million goodwill impairment loss for the year ended December 31, 2008, RMB39.1 million was related to our international curriculum programs, for which management significantly reduced its profitability forecast due to adverse changes in the PRC government regulatory environment and the resulting early mutual termination of our agreement with WITT. The remaining goodwill impairment charge of RMB1.9 million for the year ended December 31, 2008, which was taken in the fourth quarter, related to a total goodwill impairment charge for our private primary and secondary schools, primarily due to management's assessment that construction of Jingzhou School's South campus would be further delayed, and as a result there is no definite expected enrollment period.

Intangible assets impairment. No impairment of intangible assets was recorded in fiscal year 2007. For fiscal year 2008, we recorded an impairment loss of intangible assets of RMB29.1million. The intangible assets impairment loss for the year ended December 31, 2008 was also related to our international curriculum programs, for which we have significantly reduced our profitability forecast due to the adverse changes in the PRC government regulatory environment and the resulting mutual termination of our agreement with WITT.

Income (loss) from operations. Loss from operations for fiscal year 2008 was RMB13.1 million as compared to income from operations of RMB40.3 million for the fiscal year 2007. The resulting loss from operations during fiscal the year ended 2008 versus 2007 is attributable to the factors discussed above regarding the overall increases in our cost of revenue and operating expenses, in particular the impairment losses recorded.

Interest income. Interest income increased by 158.7% to RMB10.7 million in the fiscal year 2008, as compared to RMB4.1 million in the fiscal year 2007. This increase was attributable primarily to the interest income earned on the net proceeds from our IPO completed in December 2007.

Income tax provision Income tax expense for the fiscal year 2008 was RMB3.5 million, representing a significant decrease from RMB15.0 million for the fiscal year 2007. This was attributable primarily to the fact that, in the fourth quarter of 2008, seven of our subsidiaries and affiliate companies applied and qualified for the “high and new technology enterprise” status under the EIT Law, which came into effect on January 1, 2008. Under the new tax regulation, the statutory tax rate for all enterprises in China is 25%, except for enterprises who have obtained the newly implemented “new and high technology enterprise” status. As a result of their qualification as “high and new technology enterprises”, these seven subsidiaries received certain tax exemptions and a preferential statutory tax rate of 15%, which resulted in a decrease in our deferred tax liabilities. In addition, as a result of the intangible assets impairment loss from our international curriculum programs, the related deferred tax liabilities recorded were reversed, which reduced our income tax expense for the fiscal year 2008.

Noncontrolling interests. Noncontrolling interests was RMB36.4 million in the fiscal year 2008, representing a 44.8% increase, as compared to RMB25.1 million in the corresponding period in 2007, which was primarily attributable to the increased profitability of our collaborative alliances.

Net income (loss) attributable to ChinaEdu. As a result of the above factors, most notably the goodwill and intangible assets impairment charges, we had a net loss of RMB43.0 million in 2008 compared to net income of RMB2.5 million in 2007.

B.	Liquidity and Capital Resources

Since our initial public offering completed in December 2007, we have financed our operations primarily through cash flows from operations. As of December 31, 2009, we had RMB325.4 million ($47.7 million) in cash and bank deposit, and no borrowings. Our cash and bank deposit primarily consist of cash on hand, demand deposits and term deposits with original maturity terms of greater than three months but less than one year that are placed with banks and other financial institutions. A portion of the cash balances of our Chinese affiliated entity and its subsidiaries may be paid to us pursuant to our contractual arrangements with the entity and its subsidiaries for our technical and teaching support, enrollment system and other services. We may fund the cash needs of our Chinese affiliated entity from time to time.

We have not encountered any difficulties meeting our cash obligations to date. Since we do not expect making additional significant capital expenditures through the end of 2010, we believe that our current cash and cash equivalents and anticipated future cash flows from operations, will be sufficient to meet our presently anticipated cash needs. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities or debt securities or borrow from lending institutions.

We had no outstanding capital commitments as of December 31, 2009 associated with acquisition of the Anqing School. In 2009, we completed construction of new campus at the Anqing School. We had outstanding capital commitments of approximately RMB64.8 million as of December 31, 2009 associated with the acquisition of Jingzhou School (Southern Campus). However, due to the ongoing delays that have prevented construction at our Jinzhou School (Southern Campus), we are currently unable to estimate when the outstanding RMB64.8 million capital commitment will be paid.

The following table sets forth a summary of our cash flows for the periods indicated:

	Years ended December 31,
	2007			2008			2009
	RMB			RMB			RMB			US$
	(In thousands)
Net cash (used in) provided by operating activities		80,932			54,547			83,420			12,224
Net cash (used in) investing activities		(93,704	)		(110,325	)		(149,068	)		(21,839	)
Net cash (used in) provided by financing activities		366,501			(68,221	)		(85,454	)		(12,518	)
Effect of exchange rate changes		(4,930	)		(19,182	)		312			43
Net changes in cash and cash equivalents		348,799			(143,181	)		(150,790	)		(22,090	)
Cash and cash equivalents at beginning of period		148,315			497,114			353,933			51,851
Cash and cash equivalents at end of period		497,114			353,933			203,143			29,761

Operating Activities

In the year ended December 31, 2009, we generated positive cash flow from operating activities of RMB83.4 million ($12.2 million), which was primarily due to our net income of RMB66.9 million, adjusted by the add-back of non-cash items RMB31.0 million from a number of factors, including share-based compensation expenses of RMB7.4 million, depreciation of RMB16.6 million, and amortization of intangible assets of RMB5.2 million. These positive cash flows were also offset by aggregate changes in our current assets and liabilities of RMB14.5 million, which included a RMB19.1 million increase in accrued expenses and other current liabilities due to the growth of our business and increased accrued employee payroll and welfare benefits, a RMB9.4 million increase in income tax and other taxes payable due to increased profitability of several of our subsidiaries, and a RMB3.8 million increase in deferred revenues due to an increase in revenue students. Those positive factors were partially offset by an increase in amounts due from related parties of RMB26.3 million and an increase in accounts receivable of RMB13.8 million. The increase in amounts due from related parties reflected higher service fees payable to us by our university partners in the year ended December 31, 2009 than those paid to us in the same period in 2008.

In the year ended December 31, 2008, we generated positive cash flow from operating activities of RMB54.5 million, which was primarily due to our net loss of RMB6.6 million, adjusted by the add-back of non-cash items RMB91.4 million from a number of factors, including share-based compensation expenses of RMB5.2 million, depreciation of RMB12.2 million, goodwill and intangible assets impairment of RMB70.1 million, and amortization of acquired intangible assets of RMB8.7 million. These positive cash flows were also offset by aggregate changes in our current assets and liabilities of RMB30.2 million, which included a RMB10.0 million increase in accrued expenses and other current liabilities due to the growth of our business and increased accrued employee payroll and welfare benefits, a RMB10.8 million increase in income tax and other taxes payable due to increased profitability of several of our subsidiaries, such as CMR Web and Dongcai, and a RMB15.2 million increase in deferred revenue due to an increase in revenue students. Those positive factors were partially offset by changes in growth in amounts due from related parties of RMB45.0 million and an RMB14.7 million increase in accounts receivable. The increase in amounts due from related parties reflected higher service fees payable to us by our university partners in the year ended December 31, 2008 than those paid to us in the same period in 2007.

In the year ended December 31, 2007, we generated positive cash flow from operating activities of RMB83.1 million, which was primarily derived from our net income of RMB27.6 million, adjusted by the add-back of non-cash items of RMB45.4 million from a number of factors, including share-based compensation expenses of RMB3.6 million, depreciation of RMB8.2 million, goodwill impairment of RMB16.2 million, and amortization of intangible assets of RMB8.5 million. These positive cash flows were also derived from aggregate changes in our current assets and liabilities of RMB7.9 million, which included an RMB20.9 million increase in accrued expenses and other current liabilities, a RMB25.0 million increase in amounts due to related parties, a RMB7.9 million increase in deferred revenue and a RMB11.3 million decrease in accounts receivable. Those positive factors were partially offset by changes in growth in amounts due from related parties of RMB52.5 million. The increase in amounts due from related parties reflected higher service fees payable to us by our university partners in the year ended December 31, 2007 than those paid to us in the same period in 2006.

Investing Activities

In the year ended December 31, 2009, net cash used in investing activities was RMB149.1 million ($21.8 million), which is primarily related to our purchase of additional term deposit products in the total amount of RMB58.8 million, our deposits paid for acquisition of property and equipment in the amount of RMB11.4 million, our investment in purchase of property and equipment in the amount of RMB57.1 million, and our purchase of investments in the amount of RMB20.6 million.

In the year ended December 31, 2008, net cash used in investing activities was RMB110.3 million, which is primarily related to our purchase of additional term deposit products in the total amount of RMB57.5 million, our acquisition of additional equity interests in our subsidiaries in the amount of RMB6.7 million, our deposits paid for acquisition of property and equipment in amount of RMB8.7 million, and our investment in purchase of property and equipment in the amount of RMB36.3 million.

In the year ended December 31, 2007, net cash used in investing activities was RMB93.7 million, which is primarily related to our purchase of office space for our new headquarters in the amount of RMB31.0 million, to our acquisition of additional equity interests in our subsidiaries in the amount of RMB22.5 million and to our investment in the construction of our Anqing School in the amount of RMB27.1 million.

Financing Activities

Net cash used by financing activities was RMB85.5 million ($12.5million) for the year ended December 31, 2009. This is attributable primarily to the repurchase of ordinary shares in the amount of RMB76.4 million and cash dividends paid to noncontrolling shareholders RMB14.7 million for the year ended December 31, 2009. Net cash used by financing activities was RMB68.2 million for the year ended December 31, 2008. This is attributable primarily to the repurchase of ordinary shares in the amount of RMB34.2 million, repayment of a long term loan in the amount of RMB25.7 million and cash dividends paid to noncontrolling shareholders of RMB11.3 million for the year ended December 31, 2008. Net cash provided by financing activities was RMB366.5 million for the year ended December 31, 2007. This is attributable primarily to the RMB348.8 million in net proceeds that we received from our initial public offering.

Capital Expenditures

We made capital expenditures of RMB71.9 million, RMB36.5million and RMB59.1 million ($8.7 million) for the years ended December 31, 2007, 2008 and 2009, respectively. These capital expenditures were primarily for the acquisition of land and buildings at our Pingdingshan School, Anqing School and Jingzhou School (Southern Campus), for additional office space relating to our online degree programs and for a new office building to house our corporate headquarters. Each of our three private schools (Pingdingshan School, Anqing School and Jingzhou School (Southern Campus)) has associated properties that we either own or lease. We estimate that capital expenditures for the fiscal year 2010 will be approximately RMB11.1 million at our Anqing School and Pingdingshan School. As discussed above, because of the ongoing delays that have prevented construction at our Jinzhou School (Southern Campus), we do not currently anticipate incurring any capital expenditures in connection with the construction of the Jinzhou School (Southern Campus) in the near future, or at all.

C.	Research and Development, Patents and Licenses, etc.

Intellectual Property and Proprietary Rights

We regard our copyrights, trademarks, trade secrets and other intellectual property rights as critical to our business. We rely on trademark and copyright law, trade secret protection, non-competition and confidentiality and/or licensing agreements with our executive officers, clients, contractors and others to protect our intellectual property rights. We have registered our chinaedu.com , prcedu.com and chinaedu.net Internet domain names, which are held by our Chinese affiliated entity’s subsidiaries.

We have directly, or indirectly through our Chinese affiliated entity, registered for trademark protection for certain intellectual property relating to our brand and our websites with the Trademark Office of the Chinese State Administration for Industry and Commerce. We have also registered some of the computer software that we have developed for copyright protection with the Chinese National Copyright Office.

We, together with our university customers, have developed courseware for our university partners’ online degree programs. All of this courseware is proprietary to us or the collaborative alliances we form with these universities.

Our intellectual property is subject to risks of infringement and other unauthorized use, and our ability to protect our intellectual property from unauthorized use is limited. In addition, we may be subject to claims that we have infringed the intellectual property rights of others. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If we are unable to prevent others from using our intellectual property or if we are subject to intellectual property infringement claims by others, our business may be materially and adversely affected”.

Technology

We provide end-to-end technology solutions to our customers providing online degree programs. Our technology consists of a series of systems and tools, including our Learning Management System, which enables the online universities to manage the entire student lifecycle from student application to graduation by providing system support to the student’s learning process and the university staff’s daily management process. We also provide a learning content creation and management system, which enables the team working on courseware development to bring the courseware from the concept and design stage to production and implementation, as well as manage courseware content, and various delivery and management systems and tools. In addition, in the past months we have been introducing more creative, front-end utilities to our customers, including real-time, virtual online classroom and mass-capacity flash-based course on-demand system to improve user experience in the online education scenario.

Our strategy is to develop, integrate and deliver the most suitable, stable, efficient and cost-effective systems to our customers in the online education market in China. Our in-depth understanding of the online education market and the operational model of online education programs helps us develop technology solutions suited to the needs of our current and future customers. Our accumulated experience and proprietary technology have further strengthened our leading position in the online education service market.

Our technology is based on Microsoft platform, as well as other open source projects like CAS, Sakai and LifeRay. Application software and databases are further supported by storage and back-up technologies. In addition to providing software solutions, along with maintenance support and customized development, we provide centralized system and network management services to our online degree program customers. Our production servers are hosted at a data center operated by China Telecom. In addition to the services provided by the data center (such as uninterrupted power supply), the servers are supported by advanced technologies to ensure security, scalability, reliability and expandability. Additionally, our bandwidth is scalable to accommodate spikes in user activity.

Using advanced technologies, our system can identify errors and isolate failed servers automatically to minimize the interruption of our customers’ access to our services. Our websites are hosted at a third party facility in Beijing. This facility provides redundant utility systems, a back-up electric generator and 24-hour server support. All our servers have redundant power supplies to maximize system and date availability. We regularly back-up our databases automatically on storage devices hosted at an Internet data center to minimize the impact of data loss due to system failures and we maintain back-up files offsite to facilitate disaster recovery.

D.	Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E.	Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. Other than the warrants, we have not entered into any other derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our consolidated financial statements. In addition, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Furthermore, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Authoritative pronouncement regarding consolidation of variable interest entities requires a “variable interest entity” to be consolidated by the primary beneficiary of such entity. An entity is considered to be a variable interest entity if certain conditions are present, including where the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. As a result of our various agreements with Hongcheng Education and its respective shareholders, we are considered the primary beneficiary of Hongcheng Education and all its subsidiaries have been consolidated in our financial statements. All significant transactions and balances between us, our subsidiaries, Hongcheng Education have been eliminated upon consolidation.

F.	Tabular Disclosure of Contractual Obligations

Contractual Obligations

The following table sets forth our contractual obligations and commercial commitments as of December 31, 2009.

	Payment Due by December 31
	Total		2010		2011		2012		2013		2014		Thereafter
	(In RMB thousands)
Operating lease obligations		15,571		7,041		4,017		2,684		1,124		705		—
Funding obligations to university partners		1,000		1,000		—		—		—		—		—
Facility fees to a middle school (1)		17,800		1,000		1,200		1,200		1,200		1,200		12,000
Capital obligations for private primary and secondary schools (2)		75,834		11,082		—		—		—		—		—
Unrecognized tax benefit (3)		7,727		—		—		—		—		—		—

(1) These amounts represent the user fees that our Anqing School will pay to the Fourth Middle School of Anqing for the use of certain facilities of the Fourth Middle School of Anqing over the period set out in the related agreement.

(2) These amounts represent the remaining portion of our capital commitments to the Jingzhou government for the expansion of the Jingzhou School (Southern Campus) (approximately RMB64.8 million), and also include RMB11.1 million has been contracted for the Anqing School and the Pingdingshan School’s constructions with third-party contractors in 2009. Since we do not know when construction will begin at the Jingzhou School, we are unable to reasonably estimate the timing of the capital commitment for the Jingzhou School.

(3) This amount represents unrecognized tax benefit pursuant to the authoritative pronouncement regarding to accounting for uncertainties in income tax. Since there is a high degree of uncertainty regarding the timing of future cash outflows, we are unable to make reasonable estimates regarding the timing of settlement with the respective tax authority.

Other than the contractual obligations set forth above, we do not have any other long-term debt obligations, operating lease obligations, purchase obligations or other long-term liabilities.

G.	Safe Harbor

our anticipated growth strategies;

our future business development, results of operations and financial condition;

expected changes in our revenues and certain cost and expense items;

our ability to increase student enrollments and course fees and expand program, service and product offerings;

competition in the language training, test preparation, primary and secondary education, educational content, software and other technology development and online education markets;

risks associated with our offering of new educational programs, services and products and the expansion of our geographic reach;

the expected increase in expenditures on education in China; and

general economic, business and other market conditions in the PRC and worldwide, including the ability of the general global economy to recover timely from the current economic downturn.

This annual report also contains third-party data relating to the education market in China that includes projections based on a number of assumptions. The education market may not grow at the rates projected by market data, or at all. The failure of this market to grow at the projected rates may have a material adverse effect on our business and the market price of our ADSs. Furthermore, if any one or more of the assumptions underlying the market data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

Directors and Executive Officers

Members of our board of directors are elected by our shareholders. Our executive officers are appointed by, and serve at the discretion of, our board of directors.

The following table sets forth information concerning our directors and executive officers. The business address of each of our directors and executive officers listed below is 4 th Floor-A, GeHua Building, No. 1 QinglongHutong, Dongcheng District, Beijing, 100007, People’s Republic of China.

Name	Age	Positions
Julia Huang	41	Chairman, Chief Executive Officer
Shawn Ding	45	Director, President and Chief Operating Officer
Zonglian Gu	54	Director
Samuel Yen	38	Director
Min Fan	44	Director
Amol Shah	35	Director
Tianwen Liu	47	Director
Lily Liu	34	Chief Financial Officer
Changqing Xie	46	Vice President
Wen Liu	40	Vice President
Lingling Chen	36	Vice President

Julia Huang has served as our chairman since September 2007 and as our chief executive officer since June 2000. Prior to joining us, she was a senior manager at Ernst & Young Management Consulting (New York) Group from 1996 to 1999. Ms. Huang also served as a project manager at Merck & Co. from 1993 to 1995. Ms. Huang holds an MBA from Columbia Business School with concentrations in finance and international business and a master’s degree in chemical engineering and microbiology from University of Tennessee, Knoxville.

Shawn Ding has served as our director, president and chief operating officer since December 2004. Mr. Ding joined us in July 2001 as our chief technology officer. From 2000 to 2001, Mr. Ding was the chief technology officer of Infostream Technologies Inc., a U.S. company specializing in the development and implementation of packaged and customized enterprise resource planning software. He also served as a director of Internet application development at Automatic Data Processing, Inc. from 1999 to 2000 and was a director of system architecture at Prudential Insurance Company of America from 1992 to 1998. Mr. Ding received a bachelor’s degree in environmental science from Peking University, a bachelor’s degree in computer science from Rutgers University, and a master’s degree in computer science from New Jersey Institute of Technology.

Zonglian Gu has served as one of our directors since March 2005. Mr. Gu joined CMR Web as general manager in November 2001. Mr. Gu also currently serves as the dean of Renmin University of China’s Online Education College, and was previously a professor at Renmin University of China and served as the vice dean of Renmin University of China Online Education College and vice dean of the Adult Education College Department of Renmin University of China. Mr. Gu holds a bachelor’s degree in international politics from Renmin University of China and has over 19 years of experience in the public education sector.

Samuel Yen was elected as a director of our company in October 2007. Mr. Yen is the vice president of finance at Alibaba Group, a leading e-commerce company operating online marketplaces for businesses and consumers. From 2004 to 2005, Mr. Yen served as financial controller and company secretary of Dynasty Fine Wines Group Limited and prior to that Mr. Yen served in various positions at PricewaterhouseCoopers and Arthur Andersen & Co., lastly as a senior manager. Mr. Yen received a bachelor’s degree in commerce from the University of Toronto and is a member of the American Institute of Certified Public Accountants, the Hong Kong Institute of Certified Public Accountants, the Institute of Certified Management Accountants and the CFA Institute.

Min Fan was elected as a director of our company in October 2007. Mr. Fan is one of the co-founders and the current chief executive officer of Ctrip.com International Ltd., a leading travel services firm in China. From 2000 to 2004, Mr. Fan served as Ctrip’s chief operating officer and executive vice president. Prior to founding Ctrip in 1999, Mr. Fan was the chief executive officer of Shanghai Travel Service Company, a leading domestic travel agency in China, and from 1990 to 1997 served in a number of senior management positions at Shanghai New Asia Hotel Management Company. Mr. Fan holds a master’s and a bachelor’s degree from Shanghai Jiao Tong University and has studied at the Lausanne Hotel Management School of Switzerland.

Amol Shah is Senior Vice President of Global Strategy for the McGraw-Hill Companies. He oversees strategy development for the McGraw-Hill Companies and its business units. Mr. Shah also serves as Vice President of McGraw-Hill Ventures, which makes equity investments in innovative, high growth companies that are complementary to McGraw-Hill's traditional business lines. Prior to joining the McGraw-Hill Companies, he served as a Managing Director at Novantas LLC, a strategy consulting firm, where he served as a leading advisor on growth strategies. Earlier in his career, Mr. Shah worked as a consultant specializing in financial services strategy for First Manhattan Consulting Group. Mr. Shah earned his bachelor's degree from the University of Pennsylvania and The Wharton School with a dual degree in engineering and economics through the Jerome Fisher Program in Management & Technology. Mr. Shah also earned a MBA in finance from the Columbia Business School.

Tianwen Liu was elected as a director of our company in September 2008. Mr. Liu is the Chairman and Chief Executive Officer of iSoftStone Information Service Corporation. Mr. Liu founded iSoftStone, one of the fastest growing IT outsourcing companies in China. He has over 20 years of experience in the IT sector. Prior to iSoftStone, Mr. Liu co-founded AsiaEC.com in 1999, and led the effort to build the company from the ground up and grow it to become China's largest on-line office supply and services provider. Prior to AsiaEC.com, Mr. Liu served as the General Manager of Siemens Business Services and Siemens Nixdorf Information Technologies from 1996-1999, where he was responsible for IT consulting, system integration, and outsourcing businesses in China. Before that, Mr. Liu worked for several consulting and IT companies in the U.S., including Bechtel and DEC. Mr. Liu holds a MBA from Massachusetts Institute of Technology, as well as a Masters degree in Electrical Engineering from the University of Massachusetts.

Lily Liu joined our company as Chief Financial Officer in October 2008. Prior to joining, she served as the Chief Financial Officer of MainOne Inc., a Vice President at Lehman Brothers in Hong Kong, and an Associate at Lehman Brothers in New York and Hong Kong. From 2000 to 2001, Ms. Liu was Vice President and Founder of Trulycustom Construction Inc. in Boston, Massachusetts. Ms. Liu received a bachelor's degree in Mathematics and Economics from Dartmouth College, and a MBA from Sloan School of Management at the Massachusetts Institute of Technology.

Changqing Xie has served as a vice president of our company since February 2005. Prior to joining us, Mr. Xie was the chief executive officer of Wellent Institute of Education International (Asia) Limited from January 2001 to January 2005. He served as a manager of Oriental Patron Financial Services Group from August 1997 to December 2000. From January 1988 to August 1993, Mr. Xie was a lecturer at Peking University. Mr. Xie received a master’s degree in geography from Peking University and a MBA degree from the University of Georgia.

Wen Liu has served as a vice president of our company since 2006. Prior to joining the Company, he served as the Deputy General Manager of Beijing MoVision Technologies from 2003 to 2006, and the Director of China SciTech Business of Henderson Holdings from 2002 to 2003. From 1993 to 2002, Mr. Liu was the Chief Engineer and Deputy General Manager of Beijing Keqing New Technologies. In 1994, Mr. Liu received bachelor's and master's degrees from Peking University, and furthered his doctoral studies at the China Academy of Sciences from 1994 to 1997.

Lingling Chen has served as a vice president of our company since 2009. She joined ChinaEdu in 2005 as the Director of human resources and became the executive vice president of our 101 Online Tutoring programs in 2008. Prior to joining the company, Ms. Chen was the Director of HR at Tsinghua Tongfang. She has over 10 years of experience in human resources management and also received national license in psychology and professional teaching license. Ms. Chen received a bachelor's degree in History at Liaoning University in 1997.

Employment Agreements

We have entered into employment agreements with each of our executive officers. The terms of these agreements are substantially similar to each other. Under these agreements, we have agreed to employ each of our executive officers for a period of three years, provided that their respective employment relationship with our company may be terminated by us or the executive officer under certain circumstances. These agreements do not provide for any special termination or severance benefits beyond what is required under the relevant laws of China, nor do we have other arrangements with these executive officers regarding such matters. Under these agreements, each executive officer has agreed not to disclose our confidential information and to abide by certain non-competition restrictions during his or her tenure with our company and for a period of two years thereafter.

B. Compensation

Compensation of Directors and Executive Officers

For the year ended December 31, 2009, we paid aggregate cash compensation of approximately RMB4.9 million ($0.7 million) to our executive officers as a group, which includes all salary, cash bonuses, and housing allowances paid by us. Other than the grant of options to purchase an aggregate of 9,417,560 of our ordinary shares, we did not provide any other non-cash compensation to our executive officers as a group. See “—Stock-Based Compensation Plans” for additional information with respect to these option grants. For the year ended December 31, 2009, we paid aggregate cash compensation of approximately RMB0.2 million to our three independent directors for serving as directors. Other than the grant of options to purchase an aggregate of 60,000 of our ordinary shares, we did not provide any other non-cash compensation to our non-executive or independent directors.

Stock-Based Compensation Plans

We amended our Equity Incentive Plan (as amended, the “Amended Equity Incentive Plan”) by holding an Extraordinary General Meeting on March 6, 2009. Our Amended Equity Incentive Plan replaced the equity incentive plan adopted by us in November 2007, which had amended and restated our original stock option plan adopted in March 2007. The Amended Equity Incentive Plan provides for the grant of options as well as restricted shares and restricted stock units, referred to as “awards.” The purpose of the plan is to attract and retain the best available personnel for positions of substantial responsibility, provide additional incentive to employees, directors and consultants, and promote the success of our business.

Administration. According to the amendments to our Amended Equity Incentive Plan, which were approved by our shareholders at the Extraordinary General Meeting on March 6, 2009, the compensation committee of our board of directors will administer the plan. Subject to the provisions of the Amended Equity Incentive Plan, the compensation committee has the authority, in its sole discretion to, among other things, amend or modify outstanding awards under the plan, only in ways that will not be adverse to the award/option holder, including, without limitation, the repricing of “underwater” options (i.e., options with an exercise price that is higher than the current trading price of our common shares) or the replacement of an option with cash or other award type that would be treated as a repricing under the rules of the stock exchange on which the shares are listed. In addition, our shareholders also approved an amendment to the plan that eliminated the requirement that subsequent amendments to the Amended Equity Incentive Plan be submitted for shareholder approval (to the extent such shareholder approval would have been required under the stock exchange on which our securities are listed).

Option Terms. Share options granted under our Amended Equity Incentive Plan may be incentive share options, or ISOs, which are intended to qualify for favorable U.S. federal income tax treatment under the provisions of Section 422 of the U.S. Internal Revenue Code of 1986, as amended, or non-qualified share options, or NSOs, which do not so qualify. Under our Amended Equity Incentive Plan, the exercise price of ISOs cannot be less than the fair market value of our ordinary shares on the date of grant. However, in the case of an ISO granted to a grantee who at the time of grant owned shares possessing more than 10.0% of the combined voting power of all classes of our share capital (including any equity of any of our Chinese subsidiaries), the option price may not be less than 110.0% of the fair market value of our ordinary shares on the date of grant of such ISO and the option period may not be greater than five years from the date of grant. The exercise price for NSOs is determined by the board of directors but may not be less than the fair market value of ordinary shares on the date of grant.

Eligibility. Under our Amended Equity Incentive Plan, awards may be issued to employees, non-employee directors or consultants of our company or our Chinese subsidiaries, although ISOs may only be issued to our employees or the employees of our Chinese subsidiaries.

Option Exercise and Termination of Awards. Share options granted under the plan may be exercised within the option period specified by our board of directors or the compensation committee (after it is established), which shall not be more than ten years from the date of option grant. If an option holder’s service terminates due to the option holder’s death or disability, the unvested portion of a share option is forfeited and the vested portion is still exercisable for a period of one year following the option holder’s death or disability or until the expiration of the option period (if sooner). If an option holder’s service ends for reasons other than death or disability, the unvested portion of a share option will be forfeited and the vested portion will be exercisable for a period of ninety days following the option holder’s termination or until the expiration of the option period (if sooner). Awards of restricted stock or restricted stock units that are unvested will be forfeited at the time of termination of service.

Third Party Acquisition. If a third party acquires us through a merger or consolidation transaction in which we are not the surviving corporation, all outstanding share options will be substituted by the surviving or resulting corporation. We are authorized to cancel any outstanding options upon the effective date of any such transaction, provided that we notify each option holder of our intention to do so at least 30 days prior to the effective date of the transaction and permit the optionees to exercise their options in full during this period. We are also authorized to cancel any outstanding awards and pay or deliver to the holder an amount in cash or securities having a value equal to the formula or fixed price per share paid to shareholders in the case of restricted stock or restricted stock units. In the case of options, the holder will receive an amount equal to the product of the number of shares subject to the option multiplied by the amount, if any, by which the formula or fixed price per share paid to shareholders in the transaction exceeds the option exercise price applicable to such award.

Amendment and Termination of Plan. Our board of directors may at any time amend, suspend or terminate the Amended Equity Incentive Plan without shareholder approval. However, any amendment, suspension or termination of the plan may not adversely affect awards already granted without consent of the recipient of such awards. Unless terminated earlier, the Amended Equity Incentive Plan shall continue in effect for a term of ten years from the date of adoption.

As of June 22, 2010, our board of directors has authorized the issuance of up to 16,071,594 ordinary shares upon exercise of awards granted under our equity incentive plan, with an increase each year equal to two percent of the outstanding number of shares as of the immediately preceding year ended December 31. As of June 22, 2010, options to purchase 10,673,103 ordinary shares were outstanding and options to purchase 950,783 ordinary shares remained available for future option grants. The following table summarizes the outstanding option shares granted to our directors and executive officers as of June 22, 2010:

Name	Ordinary Shares Underlying Option Grant	Exercise Price ($/share)	Expiration Date
Julia Huang (1)	2,108,280	Vary from 1.09 to 1.85	Vary from March, 2014 to May, 2019
Shawn Ding (2)	2,208,280	Vary from 0.86 to 1.85	Vary from March, 2014 to May, 2019
Zhonglian Gu	*	Vary from 0.50 to 1.26	Vary from August, 2013 to April, 2017
Tianwen Liu	*	1.56	September, 2018
Samuel Yen	*	1.80	December, 2017
Min Fan	*	1.80	December, 2017
Lily Liu (3)	*	Vary from 1.27 to 1.80	Vary from October, 2018 to May, 2019
Changqing Xie	*	Vary from 0.86 to 1.80	Vary from December, 2014 to March, 2018
Wen Liu	*	1.85	March, 2016
Lingling Chen	*	Vary from 1.26 to 1.80	Vary from August, 2015 to May, 2019

* Director or executive officer who beneficially owns less than 1% of our ordinary shares outstanding as of June 22, 2010, including the ordinary shares underlying options exercisable by such person within 60 days.

(1) Ms. Huang designated the stock options that she beneficially owns to South Lead Technology Limited, a British Virgin Islands company.

(2) Mr. Ding designated the stock options that he beneficially owns to Moral Known Industrial Limited, a British Virgin Islands company.

(3) Ms. Liu designated the stock options that she beneficially owns to Meritlink Group Limited, a British Virgin Islands company.

Pension and Similar Benefits

Full time employees of our company in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Group to accrue for these benefits based on certain percentages of the employees’ salaries. The total amount we have accrued under such employee benefits plans as of December 31, 2009 was approximately RMB23.2 million ($3.4 million).

C. Board Practices

Board Composition

Our board of directors consists of seven directors, three of whom satisfy the “independence” requirements of the NASDAQ corporate governance rules and the SEC regulations. We will rely on a NASDAQ rule that permits a foreign private issuer to be exempted from the requirement that a majority of its board of directors must be “independent.” We intend to comply, however, with the other NASDAQ corporate governance rules, in particular, the independence requirements for the relevant board committees discussed below. There are no family relationships between any of our directors and executive officers.

Committees of the Board of Directors

To enhance our corporate governance, we have established three committees under the board of directors: the audit committee, the compensation committee and the nominating committee. We adopted charters for each of these committees. The committees have the following functions and members:

Audit Committee

Our audit committee charter requires that the members of the audit committee satisfy applicable NASDAQ corporate governance rules on independence. Our audit committee consists of Samuel Yen, Min Fan and Tianwen Liu, each of whom is considered independent. Mr. Yen serves as chairman of the committee.

Our audit committee is responsible for, among other things:

the appointment, evaluation, compensation, oversight and termination of the work of our independent registered public accounting firm (including the resolution of disagreements between our management and the independent registered public accounting firm regarding financial reporting);

ensuring that it receives from our independent registered public accounting firm a formal written statement attesting to the registered public accounting firm’s independence and describing all relationships between our independent registered public accounting firm and us;

pre-approving both audit and non-audit services, including tax services, to be provided by our independent registered public accounting firm in accordance with NASDAQ rules;

reviewing our annual audited financial statements and, if deemed appropriate by the audit committee, other publicly disclosed financial information;

reviewing with our independent registered public accounting firm all critical accounting policies and practices to be used by us in preparing our financial statements, all alternative treatments of financial information within U.S. GAAP, and other material communications between our independent registered public accounting firm and management;

reviewing our policies with respect to risk assessment and risk management;

reviewing, with management and counsel, any legal matters that may have a material impact on us and any material reports or inquiries from regulatory or governmental agencies; and

ensuring that we have established procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, auditing matters or potential violations of law, and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters or potential violations of law.

Compensation Committee

Our compensation committee charter requires that the members of the compensation committee satisfy applicable NASDAQ corporate governance rules on independence. Our compensation committee consists of Samuel Yen, Min Fan and Tianwen Liu, each of whom is considered independent. Tianwen Liu serves as chairman of the committee. Our compensation committee assists the board in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. In addition, the compensation committee reviews stock compensation arrangements for all of our other employees. Members of the compensation committee will not be prohibited from direct involvement in determining their own compensation. Our chief executive officer is not permitted to be present at any committee meeting during which his or her compensation is deliberated. Our compensation committee is responsible for, among other things:

approving and overseeing the total compensation package for our executives;

reviewing and making recommendations to the board with respect to the compensation of our directors;

reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our chief executive officer in light of those goals and objectives, and setting the compensation level of our chief executive officer based on this evaluation;

reviewing the results of, and procedures for, the evaluation of the performance of other executive officers;

reviewing periodically and making recommendations to the board regarding any long-term incentive compensation or equity plans, programs or similar arrangements, and administering these plans;

reviewing and making recommendations to the board regarding all new employment, consulting, retirement and severance agreements and arrangements proposed for our executives; and

selecting peer groups of companies to be used for purposes of determining competitive compensation packages.

Nominating Committee

Our nominating committee charter requires that the members of the nominating and corporate governance committee satisfy applicable NASDAQ corporate governance rules on independence. Our nominating and corporate governance committee consists of Samuel Yen, Min Fan and Tianwen Liu, each of whom is considered independent. Min Fan serves as chairman of the committee. The nominating committee assists the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. Our nominating committee is responsible for, among other things:

selecting and recommending to the board nominees for election or re-election to the board; and

reviewing annually with the board the current composition of the board with regards to characteristics such as independence, skills, experience, age and availability of service to us.

Code of Business Conduct and Ethics

Our board of directors has adopted a code of business conduct and ethics, which will be applicable to all of our directors, officers and employees. We have made our code of business conduct and ethics publicly available on our website at www.chinaedu.net .

Duties of Directors

Under Cayman Islands law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. We have the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our board of directors include, among others:

supervising and directing the business and affairs of our company in the interest, and for the benefit, of our shareholders in order to enhance shareholder value over the long term;

exercising its business judgment to act in a manner which it reasonably believes to be in the best interests of our company and shareholders consistent with its fiduciary duties;

reviewing and, where appropriate, approving our major strategic, financial and business objectives, plans and actions;

establishing policies and principles for the selection, and possible succession planning, of directors, the chief executive officer and other senior management officers;

convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;

declaring dividends and distributions;

appointing officers and determining the term of office of the officers;

exercising the borrowing powers of our company and mortgaging the property of our company; and

approving the transfer of shares in our company, including the registering of such shares in our share register.

Interested Transactions

A director may vote in respect of any contract or transaction in which he is interested, provided that the nature and extent of the interest of any director in any such contract or transaction shall be disclosed by him at or prior to the consideration and any vote on that matter. A general notice or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee of directors that a director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.

Remuneration and Borrowing

The directors may determine remuneration to be paid to the directors. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Subject to certain restrictions, the directors may exercise all the powers of our company to borrow money and to mortgage or charge our undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of our company or of any third party.

Qualification

A director is not required to hold any shares in our company in order to serve as a director.

Terms of Directors and Executive Officers

At each annual general meeting of the shareholders of our company, one-third of our directors at such time are required to retire from office and are eligible for re-election. All of these directors will retain office until the close of such general meeting.

D. Employees

We had 1,078 employees, 1,434 employees and 1,603 employees as of December 31, 2007, 2008 and 2009, respectively. The increase in the number of our employees from 2007 to 2009 was primarily due to the increase in general and administrative employees as a result of becoming a public reporting company, the establishment of learning centers network and the expansion of our technology team. The following table sets forth the number of our employees categorized by function and the percentage of each category of our total employees as of December 31, 2009.

	Employees		Percentage
Operations and program support		968		60.38	%
Management and administration		356		22.21	%
Research and development		188		11.73	%
Selling and marketing		91		5.68	%
Total number of employees		1,603		100 .0	%

We believe that our relations with our employees are good, and we have not experienced any significant labor disputes. Our employees are not represented by any collective bargaining agreements or labor unions.

We are required by PRC law to participate in various government sponsored benefit and pension programs for our employees. We are required to accrue a portion of the salaries, bonuses and certain other payments to our employees for these benefits. The total amount we have accrued under our employee benefits plans for the twelve months ended December 31, 2009 was approximately RMB23.2 million ($3.4 million).

Under our equity incentive plan, we granted certain employees options to purchase our ordinary shares. For a description of our equity incentive plan, see “—B. Compensation—Stock-Based Compensation Plans.”

E. Share Ownership

The following table sets forth information, as of June 22, 2010, with respect to the beneficial ownership of our ordinary shares held by:

each person known to us to own beneficially more than 5% of our ordinary shares; and

each of our directors and executive officers.

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table below have sole voting and investment power with respect to all ordinary shares beneficially owned by them. A shareholder is also deemed to be, as of any date, the beneficial owner of all securities that such shareholder has the right to acquire within 60 days after that date through (a) the exercise of any option, warrant or right, (b) the conversion of a security, (c) the power to revoke a trust, discretionary account or similar arrangement, or (d) the automatic termination of a trust, discretionary account or similar arrangement.

	Ordinary Shares Beneficially Owned
	Number (1)		% (2)
Directors and Executive Officers
Julia Huang (3)		2,108,280	4.2
Shawn Ding (4)		2,208,280	4.4
Zonglian Gu (5)		1,965,000	4.1
Amol Shah (6)		3,377,336	7.0
Tianwen Liu		*	*
Samuel Yen		*	*
Min Fan		*	*
Lily Liu (7)		*	*
Changqing Xie		*	*
Wen Liu		*	*
Lingling Chen		*	*
All directors and executive officers as a group (11 persons)		10,379,863	19.5

Major Shareholders
The McGraw-Hill Companies Inc.		3,377,336	7.0

* Director or executive officer who beneficially owns less than 1% of our ordinary shares outstanding as of June 22, 2010.

(1) Beneficial ownership of each listed person includes the shares such person has the right to acquire within 60 days.

(2) Percentage of beneficial ownership of each listed person is based on 48,087,388 ordinary shares outstanding as of June 22, 2010 and the ordinary shares underlying options and warrants exercisable by such person within 60 days.

(3) Represents ordinary shares underlying stock options exercisable within 60 days beneficially owned by Ms. Huang that have been designated to South Lead Technology Limited, a British Virgin Islands Company.

(4) Represents ordinary shares underlying stock options exercisable within 60 days beneficially owned by Mr. Ding that have been designated to Moral Known Industrial Limited, a British Virgin Islands Company.

(5) Represents 1,745,000 ordinary shares held by Rendashiji Technology Development Co., Ltd. Mr. Gu disclaims beneficial ownership of all of the shares held by Rendashiji Technology Development Co., Ltd., except to the extent of his pecuniary interest therein.

(6) Represents 3,377,336 ordinary shares held by The McGraw-Hill Companies, Inc. Mr. Shah is senior vice president of the China division of The McGraw-Hill Companies, Inc. Mr. Shah disclaims beneficial ownership of all of our shares held by The McGraw-Hill Companies, Inc., except to the extent of his pecuniary interest therein.

(7) Represents ordinary shares underlying stock options exercisable within 60 days beneficially owned by Ms. Liu that have been designated to Meritlink Group Limited , a British Virgin Islands Company.

As of June 22, 2010, warrants to purchase 486,486 of our ordinary shares that are exercisable within 60 days were held by a record holder in the United States, which represents 0.85% of our total share capital. We had a total of 4 record holders in the United States. Bank of New York, as the depositary of our ADS facility, was the only record holder of our ADSs representing ordinary shares in the United States, holding approximately 90.49% of our total outstanding ordinary shares. The number of beneficial owners of our ADSs in the United States is likely much larger than the number of recorder holders of our ordinary shares in the United States.

None of our existing shareholders has voting rights that differ from the voting rights of other shareholders after the closing of our initial public offering.

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

Please refer to “Item 6. Directors, Senior Management and Employees — E. Share Ownership.”

B. Related Party Transactions

Share Repurchase Agreement

Pursuant to the November 2008 share repurchase agreement with Tiger Global, we agreed to purchase from Tiger Global an aggregate of 8,364,634 ordinary shares (2,788,211 ADSs) at US$1.3167 per ordinary share (US$3.95 per ADS) for an aggregate purchase price of RMB75.3 million ($11.0 million). The agreement also stipulated that all warrants held by Tiger Global, which represented the right to purchase an aggregate of 1,768,300 ordinary shares, would be cancelled. As of December 31, 2008, we repurchased and cancelled 1,518,949 ordinary shares and 321,109 warrants for an aggregate consideration of RMB13.7 million. In January 2009, we subsequently repurchased and cancelled 6,845,685 ordinary shares and 1,447,191warrants for an aggregate consideration of RMB61.6 million ($9.0 million) in January 2009.

Contractual Arrangements Relating to our Affiliated Entity

Due to the Chinese regulatory restrictions on foreign investment in the Internet and K-12 education sectors, we entered into a series of agreements with Hongcheng Education, our Chinese affiliated entity in which we do not have a direct ownership interest, for us to maintain effective control over and receive the economic benefits of this entity. For the regulatory restrictions, see “Item 4. Information on the Company—B. Business Overview—Regulation.”

Contractual Arrangements with Respect to Hongcheng Education

Under the current Chinese legal framework, foreign invested companies are not permitted to invest in K-12 schools in China. We operate the three private primary and secondary schools through Hongcheng Education, and have entered into a series of agreements with Hongcheng Education and its shareholders, Mr. Changqing Xie, one of our officers, and Mr. Xueshan Yang, one of our directors, to maintain effective control over and receive the economic benefits of Hongcheng Education. Currently, Mr. Xie and Mr. Yang hold 72% and 28% of the equity interest in Hongcheng Education, respectively. The material agreements that currently govern the relationship and economic arrangements between Hongcheng Education and us are described in greater detail below.

ChinaEdu and Changqing Xie Loan Agreement . We entered into a loan agreement with Mr. Xie on January 3, 2005 (and amended such agreement on July 12, 2005 and July 18, 2007), pursuant to which we loaned Mr. Xie approximately $4.8 million to fund the registered capital requirements of Hongcheng Education. The term of the loan is 20 years and may be extended with the consent of the parties. To the extent permitted by Chinese law, the loan may only be repaid by Mr. Xie transferring all of his equity interests in Hongcheng Education to us (or our designee). Mr. Xie has agreed that we have the right to appoint all directors to the board of directors of Hongcheng Education that Mr. Xie is entitled to appoint in his capacity as a shareholder of the entity.

ChinaEdu and Xueshan Yang Loan Agreement . We entered into a loan agreement with Mr. Yang on January 3, 2005 (and amended such agreement in June 2005 and July 18, 2007), pursuant to which we loaned Mr. Yang approximately $1.8 million to fund the registered capital requirements of Hongcheng Education. The term of the loan is 20 years and may be extended with the consent of the parties. To the extent permitted by Chinese law, the loan may only be repaid by Mr. Yang transferring all of his equity interests in Hongcheng Education to us (or our designee). Mr. Yang has agreed that we have the right to appoint all directors to the board of directors of Hongcheng Education that Mr. Yang is entitled to appoint in his capacity as a shareholder of the entity.

Hongcheng Education, Changqing Xie, Xueshan Yang and Hongcheng Technology Shareholder’s Voting Rights Entrustment Agreement. Hongcheng Education, Mr. Xie and Mr. Yang and Hongcheng Technology entered into a shareholder’s voting rights entrustment agreement dated on July 12, 2005, pursuant to which Mr. Xie and Mr. Yang irrevocably entrusted Hongcheng Technology with the right to act as their proxies and vote their shares in Hongcheng Education. Mr. Xie entered into a second similar agreement with Hongcheng Education and Hongcheng Technology on December 20, 2005. These agreements will remain effective as long as Mr. Xie or Mr. Yang, respectively, remains a shareholder in Hongcheng Education.

Changqing Xie, Xueshan Yang and Hongcheng Technology Call Option Agreement. Mr. Xie and Mr. Yang entered into a call option agreement with Hongcheng Technology on July 12, 2005 pursuant to which Mr. Xie and Mr. Yang each granted irrevocable options to purchase all or, in the case of Mr. Xie, a portion, of their respective equity interests in Hongcheng Education to Hongcheng Technology at the lowest price permitted under applicable Chinese laws. Mr. Xie entered into a second similar call option agreement with Hongcheng Technology on December 20, 2005 granting similar rights to Hongcheng Technology with respect to shares in Hongcheng Education held by Mr. Xie that were not covered under the original call option agreement.

Changqing Xie, Xueshan Yang and Hongcheng Technology Equity Pledge Agreement. As security for Mr. Xie and Mr. Yang’s obligations under their Call Option Agreements and Shareholder Voting Rights Entrustment Agreements with Hongcheng Technology and Hongcheng Education’s obligations under the technical consulting and services agreement with Hongcheng Technology, Mr. Xie and Mr. Yang pledged all of their equity interests in Hongcheng Education and all distributions arising from those interests to Hongcheng Technology under equity pledge agreements dated July 12, 2005 and December 20, 2005, as amended on July 18, 2007.

Power of Attorney by Changqing Xie and Xueshan Yang. For purposes of securing their performance under the various agreements that they have entered into with us and Hongcheng Technology, both Mr. Xie and Mr. Yang have irrevocably appointed Hongcheng Technology as their attorneys-in-fact and have authorized Hongcheng Technology to take all actions on their behalf (as shareholders of Hongcheng Education) that are deemed appropriate by Hongcheng Technology.

Hongcheng Technology and Hongcheng Education Exclusive Technical Consulting and Services Agreement. In July 2007, we, through our wholly owned subsidiary Hongcheng Technology, entered into an exclusive technical consulting and services agreement with Hongcheng Education. Under this agreement Hongcheng Technology provides courseware and product development services, website design services, maintenance and security services, employee training services and any other services that may be agreed upon by the parties to Hongcheng Education. As consideration for these services Hongcheng Education pays Hongcheng Technology a service fee equal to 80% of its annual gross revenue.

Stock Option Grants

We have granted options to purchase our ordinary shares to certain of our employees, directors and officers under our equity incentive plan. As of June 22, 2010, there were outstanding options to purchase an aggregate of 10,673,103 ordinary shares. For a description of our equity incentive plan and these option grants, see “Item 6. Directors, Senior Management and Employees—B. Compensation—Stock-Based Compensation Plans.”

Registration Rights

Pursuant to our fourth amended and restated registration rights agreement entered into in March 2007, we have granted certain registration rights to holders of our registrable securities, which include our preferred shares and ordinary shares converted from our preferred shares as well as ordinary shares owned by certain of our early shareholders, or founders, as of August 18, 2000. Since December 31, 2007, the holders of an aggregate of 29,536,862 ordinary shares are entitled to the registration rights provided under this registration rights agreement. Set forth below is a description of the registration rights granted under the agreement.

Demand Registration Rights . Holders of at least 25% of registrable securities (excluding for such purposes the shares held by the founders) have the right to demand that we file a registration statement covering the offer and sale of their securities as long as the securities to be registered have an aggregate offering price of at least $5.0 million. We, however, are not obligated to effect a demand registration (1) if we have already effected two demand registrations, (2) during the period beginning on the 60th day prior to our good faith estimate of the filing date of, and ending on the 180th day after the effective date of, a public offering of our securities initiated by us, or (3) if the securities to be registered can be immediately registered on Form S-3 or Form F-3, as applicable. We have the right to defer filing of a registration statement for up to 60 days if our board of directors determines in good faith that filing of a registration will be detrimental to us, but we cannot exercise the deferral right more than once in any 12 month period.

Form F-3 or S-3 Registration Rights . When we are eligible to register our shares using Form F-3 or Form S-3, holders of registrable securities then outstanding have the right to request that we file a registration statement under Form F-3 or Form S-3 as long as the aggregate amount of securities to be sold under the registration statement exceeds $1.50 million. We may defer filing of a registration statement on Form F-3 or Form S-3 for up to 60 days if our board of directors determines in good faith that filing such a registration statement will be detrimental to us and our shareholders, provided that we cannot exercise the deferral right more than once in any 12 month period. We are not obligated to file a registration statement on Form F-3 or Form S-3 if we have already effected two registrations on Form F-3 or Form S-3 within the 18 month period preceding the date of such request.

Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our securities other than as required by the agreement granting holders of our registrable securities the registration rights or pursuant to a registration statement relating to the sale or issuance of securities under an employee benefit plan or in connection with a corporate reorganization, then we must offer holders of registrable securities an opportunity to include in such registration all or any part of their registrable securities. We must use our best effort to cause the underwriters in any underwritten offering to permit these shareholders who so requested to include their shares on the same terms and conditions as our securities to be registered.

Expenses of Registration. We will pay all expenses relating to any demand, piggyback or F-3 or S-3 registration other than underwriting commissions and discounts, and fees and disbursements for counsel for selling shareholders, if applicable.

Indemnification. We are required to indemnify any selling holders of our registrable securities and any underwriters engaged in connection with sales of our ordinary shares pursuant to these registration rights.

Employment Agreements

See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management” for a description of the employment agreements we have entered into with our senior executive officers.

Share Incentives

See “Item 6. Directors, Senior Management and Employees—B. Compensation—Compensation of Directors and Executive Officers” for a description of share options and stock purchase rights we have granted to our directors, officers and other individuals as a group.

C. Interests of Experts and Counsel

Not applicable.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

Please refer to Item 18 for a list of our annual consolidated financial statements filed as part of this annual report. The financial statements contained in this annual report begin on page F-1.

Dividend Policy

Since the incorporation of our company in 1999, we have not declared or paid any dividends on our ordinary shares or ADSs. We have no present plan to declare or pay any dividends on our ordinary shares or ADSs in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

We are a holding company incorporated in the Cayman Islands. Although we have not received any to date, we may in the future rely on dividends from our subsidiaries in China. Current Chinese regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, our subsidiaries in China are required to set aside a certain amount of their accumulated after-tax profits each year, if any, to fund certain statutory reserves. These reserves may not be distributed as cash dividends. Further, if our subsidiaries in China incur debt on their own behalf, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us.

Under the previous Chinese tax law, dividend payments to foreign investors made by FIEs, such as our Chinese subsidiaries, were exempt from PRC withholding tax. Pursuant to the EIT Law that became effective on January 1, 2008, as well as the related implementation rules and other recently issued regulations, dividends payable by an FIE to its foreign investors are subject to a 10% withholding tax (unless the foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement). Distributions made from pre-January 1, 2008 retained earnings will not be subject to the withholding tax.

Our board of directors has complete discretion as to whether to distribute dividends, subject to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, our general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ADSs and ordinary shares, if any, will be paid in U.S. dollars.

Legal Proceedings

There are no material legal proceedings, regulatory inquiries or investigations pending, or to our knowledge, threatened against us.

Item 9. The Offer and Listing

A. Offering and Listing Details

Not applicable.

B. Plan of Distribution

Not applicable.

C. Markets

Our ADSs, each representing three of our ordinary shares, have been listed on the NASDAQ Global Market since December 14, 2007. Our ADSs trade under the symbol “CEDU.” For the period from December 14, 2007, the date of our initial public offering, to June 22, 2010, the trading price of our ADSs on the NASDAQ Global Market has ranged from US$2.97 to US$9.20 per ADS. The following table provides the high and low trading prices for our ADSs on the NASDAQ Global Market for each of the months since our initial public offering:

	Trading Price
	High		Low
	US$		US$
Annual Highs and Lows
2007 (from December 14, 2007)		9.20		7.75
2008		8.58		2.97
2009		8.40		4.15

Quarterly Highs and Lows
January 1–March 31, 2008		8.58		6.04
April 1-June 30, 2008		8.05		4.51
July 1-September 30, 2008		5.00		3.50
October 1-December 31, 2008		5.00		2.97
January 1–March 31, 2009		6.90		4.15
April 1-June 30, 2009		7.84		4.49
July 1-September 30, 2009		7.85		6.40
October 1-December 31, 2009		8.40		6.20

Monthly Highs and Lows
2009
November		8.40		7.00
December		7.55		6.20
2010
January		8.20		7.20
February		7.65		7.09
March		8.35		6.96
April		8.15		7.50
May		7.83		6.57
June (through June 22)		7.15		6.61

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10. Additional Information

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

We have incorporated by reference into this annual report our fifth amended and restated memorandum of association and our fifth amended and restated articles of association, both of which became effective upon the closing of our initial public offering, filed as Exhibits 3.1 and 3.2, respectively, to our F-1 registration statement (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007.

C. Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company”, and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” or elsewhere in this annual report on Form 20-F.

D. Exchange Controls

See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation of Foreign Currency Exchange and Dividend Distribution.”

E. Taxation

Cayman Islands Taxation

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to our company levied by the Government of the Cayman Islands except for stamp duties that may be applicable on instruments executed in, or after execution brought within the jurisdiction of, the Cayman Islands. The Cayman Islands are not party to any double taxation treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.

People’s Republic of China Taxation

For discussion of PRC taxation, please see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Taxation—PRC.”

United States Federal Income Taxation

The following is a discussion of material U.S. federal income tax consequences of purchasing, owning and disposing of shares and ADSs. This discussion does not purport to be a comprehensive description of all of the U.S. tax considerations that may be relevant to a particular person’s decision to acquire the shares or ADSs (including any state, local or non-U.S. tax consequences of the ownership of the shares or ADSs).

INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF SHARES AND ADSs IN THEIR PARTICULAR SITUATION.

This discussion applies to only to those investors that hold shares or ADSs as capital assets for U.S. tax purposes (generally, for investment). This section does not apply to holders that may be subject to special tax rules, including but not limited to:

a dealer in securities or currencies;

a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings;

a bank, insurance company or other financial institution;

a regulated investment company or real estate investment trust;

a tax-exempt organization;

a holder liable for alternative minimum tax;

a holder that actually or constructively owns 10% or more by voting power or value of our shares or ADSs;

a holder that holds equity shares or ADSs as part of a straddle, hedging or conversion transaction;

a U.S. holder whose functional currency is not the U.S. Dollar;

a U.S. expatriate;

a holder that purchases or otherwise acquires shares or ADSs other than through this offering; or

a holder that acquired shares or ADSs pursuant to the exercise of any employee share option or otherwise as compensation.

This section is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, its legislative history, existing and proposed U.S. Treasury regulations, published rulings and other administrative guidance of the U.S. Internal Revenue Service and court decisions, all as in effect on the date hereof. These laws are subject to change or different interpretation by the U.S. Internal Revenue Service or a court, possibly on a retroactive basis.

You are a “U.S. holder” if you are a beneficial owner of shares or ADSs and you are:

a citizen or resident individual of the United States;

a U.S. domestic corporation, or other entity treated as a domestic corporation for U.S. federal income tax purposes;

an estate whose income is subject to U.S. federal income tax regardless of its source; or

a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or if the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.

If a partnership (including for this purpose any entity treated as a partnership for U.S. tax purposes) is a beneficial owner of the shares or ADSs, the U.S. tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A holder of the shares or ADSs that is a partnership and partners in such a partnership should consult their own tax advisors about the U.S. federal income tax consequences of holding and disposing of the shares or ADSs.

A “non-U.S. holder” is a beneficial owner of shares or ADSs that is not a U.S. person for U.S. federal income tax purposes.

For U.S. federal income tax purposes, holders of ADSs will be treated as the owners of shares represented by such ADSs. Accordingly, no gain or loss will be recognized upon the exchange of an ADS for shares. A U.S. holder’s tax basis in our shares will be the same as the tax basis in the ADS surrendered therefor, and the holding period in such shares will include the period during which the holder held the surrendered ADS.

Taxation of Dividends

U.S. Holders . Subject to the passive foreign investment company (“PFIC”) rules referred to below, under the U.S. federal income tax laws, if you are a U.S. holder, you must include in your gross income the gross amount of any dividend paid by us out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). The dividend is ordinary income that you must include in income when you receive the dividend, actually or constructively. Dividends received by a non-corporate taxpayer during taxable years beginning before January 1, 2011 will be taxed at a maximum rate of 15%, where certain holding period and other requirements are satisfied, if such dividends constitute qualified dividend income. Qualified dividend income includes dividends paid by a “qualified foreign corporation” (as defined in the Code), and we believe that we are, and will continue to be, a Qualified Foreign Corporation. Holders of ADSs and shares should consult their own tax advisors regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.

Dividends will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. Dollar value of the foreign currency payments made, determined at the spot exchange rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. Dollars. If the foreign currency received as a dividend is not converted into U.S. dollars on the date of receipt, a U.S. holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. Dollars will be treated as ordinary income or loss. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. If we distribute non-cash property as a dividend (other than pro rata distributions of our shares), you generally will include in income an amount equal to the fair market value of the property, in U.S. Dollars, on the date that it is distributed. Subject to certain limitations, a U.S. holder may be entitled to a credit or deduction against its U.S. federal income taxes for the amount of any foreign taxes that are withheld from dividend distributions made to such U.S. holders. The decision to claim either a credit or deduction must be made annually, and will apply to all foreign taxes paid by the U.S. holder to any foreign country or U.S. possession with respect to the applicable tax year.

Dividends paid on shares or ADSs will generally be treated as foreign source income for U.S. foreign tax credit purposes under special U.S. federal income tax rules, subject to various classifications and other limitations. The rules relating to computing foreign tax credits are complex. You should consult your own tax advisor to determine the foreign tax credit implications of owning our shares or ADSs.

Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the equity shares and ADSs and thereafter as capital gain. However, we do not plan on calculating our earnings and profits for U.S. federal income tax purposes, and U.S. holders therefore should generally assume that any distributions paid by us are paid out of our earnings and profits for this purpose.

Non-U.S. Holders . Dividends paid to non-U.S. holders generally will not be subject to U.S. income tax unless the dividends are “effectively connected” with your conduct of a trade or business within the United States, and the dividends are attributable to a permanent establishment (or in the case of an individual, a fixed place of business) that you maintain in the United States if that is required by an applicable income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis. In such cases, you generally will be taxed in the same manner as a U.S. holder, and will not be subject to U.S. federal withholding tax. If you are a corporate non-U.S. holder, “effectively connected” dividends may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.

Taxation of Capital Gains

U.S. Holders. Subject to the PFIC rules referred to below, if you are a U.S. holder and you sell or otherwise dispose of your shares or ADSs, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. Dollar value of the amount that you realize and your tax basis, determined in U.S. Dollars, in your shares or ADSs. For taxable years beginning before January 1, 2011, capital gains of a non-corporate U.S. holder are generally taxed at a maximum rate of 15% where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes, unless it is attributable to an office or other fixed place of business outside the United States and certain other conditions are met. Your ability to deduct capital losses is subject to limitations.

Medicare Tax on Unearned Income . Newly enacted legislation requires certain U.S. holders that are individuals, estates or trusts to pay an additional 3.8% tax on, among other things, dividends on and capital gains from the sale or other disposition of shares or ADSs for taxable years beginning after December 31, 2012. U.S. holders that are individuals, estates or trusts should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of our shares or ADSs.

Non-U.S. Holders . If you are a non-U.S. holder, you will not be subject to U.S. federal income tax on gain recognized on the sale or other disposition of your shares or ADSs unless:

the gain is “effectively connected” with your conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment (or in the case of an individual, a fixed place of business) that you maintain in the United States if that is required by an applicable income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis;

you are an individual, you are present in the United States for 183 or more days in the taxable year of the sale and certain other conditions are met; or

we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes.

In the first case, the non-U.S. holder will be taxed in the same manner as a U.S. holder. In the second case, the non-U.S. holder will be subject to U.S. federal income tax at a rate of 30% on the amount by which the non-U.S. holder’s U.S.-source capital gains exceed such non-U.S. holder’s U.S.-source capital losses.

If you are a corporate non-U.S. holder, “effectively connected” gains that you recognize may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.

In general, a corporation is a United States real property holding company if the fair market value of its “U.S. real property interests” equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. We do not believe that we are or have been, and do not expect to become, a United States real property holding corporation for U.S. federal income tax purposes.

PFIC Rules

We believe that our shares and ADSs will not be treated as stock of a PFIC for U.S. federal income tax purposes for the current tax year, and we do not expect to become a PFIC in the foreseeable future, although we can provide no assurances in this regard for the reasons discussed below. The determination of whether or not we are a PFIC in respect of any of our taxable years is a factual determination that cannot be made until the close of the applicable tax year and that is based on the types of income we earn and the value of our assets (including goodwill), both of which are subject to change. In calculating goodwill for this purpose, we will determine the total value of our assets by reference to the then-current market price of the equity and ADSs, and will make determinations regarding the amount of this total value allocable to goodwill. The value of our goodwill, and the total value of our assets, therefore will change as the market prices of our shares and ADSs change. Therefore, we can make no assurances that we will not be a PFIC in respect of our current taxable year or in the future.

In general, if you are a U.S. holder, we will be a PFIC with respect to you if for any taxable year in which you held the equity shares or ADSs:

at least 75% of our gross income for the taxable year is passive income; or

at least 50% of the value, determined on the basis of a quarterly average, of our assets, is attributable to assets that produce or are held for the production of passive income.

Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), the excess of gains over losses from certain types of transactions in commodities, annuities and gains from assets that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income.

If we are treated as a PFIC, and you are a U.S. holder that did not make a mark-to-market election, as described below, you will be subject to special rules with respect to:

any gain you realize on the sale or other disposition of your shares or ADSs; and

any excess distribution that we make to you (generally, any distributions to you during a single taxable year that are greater than 125% of the average annual distributions received by you in respect of the shares or ADSs during the three preceding taxable years or, if shorter, your holding period for the shares or ADSs).

Under these rules:

the gain or excess distribution will be allocated ratably over your holding period for the shares and ADSs;

the amount allocated to the taxable year in which you realized the gain or excess distribution will be taxed as ordinary income;

the amount allocated to each prior year in respect of which we were, or were treated as, a PFIC generally will be taxed at the highest tax rate in effect for that year; and

the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year.

Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.

If you own shares in a PFIC that are treated as marketable stock, you may make a mark-to-market election. If you make this election in a timely fashion, you will not be subject to the PFIC rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of your equity shares and ADSs at the end of the taxable year over your adjusted basis in your shares and ADSs. You will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of your shares and ADSs over the fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). Your basis in the shares and ADSs will be adjusted to reflect any such income or loss amounts.

We do not intend to furnish you with the information that you would need in order to make a “qualified electing fund” election to include your share of its income on a current basis.

If you own shares or ADSs during any year that we are a PFIC, you must file U.S. Internal Revenue Service Form 8621 that describes the distribution received on the equity shares or ADSs and the gain realized on the disposition of the shares or ADSs. The reduced tax rate for dividend income, discussed in “Taxation of Dividends,” is not applicable to dividends paid by a PFIC.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to dividends in respect of shares or ADSs or the proceeds received on the sale, exchange or redemption of shares or ADSs paid within the United States (and, in certain cases, outside the United States) to U.S. holders other than certain exempt recipients, such as corporations, and backup withholding tax at the rate of 28% may apply to such amounts if the U.S. holder fails to provide an accurate taxpayer identification number (or to otherwise establish, in the manner provided by law, an exemption from backup withholding) or to report dividends required to be shown on the U.S. holder’s U.S. federal income tax returns.

Backup withholding is not an additional income tax, and the amount of any backup withholding from a payment to a U.S. holder will be allowed as credit against the U.S. holder’s U.S. federal income tax liability provided that the appropriate returns are filed. A Non-U.S. holder generally may eliminate any requirement for information reporting and backup withholding by providing certification of its foreign status to the payer, under penalties of perjury, on IRS Form W-8BEN.

New Legislation Relating to Foreign Accounts and Foreign Entities

Newly enacted legislation may impose withholding taxes on certain types of payments made to “foreign financial institutions” and certain other non-U.S. entities. Under this legislation, the failure to comply with additional certification, information reporting and other specified requirements could result in withholding tax being imposed on payments of dividends and sales proceeds to U.S. Holders that own shares and ADSs through foreign accounts or foreign intermediaries and to certain non-U.S. Holders. The legislation imposes a 30% withholding tax on dividends on, and gross proceeds from the sale or other disposition of, shares paid to a foreign financial institution or to a foreign nonfinancial entity, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations or (ii) the foreign non-financial entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner. In addition, if the payee is a foreign financial institution, it generally must enter into an agreement with the U.S. Treasury that requires, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to certain other account holders. The legislation applies to payments made after December 31, 2012. Prospective holders should consult their tax advisors regarding this legislation.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We have filed with the SEC our registration statement on Form F-1(File No. 333-147620), including relevant exhibits, under the Securities Act, with respect to our underlying ordinary shares represented by the ADSs.

We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than six months after the close of each fiscal year, which is December 31. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

We will furnish The Bank of New York, the depositary of our ADSs, with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.

I. Subsidiary Information

For a listing of our subsidiaries, see “Item 4. Information on the Company—C. Organizational Structure” and Exhibit 8.1 “Significant Subsidiaries”, filed herewith.

100

Item 11. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our exposure to interest rate risk for changes in interest rates relates primarily to the interest receipts of excess cash deposited in banks. As of December 31, 2009, we had cash and cash equivalents of RMB203.1 million ($29.8 million). Cash and cash equivalents consist of cash on hand and in banks.

We have not been exposed to nor do we anticipate being exposed to material risks due to changes in interest rates, although our future interest income may fluctuate in line with changes in interest rates. The risk associated with fluctuating interest rates is principally confined to our cash deposits in banks, and, therefore, our exposure to interest rate risk is minimal. We currently do not use any derivative financial instruments to hedge interest rate risk.

Credit Risk

The carrying amounts of cash and cash equivalents, term deposits, accounts receivable and amount due from related parties represent our principal exposure to credit risk in relation to our financial assets. As of December 31, 2009, substantially all of our cash and cash equivalents were held in uninsured accounts at major financial institutions located in China and Hong Kong that we believe are of acceptable credit quality. We have not used any derivative financial instruments to hedge interest rate risk.

Foreign Exchange Risk

Substantially all of our revenue generating operations are transacted in Renminbi, which is not fully convertible into foreign currencies and substantially all of our assets and liabilities are denominated in Renminbi. As a result, the conversion of our revenue into foreign currencies is subject to PRC regulatory restrictions on currency conversion and we are exposed to risks posed by fluctuations in the foreign exchange market. The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an approximately 21% appreciation of the RMB against the U.S. dollar as of December 31, 2009. There remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar. To the extent we hold assets denominated in U.S. dollars through our PRC entities, any further appreciation of the Renminbi against the U.S. dollar could result in a charge to our income statement and a reduction in the RMB value of our U.S. dollar denominated assets.

We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency risk. See “Item 3. Key Information—D. Risk Factors—Risks Related to the People’s Republic of China—The fluctuation of the Renminbi may materially and adversely affect your investment.”

Inflation and Monetary Risk

Inflation in China has not had a material impact on our results of operations in recent years. According to the National Bureau of Statistics of China, the change in Consumer Price Index in China was 4.8%, 5.9% and negative 0.7% in 2007, 2008 and 2009, respectively.

Item 12. Description of Securities Other than Equity Securities

A. Debt Securities

Not Applicable.

B. Warrants and Rights

Not Applicable.

C. Other Securities

Not Applicable.

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D. American Depositary Shares

Fees paid by our ADS holders

The Bank of New York, the depositary of our ADS program, collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary also collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions, by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide services until its fees for those services, if any, are paid.

The table below sets forth all fees and charges, which may change from time to time, that a holder of ADSs may have to pay to the depositary bank of our ADS program, either directly or indirectly:

Persons depositing or withdrawing shares must pay:	For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)	·	Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
	·	Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates

$.02 (or less) per ADS	·	Any cash distribution to you

A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs	·	Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders

$.03 (or less) per ADSs per calendar year	·	Depositary services

Registration or transfer fees	·	Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares

Expenses of the depositary	·	Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
	·	Converting foreign currency to U.S. dollars

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Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes	·	As necessary

Any charges incurred by the depositary or its agents for servicing the deposited securities	·	As necessary

Fees and Payments from the Depositary to Us

The Bank of New York, as depositary, has agreed to reimburse us for expenses we incur that are related to the establishment and maintenance of the ADR program. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not linked to the amounts of fees the depositary collects from investors. In 2009, the depositary reimbursed us $257,260 for expenses related to the administration and maintenance of the ADS facility in 2009.

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

The following “Use of Proceeds” information relates to the registration statement on Form F-1 (File No. 333-147620) (the “Registration Statement”) for our initial public offering of 6,820,000 ADSs (including 1,364,000 ADSs being sold by certain selling shareholders), for an aggregate offering price of $68,200,000, which Registration Statement was declared effective by the SEC on December 10, 2007 and was terminated after all of the registered securities were sold. Bear, Stearns & Co. Inc., Piper Jaffray and CIBC World Markets were the underwriters for the initial public offering of our ADSs.

We received net proceeds of approximately $47.8 million from our initial public offering, after deducting underwriting discounts and commissions and estimated offering expenses. We did not receive any of the proceeds from the sale of ADSs by the selling shareholders. None of the transaction expenses for the offering included payments to directors or officers of our company or their associates, persons owning more than 10% or more of our equity securities or our affiliates.

We have used or intend to use the net proceeds received from our initial public offering for the following purposes:

Online degree programs

approximately $7.4 million to develop our learning centers network, of which approximately $2.2 million has been used as of June 22, 2010 in connection with the opening of 65 learning centers;

approximately $5 million to expand our existing lines of business, including the funding of new collaborative alliances with university partners, of which approximately $1.2 million of which had been used as of June 22, 2010;

Online tutoring programs

approximately $1.0 million to fund our acquisition of the remaining 20% equity interest in 101 online school, all of which was used in May 2008;

Private Primary and Secondary schools

approximately $11.7 million to complete the construction of the new campuses at our Jingzhou School (Southern Campus) and Anqing School , of which approximately $10.7 million has been used as of June 22, 2010;

Headquarter real estate

approximately $3.7 million to repay the loan incurred in connection with the acquisition of the new office building for our headquarters, which amounts were paid in July 2008; and

Share Repurchase

approximately $11.0 million to repurchase ordinary shares from Tiger Global, a former majority shareholder, approximately $5.0 million to repurchase ordinary shares according to our share repurchase plan from July 2008 to December 2009, and approximately $3.0 million to repurchase ordinary shares from time to time through May 1, 2012 according to our share repurchase plan.

The allocation of approximately $19.0 million in net proceeds for the repurchase of ordinary shares was not specifically described in the use of proceeds section to the Registration Statement. Nevertheless, we determined to use a portion of the IPO proceeds for this purpose given our belief that the trading price of our ADSs has not reflected the company’s potential value, especially in light of the recent economic downturn. Our management team and board of directors believe the share repurchase transactions are in the best interests of the company and its shareholders. The repurchase decisions also demonstrate management’s confidence in our long-term growth and profitability.

As of June 22, 2010, approximately $34.8 million of the net offering proceeds from our initial public offering had been applied.

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Item 15. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this annual report. They have concluded that, as of the end of the fiscal year covered by this annual report, our disclosure controls and procedures were designed, and were effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and were also effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles, and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation, and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, our management assessed the effectiveness of the internal control over financial reporting as of December 31, 2009 using criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that the internal control over financial reporting was effective as of December 31, 2009.

Our independent registered public accounting firm has audited our internal control over financial reporting as of December 31, 2009 and has issued an attestation report on our internal control over financial reporting. The attestation report appears below:

Attestation Report of the Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of ChinaEdu Corporation,

We have audited the internal control over financial reporting of ChinaEdu Corporation (the “company”), its subsidiaries and its variable interest entities (collectively, the “Group”) as of December 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit.

105

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2009 of the Group and our report dated June 28, 2010 expressed an unqualified opinion on those financial statements and included an explanatory paragraph relating to the retrospective application of authoritative guidance on noncontrolling interests, previously issued as Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51”, now codified in Accounting Standards Codification Topic 810, Consolidation, which was adopted by the Group on January 1, 2009, and an explanatory paragraph relating to the convenience translation of Renminbi amounts into United States dollar amounts in the financial statements.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Beijing, the People's Republic of China

June 28, 2010

Changes in Internal Control over Financial Reporting

There were no changes in our company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the year ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

Item 16A. Audit Committee Financial Expert

Our board of directors has determined that Samuel Yen, the chairman of our audit committee, is an audit committee financial expert as defined by the rules and regulations of the SEC. Samuel Yen is an independent director as defined by NASDAQ Marketplace Rule 4200(a)(15) and under Rule 10A-3 of the Exchange Act.

106

Item 16B. Code of Ethics

Our board of directors has adopted a code of ethics that applies to our directors, officers, employees and agents, including certain provisions that specifically apply to our chief executive officer, chief financial officer, chief operating officer, chief technology officer, vice presidents and any other persons who perform similar functions for us. Our code of business conduct and ethics is publicly available on our internet website at http ://ir.chinaedu.net and refer to “Corporate Governance – Conduct, Ethics and Duties”.

Item 16C. Principal Accountant Fees and Services

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Deloitte Touche Tohmatsu CPA Ltd., our independent registered public accounting firm, for the periods indicated. We did not pay any other fees to our independent registered public accounting firm during the periods indicated below.

	Years ended December 31,
	2008		2009
	(In thousands, in RMB)
Audit fees (1)		5,302		6,591
Audit-related fees (2)		—		—
Tax fees (3)		—		—
All other fees (4)		—		—

(1)	“Audit fees” means the aggregate fees billed for professional services rendered by Deloitte Touche Tohmatsu CPA Ltd. for the audit of our annual financial statements and the review of our comparative interim financial statements.

(2)

“Audit-related fees” represents aggregate fees billed for professional services rendered by Deloitte Touche Tohmatsu CPA Ltd. for the assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.”

(3)	“Tax fees” represents the aggregated fees billed for professional services rendered by Deloitte Touche Tohmatsu CPA Ltd. for tax compliance, tax advice, and tax planning.

(4)	“All other fees” comprise fees for all other services provided by Deloitte Touche Tohmatsu CPA Ltd., other than those services covered in footnotes (1) to (3) above.

The policy of our audit committee is to pre-approve all audit and non-audit services provided by Deloitte Touche Tohmatsu CPA Ltd., including audit services, audit-related services, tax services and other services as described above. All audit and non-audit services disclosed in the table above were pre-approved by the audit committee, or the full board of directors in the event such services were pre-approved prior to the formation of the audit committee.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following tables set forth some additional information about our repurchases made in the fiscal years ended December 31, 2008 and 2009.The ordinary shares underlying the repurchased ADSs have been canceled pursuant to Cayman Islands law.

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Issuer Repurchases in the Years Ended December 31, 2008 and 2009

Period	Total Number of Shares Purchased		Average Price Paid per Share (US$)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) (US$)
January 1, 2008 – January 31, 2008		-		-		-		-
February 1, 2008 – February 28, 2008		-		-		-		-
March 1, 2008 – March 31, 2008		-		-		-		-
April 1, 2008 – April 30, 2008		-		-		-		-
May 1, 2008 – May 31, 2008		-		-		-		-
June 1, 2008 – June 30, 2008		-		-		-		-
July 1, 2008 – July 31, 2008		210,834		1.31		210,834		4,723,453
August 1, 2008 – August 31, 2008		575,010		1.30		575,010		3,977,001
September 1, 2008 – September 30, 2008		733,401		1.54		733,401		2,846,059
October 1, 2008 – October 31, 2008		518,793		1.27		518,793		2,185,501
November 1, 2008 – November 30, 2008 (1)		1,626,058		1.34		107,109		2,053,038
December 1, 2008 – December 31, 2008		38,487		1.43		38,487		1,998,025
2008 Total		3,702,583		1.35		2,183,634		1,998,025
January 1, 2009 –January 31, 2009 (1)		6,845,685		1.32		-		1,998,025
February 1, 2009 – February 28, 2009		-		-		-		1,998,025
March 1, 2009 – March 31, 2009		-		-		-		1,998,025
April 1, 2009 – April 30, 2009		-		-		-		1,998,025
May 1, 2009 – May 31, 2009		-		-		-		1,998,025
June 1, 2009 – June 30, 2009		-		-		-		1,998,025
July 1, 2009– July 31, 2009		-		-		-		1,998,025
August 1, 2009 – August 31, 2009		-		-		-		1,998,025
September 1, 2009 – September 30, 2009		-		-		-		1,998,025
October 1, 2009 – October 31, 2009		150,996		2.32		150,996		1,647,950
November 1, 2009 – November 30, 2009		-		-		-		1,647,950
December 1, 2009 – December 31, 2009		832,119		2.17		832,119		-
2009 Total		7,828,800		1.43		983,115		-

(1)

Pursuant to a share repurchase agreement entered into with Tiger Global in November 2008, we agreed to purchase from Tiger Global an aggregate of 8,364,634 ordinary shares (2,788,211 ADSs) at US$1.3167 per ordinary share (US$3.95 per ADS), for an aggregate purchase price of RMB75.3 million ($11.0 million). The agreement also stipulated that all warrants held by Tiger Global, which represented the right to purchase an aggregate of 1,768,300 ordinary shares, would be cancelled. As of December 31, 2008, we had repurchased and cancelled 1,518,949 ordinary shares and 321,109 warrants for an aggregate consideration of RMB13.7 million ($2.0 million). Subsequent to December 31, 2008, we repurchased and cancelled 6,845,685 ordinary shares and 1,447,191warrants for an aggregate consideration of RMB61.6 million ($9.0 million) in January 2009.

(2)	In June 2008, our board of directors approved a share repurchase program over a period of 12 months for the repurchase up to $5 million of our outstanding ADSs. The share repurchase program has expired in June 2009.

In April 2010, our board of directors approved a share repurchase program to repurchase up to US$3 million of our outstanding ADSs from time to time through May 1, 2012.

Item 16F. Change in Registrant’s Certifying Accountant

Not applicable.

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Item 16G. Corporate Governance

We are incorporated under the laws of the Cayman Islands. Our ADSs are registered with the SEC and listed on the NASDAQ Global Market. However, certain of the corporate governance rules of the NASDAQ Marketplace Rules do not apply to us as a “foreign private issuer,” and we are permitted to follow the corporate governance practices in the Cayman Islands in lieu of most corporate governance standards contained in the NASDAQ Marketplace Rules. Rule 5615(a)(3) of the NASDAQ Marketplace Rules requires foreign private issuers listed on the NASDAQ to disclose each requirement that it does not follow and include a brief statement of the home country practice that the company follows in lieu of such corporate governance requirement(s). Set forth below a brief summary of such significant differences.

Board and Committee Independence

While the NASDAQ Marketplace Rules require U.S. domestic issuers to have a majority of independent directors, we are not subject to this requirement. Three of our seven directors are independent non-executive directors.

The NASDAQ Marketplace Rules require U.S. domestic issuers to regularly schedule executive sessions to be attended by only independent directors. We are not subject to such requirement and our independent directors are entitled to attend all of our board meetings.

Shareholder Approval

The NASDAQ Marketplace Rules require shareholder approval prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees, or consultants. Our stockholders have approved an amendment to our existing equity incentive plan to permit our board of directors at any time to amend, suspend or terminate our equity incentive plan. Any amendment, suspension or termination of our equity incentive plan must not adversely affect awards already granted without consent of the recipient of such awards.

PART III

Item 17. Financial Statements

We have elected to provide the financial statements and related information specified in Item 18.

Item 18. Financial Statements

The consolidated financial statements of ChinaEdu Corporation are included in this annual report beginning on page F-1.

Item 19. Exhibits

Exhibit Number		Description of Document

1.1		Form of Fifth Amended and Restated Memorandum of Association (incorporated by reference to Exhibit 3.1 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

1.2		Form of Fifth Amended and Restated Articles of Association (incorporated by reference to Exhibit 3.2 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

2.1		Form of Deposit Agreement among Registrant, depositary and holders of the American Depositary Receipts (incorporated by reference to Exhibit 4.1 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

109

Exhibit Number		Description of Document

2.2		Registrant’s Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.2 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

2.3		Registrant’s Specimen American Depositary Receipt (incorporated by reference to Exhibit 4.3 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

3.1		English Translation of Shareholder’s Voting Rights Entrustment Agreement among Hongcheng Technology, Yang Xueshan, Xie Changqing and Hongcheng Education dated July 12, 2005 (incorporated by reference to Exhibit 10.22 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

3.2		English Translation of Shareholder’s Voting Rights Entrustment Agreement among Hongcheng Technology, Xie Changqing and Hongcheng Education dated December 20, 2005 (incorporated by reference to Exhibit 10.23 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.1		Form of Amended Equity Incentive Plan, dated March 2009, approved by shareholders at the Extraordinary General Meeting on March 6, 2009 (incorporated by reference to Exhibit 4.1 from our annual report on Form 20-F (File No. 001-33858), filed with the SEC on June 30, 2009)

4.2		Form of Indemnification Agreement between the Registrant and its officers and directors (incorporated by reference to Exhibit 10.2 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.3		Form of Employment Agreement between the Registrant and a Senior Executive Officer of the Registrant (incorporated by reference to Exhibit 10.3 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.4		Fourth Amended and Restated Registration Rights Agreement (incorporated by reference to Exhibit 10.4 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.5		English Translation of Loan Agreement between Registrant and Xie Changqing dated July 15, 2005 (incorporated by reference to Exhibit 10.5 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.6		English Translation of Supplementary Agreement to Loan Agreement between Registrant and Xie Changqing dated July 18, 2007 (incorporated by reference to Exhibit 10.6 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.7		English Translation of Amended and Renewed Loan Agreement between Registrant and Xie Changqing dated July 12, 2005 (incorporated by reference to Exhibit 10.7 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.8		English Translation of Supplementary Agreement to Amended and Renewed Loan Agreement between Registrant and Xie Changqing dated July 18, 2007 (incorporated by reference to Exhibit 10.8 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.9		English Translation of Amended and Renewed Loan Agreement between Registrant and Yang Xueshan dated June 2005 (incorporated by reference to Exhibit 10.9 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

110

Exhibit Number		Description of Document

4.10		English Translation of Supplementary Agreement to Amended and Renewed Loan Agreement between Registrant and Yang Xueshan dated July 18, 2007 (incorporated by reference to Exhibit 10.10 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.11		English Translation of Equity Pledge Agreement among Hongcheng Technology, Xie Changqing and Yang Xueshan dated July 12, 2005 (incorporated by reference to Exhibit 10.15 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.12		English Translation of Supplementary Agreement to Equity Pledge Agreement among Hongcheng Technology, Xie Changqing and Yang Xueshan dated July 18, 2007 (incorporated by reference to Exhibit 10.16 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.13		English Translation of Equity Pledge Agreement between Hongcheng Technology and Xie Changqing dated December 20, 2005 (incorporated by reference to Exhibit 10.19 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.14		English Translation of Supplementary Agreement to Equity Pledge Agreement between Hongcheng Technology and Xie Changqing dated July 18, 2007 (incorporated by reference to Exhibit 10.20 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.15		English Translation of Call Option Agreement among Hongcheng Technology, Yang Xueshan and Xie Changqing dated July 12, 2005 (incorporated by reference to Exhibit 10.24 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.16		English Translation of Call Option Agreement between Hongcheng Technology and Xie Changqing dated December 20, 2005 (incorporated by reference to Exhibit 10.26 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.17		English Translation of Power of Attorney executed by Yang Xueshan dated July 12, 2005 (incorporated by reference to Exhibit 10.27 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.18		English Translation of Power of Attorney executed by Wang Gongquan dated July 12, 2005 (incorporated by reference to Exhibit 10.28 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.19		English Translation of Power of Attorney executed by Xie Changqing dated July 12, 2005 (incorporated by reference to Exhibit 10.30 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.20		English Translation of Power of Attorney executed by Xie Changqing dated December 20, 2005 (incorporated by reference to Exhibit 10.31 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.21		English Translation of Technical Consulting and Services Agreement between Hongcheng Technology and Xiandai Technology dated July 18, 2007 (incorporated by reference to Exhibit 10.32 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

111

Exhibit Number		Description of Document

4.22		English Translation of Technical Consulting and Services Agreement between Hongcheng Technology and Hongcheng Education dated July 18, 2007 (incorporated by reference to Exhibit 10.33 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.23		English Translation of Collaborative Alliance Contract between the Company and Renda Century dated October 22, 2002 (incorporated by reference to Exhibit 10.34 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.24		English Translation of Technology Development Agreement between Renda Online School and CMR dated July 15, 2003 (incorporated by reference to Exhibit 10.35 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.25		English Translation of Service Agreement between Renda Online School and CMR dated March 31, 2003 (incorporated by reference to Exhibit 10.36 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.26		English Translation of Memorandum of Understanding (Regarding Service Fee Payment) between Renda Online School and CMR dated May 16, 2003 (incorporated by reference to Exhibit 10.37 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.27		English Translation of Memorandum of Understanding between Renda Online School, CMR, Renda Century and the Company dated March 31, 2003 (incorporated by reference to Exhibit 10.38 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.28		English Translation of Memorandum of Understanding (Regarding Service Fee Alteration) between Renda Online School and CMR dated May 16, 2003 (incorporated by reference to Exhibit 10.39 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.29		English Translation of Collaborative Alliance Contract among China Agriculture University, Hongcheng Liye, Shanghai SVA Communication Co., Ltd. and Beijing CAU Technological Enterprise Incubator Co., Ltd. dated April 28, 2005 (incorporated by reference to Exhibit 10.40 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.30		English Translation of Cooperation Agreement between Zhong Nongda Networks Development Co., Ltd. and China Agriculture University dated December 12, 2005 (incorporated by reference to Exhibit 10.41 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.31		English Translation of Service Agreement between China Agriculture University and Zhong Nongda Networks Development Co., Ltd dated April 28, 2005 (incorporated by reference to Exhibit 10.42 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.32		English Translation of Memorandum of Service Agreement between China Agriculture University and Zhong Nongda Networks Development Co., Ltd. dated April 28, 2005 (incorporated by reference to Exhibit 10.43 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.33		English Translation of Collaborative Alliance Contract between Hongcheng Liye and Dongbei University of Finance and Economics dated May, 2003 (incorporated by reference to Exhibit 10.44 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

112

Exhibit Number		Description of Document

4.34		English Translation of Supplementary Agreement to Collaborative Alliance Contract between Hongcheng Liye and Dongbei University of Finance and Economics dated May, 2003 (incorporated by reference to Exhibit 10.45 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.35		English Translation of Service Agreement between Dongbei University of Finance and Economics and Dalian Dongcai Technology Development Co., Ltd. dated June 26, 2003 (incorporated by reference to Exhibit 10.46 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

4.36		English Translation of Licensing Agreement between Dalian Dongcai Technology Development Co., Ltd, and Hongcheng Technology Development Co., Ltd. dated September 18, 2003 (incorporated by reference to Exhibit 10.47 from our registration statement on Form F-1 (File No. 333-147620), as amended, initially filed with the SEC on November 26, 2007)

8.1*		List of subsidiaries of ChinaEdu Corporation

12.1*		Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

12.2*		Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

13.1*		Certification of Chief Executive Officer required by Rule 13a-14(b)/15d-14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

13.2*		Certification of Chief Financial Officer required by Rule 13a-14(b)/15d-14(b) under the Exchange Act, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

15.1*		Consent of Deloitte Touche Tohmatsu CPA Ltd.

* Filed herewith

113

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

CHINAEDU CORPORATION

By	/s/ Julia Huang
Name:	Julia Huang
Title:	Chairman and Chief Executive Officer

Date: June 30, 2010

114

	CHINAEDU CORPORATION

	Report of Independent Registered
	Public Accounting Firm and
	Consolidated Financial Statements
	For the years ended December 31, 2007, 2008 and 2009

CHINAEDU CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS		PAGE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-1

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2009		F-3

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009		F-5

CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009		F-7

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009		F-8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-10

SCHEDULE I		F-67

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS

AND SHAREHOLDERS OF CHINAEDU CORPORATION

We have audited the accompanying consolidated balance sheets of ChinaEdu Corporation (the "Company"), its subsidiaries, and its variable interest entity (collectively, the "Group") as of December 31, 2008 and 2009 and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2009, and the related financial statement schedule included in Schedule 1. These financial statements and the related financial statement schedule are the responsibility of the Group's management. Our responsibility is to express an opinion on these consolidated financial statements and the related financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2008 and 2009 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

As discussed in Note 26, the financial statements have been adjusted for the retrospective application of authoritative guidance regarding noncontrolling interests in consolidated financial statements, which was adopted by the Group on January 1, 2009.

F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS

AND SHAREHOLDERS OF CHINAEDU CORPORATION - continued

Our audits also comprehended the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2. Such United States dollar amounts are presented solely for the convenience of the readers.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Group's internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 28, 2010 expressed an unqualified opinion on the Group's internal control over financial reporting.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Beijing, the People's Republic of China

June 28, 2010

F - 2

CHINAEDU CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share-related data)

	December 31,
	2008		2009		2009
	RMB		RMB		US$
	(As adjusted,
	see Note 26)
Assets

Current assets:
Cash and cash equivalents		353,933		203,143		29,761
Term deposits		63,500		122,304		17,918
Restricted cash		-		365		53
Short-term investments		-		17,706		2,594
Accounts receivable, net		14,854		28,334		4,151
Inventory		-		1,852		271
Prepaid expenses and other current assets		20,251		25,315		3,709
Amounts due from related parties		150,472		176,802		25,902
Deferred tax assets		3,986		3,309		485
Total current assets		606,996		579,130		84,844
Long-term investments		1,210		4,210		617
Deferred tax assets		2,096		1,541		226
Rental deposits		958		868		127
Land use rights, net		28,344		27,874		4,084
Property and equipment, net		161,925		203,995		29,885
Deposits paid for acquisition of property and equipment		8,619		13,898		2,036
Acquired intangible assets, net		70,377		66,621		9,760
Goodwill		38,155		38,155		5,590
Total assets		918,680		936,292		137,169

Liabilities and equity

Current liabilities:
Accounts payable		8,530		6,467		947
Deferred revenues (including deferred revenue from related parties of RMB55,615 and RMB53,161 in 2008 and 2009, respectively)		96,068		97,853		14,336
Accrued expenses and other current liabilities		51,629		68,917		10,096
Amounts due to related parties		25,769		25,668		3,760
Income taxes payable		27,917		33,389		4,892
Other taxes payable		12,008		15,900		2,329
Total current liabilities		221,921		248,194		36,360
Deferred revenues		6,073		8,075		1,183
Deferred tax liabilities		11,069		10,143		1,486
Unrecognized tax benefit		5,473		7,727		1,132
Total liabilities		244,536		274,139		40,161

F - 3

CHINAEDU CORPORATION

CONSOLIDATED BALANCE SHEETS - continued

(In thousands, except share-related data)

	December 31,
	2008			2009			2009
	RMB			RMB			US$
	(As adjusted
	see Note 26)
Commitments (Note 20)

Equity:
ChinaEdu Corporation's equity:
Ordinary shares (RMB0.08 (US$0.01) par value; 100,000,000 shares authorized; 63,076,129 shares issued and outstanding in 2008; 55,247,329 shares issued and outstanding in 2009)		4,573			4,076			597
Additional paid-in capital		734,733			673,847			98,719
Warrants		5,555			1,883			276
Statutory reserves		9,597			13,661			2,001
Accumulated deficits		(143,709	)		(112,994	)		(16,551	)
Accumulated other comprehensive loss		(20,920	)		(20,500	)		(3,003	)
Total ChinaEdu Corporation's equity		589,829			559,973			82,039
Noncontrolling interests		84,315			102,180			14,969
Total equity		674,144			662,153			97,008
Total liabilities and equity		918,680			936,292			137,169

The accompanying notes are an integral part of these consolidated financial statements.

F - 4

CHINAEDU CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share-related data)

	Years ended December 31,
	2007			2008			2009			2009
	RMB			RMB			RMB			US$
	(As adjusted			(As adjusted
	see Note 26)			see Note 26)
Net revenue
Online degree programs		202,185			255,388			285,178			41,779
- Related parties		161,384			209,770			220,661			32,327
- Third parties		40,801			45,618			64,517			9,452
Online tutoring programs		18,013			15,436			19,584			2,869
Private primary and secondary schools		13,356			19,289			30,627			4,487
International curriculum programs		31,434			27,607			19,317			2,830
Net revenue		264,988			317,720			354,706			51,965
Cost of revenue
Online degree programs		58,027			76,224			95,428			13,980
- Related parties		30,590			47,105			58,414			8,558
- Third parties		27,437			29,119			37,014			5,422
Online tutoring programs		3,875			4,017			5,713			837
Private primary and secondary schools		10,944			17,572			26,109			3,825
International curriculum programs		23,503			19,920			11,112			1,628
Total cost of revenue		96,349			117,733			138,362			20,270
Gross profit
Online degree programs		144,158			179,164			189,750			27,799
- Related parties		130,794			162,665			162,247			23,769
- Third parties		13,364			16,499			27,503			4,030
Online tutoring programs		14,138			11,419			13,871			2,032
Private primary and secondary schools		2,412			1,717			4,518			662
International curriculum programs		7,931			7,687			8,205			1,202
Total gross profit		168,639			199,987			216,344			31,695
Operating expenses:
General and administrative		76,893			86,908			82,858			12,139
Selling and marketing		14,277			29,851			23,688			3,470
Research and development		21,021			26,185			30,385			4,451
Goodwill impairment		16,192			41,036			-			-
Intangible assets impairment		-			29,057			-			-
Total operating expenses		128,383			213,037			136,931			20,060
Income (loss) from operations		40,256			(13,050	)		79,413			11,635
Other income		394			562			1,748			256
Interest income		4,118			10,652			4,980			730
Interest expense		(2,130	)		(1,298	)		(2	)		-
Income (loss) before income tax provisions		42,638			(3,134	)		86,139			12,621
Income tax provisions:
- Current		16,286			11,860			18,981			2,781
- Deferred		(1,283	)		(8,387	)		306			45
Total income tax provisions		15,003			3,473			19,287			2,826
Net income (loss)		27,635			(6,607	)		66,852			9,795
Less: net income attributable to the noncontrolling interests		25,148			36,412			32,073			4,699
Net income (loss) attributable to ChinaEdu Corporation shareholders		2,487			(43,019	)		34,779			5,096

F - 5

CHINAEDU CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS - continued

(In thousands, except share-related data)

	Years ended December 31,
	2007		2008			2009		2009
	RMB		RMB			RMB		US$
	(As adjusted		(As adjusted
	see Note 26)		see Note 26)

Net income (loss) per share attributable to ChinaEdu Corporation shareholders - basic		0.06		(0.75	)		0.71		0.10
Net income per preferred A share-basic		0.06		-			-		-
Net income per preferred B share-basic		0.06		-			-		-
Net income per preferred C share-basic		0.06		-			-		-
Net income per preferred D share-basic		0.06		-			-		-
Net income (loss) per share attributable to ChinaEdu Corporation shareholders - diluted		0.05		(0.75	)		0.66		0.10
Weighted average shares used in calculating basic net income per share attributable to ChinaEdu Corporation shareholders		20,585,074		57,679,504			48,844,606		48,844,606
Weighted average shares used in calculating preferred A basic net income per share		4,991,507		-			-		-
Weighted average shares used in calculating preferred B basic net income per share		11,561,814		-			-		-
Weighted average shares used in calculating preferred C basic net income per share		3,221,030		-			-		-
Weighted average shares used in calculating preferred D basic net income per share		1,787,745		-			-		-
Weighted average shares used in calculating diluted net income per share attributable to ChinaEdu Corporation shareholders		47,322,184		57,679,504			52,519,683		52,519,683

Share-based compensation expenses
Cost of revenue		346		474			489		72
General and administrative		2,960		4,073			5,982		876
Selling and marketing		222		506			676		99
Research and development		115		178			269		39

The accompanying notes are an integral part of these consolidated financial statements.

F - 6

CHINAEDU CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share-related data)

	ChinaEdu Corporation Shareholders' Equity
																																														Accumulated			Total
	Series A convertible						Series B convertible						Series C convertible						Series D convertible												Additional															other			ChinaEdu
	preferred shares						preferred shares						preferred shares						preferred shares						Ordinary shares						paid-in			Subscription						Statutory			Accumulated			comprehensive			Corporation			Noncontrolling			Total			Comprehensive
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			capital			receivable			Warrants			reserve			deficits			income (loss)			shareholders' equity			interests			equity			income (loss)
				RMB						RMB						RMB						RMB						RMB			RMB			RMB			RMB			RMB			RMB			RMB			RMB			RMB			RMB			RMB
Balance at January 1, 2007 (As adjusted see note 26)		5,150,000			426			12,140,495			1,005			3,378,379			272			-			-			19,007,408			1,710			343,167			(1,117	)		8,076			4,621			(94,457	)		616			264,319			49,323			313,642
Issuance of Series D convertible preferred shares		-			-			-			-			-			-			2,598,503			200			-			-			74,322			-			-			-			-			-			74,522			-			74,522
Repurchase of ordinary share as treasury stock		-			-			-			-			-			-			-			-			(2,300,000	)		(178	)		(49,869	)		-			-			-			-			-			(50,047	)		-			(50,047	)
Issuance of treasury share to new shareholders		-			-			-			-			-			-			-			-			2,300,000			178			49,869			-			-			-			-			-			50,047			-			50,047
Collection of subscription receivable		-			-			-			-			-			-			-			-			-			-			-			1,117			-			-			-			-			1,117			-			1,117
Amortization of share-based compensation		-			-			-			-			-			-			-			-			-			-			3,643			-			-			-			-			-			3,643			-			3,643
Accumulated adjustment of unrecognized tax benefit		-			-			-			-			-			-			-			-			-			-			-			-			-			-			(3,744	)		-			(3,744	)		-			(3,744	)
Repurchase and cancellation of ordinary share		-			-			-			-			-			-			-			-			(600,000	)		(46	)		(12,767	)		-			-			-			-			-			(12,813	)		-			(12,813	)
Repurchase and cancellation of Series B convertible preferred share		-			-			(30,000	)		(2	)		-			-			-			-			-			-			(638	)		-			-			-			-			-			(640	)		-			(640	)
Exercise of warrants for Series A convertible preferred shares		300,000			23			-			-			-			-			-			-			-			-			3,386			-			(1,235	)		-			-			-			2,174			-			2,174
Exercise warrants for ordinary shares		-			-			-			-			-			-			-			-			121,622			9			2,126			-			(471	)		-			-			-			1,664			-			1,664
Conversion of series A, B, C, D preferred shares		(5,450,000	)		(449	)		(12,110,495	)		(1,003	)		(3,378,379	)		(272	)		(2,598,503	)		(200	)		23,537,377			1,924			-			-			-			-			-			-			-			-			-
Issuance of ordinary shares on IPO (net of issuance cost of RMB25,665)		-			-			-			-			-			-			-			-			16,368,000			1,208			347,619			-			-			-			-			-			348,827			-			348,827
Provision for statutory reserves		-			-			-			-			-			-			-			-			-			-			-			-			-			7,540			(7,540	)		-			-			-			-
Foreign currency translation adjustments		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			(2,822	)		(2,822	)		-			(2,822	)		(2,822	)
Net income		-			-			-			-			-			-			-			-			-			-			-			-			-			-			2,487			-			2,487			25,148			27,635			27,635
Capital contribution by a noncontrolling shareholder		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			3,430			3,430
Dividend distributed to noncontrolling shareholders		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			(15,178	)		(15,178	)
Acquisition of equity interests from noncontrolling shareholders		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			(3,327	)		(3,327	)
Withdraw of capital by a noncontrolling shareholder		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			(1,400	)		(1,400	)
Balance at December 31, 2007 (As adjusted see note 26)		-			-			-			-			-			-			-			-			58,434,407			4,805			760,858			-			6,370			12,161			(103,254	)		(2,206	)		678,734			57,996			736,730			24,813
Ordinary shares converted to ADS shares for future exercise of share options (note 14)		-			-			-			-			-			-			-			-			8,344,305			-			-			-			-			-			-			-			-			-			-
Repurchase of ordinary shares (note 18)		-			-			-			-			-			-			-			-			(3,702,583	)		(253	)		(33,937	)		-			-			-			-			-			(34,190	)		-			(34,190	)
Forfeiture of warrants (note 18)		-			-			-			-			-			-			-			-			-			-			815			-			(815	)		-			-			-			-			-			-
Exercise of share options (note 14)		-			-			-			-			-			-			-			-			-			21			1,766			-			-			-			-			-			1,787			-			1,787
Amortization of share-based compensation		-			-			-			-			-			-			-			-			-			-			5,231			-			-			-			-			-			5,231			-			5,231
Transfer statutory reserve		-			-			-			-			-			-			-			-			-			-			-			-			-			(5,264	)		5,264			-			-			-			-
Provision for statutory reserves		-			-			-			-			-			-			-			-			-			-			-			-			-			2,700			(2,700	)		-			-			-			-
Foreign currency translation adjustments		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			(18,714	)		(18,714	)		-			(18,714	)		(18,714	)
Net loss		-			-			-			-			-			-			-			-			-			-			-			-			-			-			(43,019	)		-			(43,019	)		36,412			(6,607	)		(6,607	)
Capital contribution by a noncontrolling shareholder		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			1,225			1,225
Dividend distributed to noncontrolling shareholders		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			(11,318	)		(11,318	)
Balance at December 31, 2008 (As adjusted see note 26)		-			-			-			-			-			-			-			-			63,076,129			4,573			734,733			-			5,555			9,597			(143,709	)		(20,920	)		589,829			84,315			674,144			(25,321	)
Repurchase of ordinary shares (note 18)		-			-			-			-			-			-			-			-			(7,828,800	)		(536	)		(76,098	)		-			-			-			-			-			(76,634	)		-			(76,634	)
Forfeiture of warrants (note 18)		-			-			-			-			-			-			-			-			-			-			3,672			-			(3,672	)		-			-			-			-			-			-
Exercise of share options (note 14)		-			-			-			-			-			-			-			-			-			39			4,124			-			-			-			-			-			4,163			-			4,163
Amortization of share-based compensation		-			-			-			-			-			-			-			-			-			-			7,416			-			-			-			-			-			7,416			-			7,416
Provision for statutory reserve		-			-			-			-			-			-			-			-			-			-			-			-			-			4,064			(4,064	)		-			-			-			-
Foreign currency translation adjustments		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			276			276			-			276			276
Unrealized gains (note 6)		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			144			144			-			144			144
Net income		-			-			-			-			-			-			-			-			-			-			-			-			-			-			34,779			-			34,779			32,073			66,852			66,852
Capital contribution by a noncontrolling shareholder		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			1,960			1,960
Dividend distributed to noncontrolling shareholders		-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			(16,168	)		(16,168	)
Balance at December 31, 2009		-			-			-			-			-			-			-			-			55,247,329			4,076			673,847			-			1,883			13,661			(112,994	)		(20,500	)		559,973			102,180			662,153			67,272
																												US$	597		US$	98,719					US$	276		US$	2,001		US$	(16,551	)	US$	(3,003	)	US$	82,039		US$	14,969		US$	97,008

The accompanying notes are an integral part of these consolidated financial statements.

F - 7

CHINAEDU CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share-related data)

	Years ended December 31,
	2007			2008			2009			2009
	RMB			RMB			RMB			US$
	(As adjusted			(As adjusted
	see Note 26)			see Note 26)
Cash flows from operating activities:
Net income (loss)		27,635			(6,607	)		66,852			9,795
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Share-based compensation		3,643			5,231			7,416			1,086
Depreciation and amortization of property and equipment		8,206			12,212			16,603			2,432
Amortization of land use rights		533			606			619			91
Amortization of acquired intangible assets		8,548			8,746			5,237			767
Goodwill and acquired intangible assets impairment		16,192			70,093			-			-
Provision for amounts due from related parties and account receivables		7,049			1,215			364			53
Property and equipment write down		688			-			-			-
Gain on conversion of warrants of series D convertible preferred shares		(394	)		-			-			-
Interest expenses		2,130			-			-			-
Loss from disposal of property and equipment		89			1,663			513			75
Deferred income taxes		(1,283	)		(8,387	)		306			45
Changes in assets and liabilities:
Restricted cash		-			-			(365	)		(53	)
Accounts receivable		11,340			(14,658	)		(13,844	)		(2,028	)
Inventory		-			-			(1,852	)		(271	)
Prepaid expenses and other current assets		(8,737	)		(2,970	)		(5,075	)		(743	)
Amounts due from related parties		(52,492	)		(44,950	)		(26,330	)		(3,857	)
Rental deposits		(1,187	)		665			90			13
Land use rights		(2,195	)		(160	)		(1,989	)		(291	)
Accounts payable		(5,640	)		(950	)		115			17
Deferred revenues		7,905			15,210			3,792			556
Accrued expenses and other current liabilities		20,860			10,011			19,082			2,796
Amounts due to related parties		25,045			(4,368	)		268			39
Income taxes payable		9,495			5,462			5,472			802
Other taxes payable		2,914			5,342			3,892			570
Unrecognized tax benefit		588			1,141			2,254			330
Net cash provided by operating activities		80,932			54,547			83,420			12,224

Cash flows from investing activities:
Purchase of businesses, net of cash acquired of RMB625, RMB nil and RMB nil in 2007, 2008 and 2009, respectively		(16,520	)		(6,700	)		-			-
Payment of contingent consideration		(6,000	)		-			-			-
Purchase of property and equipment		(69,687	)		(36,323	)		(57,071	)		(8,361	)
Deposits paid for acquisition of property and equipment		(2,025	)		(8,650	)		(11,371	)		(1,666	)
Purchase of term deposits		3,958			(57,458	)		(58,813	)		(8,616	)
Purchase of contractual rights		(3,430	)		(1,225	)		(1,235	)		(181	)
Purchase of investments		-			-			(20,578	)		(3,015	)
Proceeds from disposal of property and equipment		-			31			-			-
Net cash used in investing activities		(93,704	)		(110,325	)		(149,068	)		(21,839	)

F - 8

CHINAEDU CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

(In thousands, except share-related data)

	Years ended December 31,
	2007			2008			2009			2009
	RMB			RMB			RMB			US$
	(As adjusted			(As adjusted
	see Note 26)			see Note 26)
Cash flows from financing activities:
Proceeds from Initial Public Offering ("IPO") (net of issuance cost of RMB25,665)		348,827			-			-			-
Cash dividends paid to noncontrolling shareholders		(19,028	)		(11,319	)		(14,698	)		(2,153	)
Capital contribution by noncontrolling shareholders		2,030			1,225			1,715			251
Proceeds from issuance of Series D convertible preferred shares (net of issuance costs of RMB2,598)		72,033			-			-			-
Proceeds from exercise of warrants		3,838			-			-			-
Repurchase and cancellation of Series B convertible preferred shares		(640	)		-			-			-
Repurchase and cancellation of ordinary shares		(12,813	)		(34,190	)		(76,634	)		(11,226	)
Repayment of convertible notes		(27,783	)		-			-			-
Repayment of long-term debts		(1,080	)		(25,724	)		-			-
Collection of subscription receivable		1,117			-			-			-
Proceeds from exercise of share options		-			1,787			4,163			610
Net cash provided by (used in) financing activities		366,501			(68,221	)		(85,454	)		(12,518	)
Effect of exchange rate changes		(4,930	)		(19,182	)		312			43
Net increase (decrease) in cash and cash equivalents		348,799			(143,181	)		(150,790	)		(22,090	)
Cash and cash equivalents, beginning of year		148,315			497,114			353,933			51,851
Cash and cash equivalents, end of year		497,114			353,933			203,143			29,761

Supplemental disclosure of cash flow information
Income taxes paid		6,791			4,987			11,255			1,649
Interest paid		4,743			1,294			2			-
Supplemental disclosure of non-cash financing activities:
Conversion of convertible note into Series D preferred shares		2,489			-			-			-
Purchase of building financed by mortgage loan		26,430			-			-			-
Conversion of Series A, B, C, D preferred shares into ordinary shares		1,924			-			-			-

The accompanying notes are an integral part of these consolidated financial statements.

F - 9

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES

ChinaEdu Corporation (the "Company") was incorporated in the Cayman Islands on September 6, 1999. The Company, its subsidiaries, and its variable interest entities are collectively referred to hereinafter as the "Group". The Group principally provides online educational technical and consulting services and recruiting services to universities that provide online education services. The Group also provides online tutoring services and educational services, English language learning service and international polytechnic curriculum through traditional classroom in the People's Republic of China (the "PRC").

A summary of the Company's subsidiaries and variable interest entity and its subsidiaries as of December 31, 2009 was as follows:

	Date of incorporation	Percentage of
Name	or acquisition	legal ownership	Place of incorporation

Subsidiaries of the Company:

CMR Web-learning Co., Ltd. ("CMR Web")	July 29, 1999	70%	PRC

Hongcheng Technology Development Co., Ltd. ("Hongcheng Technology")	July 31, 2000	100%	PRC

Beijing Xuezhi Times Education Science Co., Ltd. ("Beijing Xuezhi")	October 18, 2001	100%	PRC

Zhong Nongda Networks Development Co., Ltd. ("Zhongnongda Networks")	October 30, 2001	55%	PRC

Beijing Hongcheng Liye Technology Co., Ltd. ("Hongcheng Liye")	April 15, 2003	100%	PRC

Dalian Dongcai Technology Co., Ltd. ("Dongcai")	June 4, 2003	70%	PRC

Beijing WITT Education Consultant Management Co., Ltd. ("WITT Education")	July 4, 2003	100%	PRC

BJ-WITT EDU MAN. LTD. ("BJ-WITT")	July 4, 2003	100%	BVI

Chongqing Chongda Yuanxing Co., Ltd. ("Chongda")	December 24, 2003	51%	PRC

Beijing BCIT Science and Education Management Consulting Limited ("Beijing BCIT")	January 13, 2005	100%	PRC

Beijing WITT Science Co., Ltd. ("WITT Science")	December 26, 2005	100%	PRC

Beijing Gotop Education Co., Ltd. ("Gotop Hongcheng")	December 26, 2005	100%	PRC

Beijing BCIT Science and Education Management Consulting Limited ("BJ-BCIT")	February 10, 2006	100%	BVI

Beijing Distance Education Technology Co., Ltd. ("Yuancheng Education")	March 31, 2006	65%	PRC

Tianjin Gaotuo Hongcheng Education Technology Co., Ltd. ("Tianjin Gaotuo Hongcheng")	June 26, 2006	100%	PRC

Beijing Beiyuda Education Technology Co., Ltd. ("Beiyuda")	September 26, 2006	51%	PRC

Beijing Mingdaoyuan Technology Co., Ltd. ("Beijing Mingdao")	March 27, 2007	51%	PRC

F - 10

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

	Date of incorporation	Percentage of
Name	or acquisition	legal ownership		Place of incorporation

Shanghai Shangcai Education Technology Co., Ltd. ("Shanghai Shangcai")	April 18, 2008		51%	PRC

Dongcai Online Training Center ("Dongcai Online")	July 10, 2008		70%	PRC

Beijing Zhonglin Technology Co., Ltd. ("Zhonglin")	November 3, 2008		51%	PRC

Guangxi Hongcheng Times Technology Development Co.,Ltd. ("Guangxi Hongcheng")	February 10, 2009		51%	PRC

Fuzhou Haojiaoshi Distance Education Service Co., Ltd. ("Fuzhou Good Teacher")	December 7, 2009		51%	PRC

Variable interest entity of the Company:

Beijing Hongcheng Education Technology Co., Ltd. ("Hongcheng Education")	March 7, 2005		N/A	PRC

Subsidiaries of variable interest entity:

Beijing Gotop Electronic Science Co., Ltd. ("Gotop Electronic") (1)	November 29, 1995		N/A	PRC

Xiandai Xingye Network Technology Co., Ltd. ("Xiandai Technology") (1)	November 7, 2000		N/A	PRC

Pingdingshan Wellent Bilingual School ("Pingdingshan") (1)	September 3, 2002		N/A	PRC

Anqing Foreign Language Middle School ("Anqing Foreign Language") (1)	August 2, 2004		N/A	PRC

Jingzhou Tianchang Investment Co., Ltd. ("Tianchang") (2)	September 6, 2005		N/A	PRC

Jingzhou Middle School South Campus ("South Campus") (3)	December 28, 2005		N/A	PRC

Beijing Hongcheng YoYo Technology Co., Ltd. ("Hongcheng YoYo") (1)	November 3, 2009		N/A	PRC

(1)

Wholly owned subsidiary of Hongcheng Education (VIE of the Company)

(2)

72.5% of its equity is held by Hongcheng Education (VIE of the Company)

(3)

54% of its equity is held by Hongcheng Education (VIE of the Company)

PRC regulations currently limit foreign ownership of entities providing Internet content and engaging in primary and junior high school education. To comply with PRC laws and regulations, the Group provides such services in the PRC through its variable interest entities, Xiandai Technology, and Hongcheng Education, and their subsidiaries.

On November 7, 2000, the Group established Xiandai Technology, a variable interest entity ("VIE") through series of contractual arrangements with designated equity owners who are PRC citizens and legally own the VIE. The Group extended interest-free loans with total principal of RMB600 to the nominee shareholders to finance their investments in Xiandai Technology.

On March 7, 2005, the Group established Hongcheng Education, a VIE, through series of contractual arrangements with designated equity owners who are PRC citizens and legally own the VIE. The Group extended interest-free loans with total principal of RMB54,200 to the nominee shareholders to finance their investments in Hongcheng Education.

F - 11

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

A summary of the key terms in the loan agreements and the related pledge agreements is as follows:

(i)

Proceeds from the loans are to be used solely for the investments in Xiandai Technology and Hongcheng Education;

(ii)

The loans can only be repaid by a transfer of the equity ownership interest in Xiandai Technology and Hongcheng Education to the Group;

(iii)

Ownership interests in Xiandai Technology and Hongcheng Education cannot be transferred to other parties without the approval of the Group;

(iv)

The Group has the right to appoint all directors and senior management personnel of Xiandai Technology and Hongcheng Education;

(v)

All ownership rights, including voting rights and rights to declare and rights to pay dividends, are assigned to the Group for an indefinite term; and

(vi)

The Group has the right to acquire all of the ownership interests in Xiandai Technology and Hongcheng Education at the lowest price permitted by the PRC law at any time, when permitted by the PRC law.

The Group also entered into an exclusive technical consulting and services agreement with Xiandai Technology and Hongcheng Education. As consideration for these services, the Group charges Xiandai Technology and Hongcheng Education a service fee, it represents substantially all of their net income.

As a result of these contractual arrangements, the Group became the primary beneficiary of Xiandai Technology and Hongcheng Education, and consolidated Xiandai Technology and Hongcheng Education as of the date of the above agreements.

In September 2009, the nominee shareholders of Xiandai Technology transferred all of their equity interests to Hongcheng Education. Xiandai Technology became a wholly owned subsidiary of Hongcheng Education. The related contractual arrangements with the Group were terminated as a result.

The following total assets, total liabilities, net revenue and net income (loss) of VIE and its subsidiaries were included in the accompanying consolidated financial statements:

	December 31,
	2008		2009
	RMB		RMB

Total assets		191,898		236,218
Total liabilities		140,652		186,959

F - 12

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

	Years ended December 31,
	2007		2008			2009
	RMB		RMB			RMB

Net revenue		31,608		49,517			66,410
Net income (loss)		3,592		(7,566	)		(1,125	)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The accompanying consolidated financial statements of the Group are stated in Renminbi ("RMB"). The presentation of the amounts in United States dollar ("US$") is included solely for the convenience of the reader and were converted at a rate of RMB6.8259 to US$1.00, the approximate rate of exchange at December 31, 2009. Such translation should not be construed to be the amounts that would have been reported under US GAAP.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries, and its variable interest entities. All inter-company transactions and balances have been eliminated upon consolidation.

Noncontrolling interests

Effective January 1, 2009, the Group adopted an authoritative pronouncement issued by the Financial Accounting Standards Board (the "FASB") regarding noncontrolling interests in consolidated financial statements. The pronouncement requires noncontrolling interests to be separately presented as a component of equity in the consolidated financial statements. The presentation regarding noncontrolling interest was retroactively applied for all the presented periods.

F - 13

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses in the financial statements and the accompanying notes. Significant accounting estimates reflected in the Group's financial statements include the allowance of doubtful debts, the useful lives and impairment of property and equipment, and intangible assets with definite lives; valuation allowance for deferred tax assets; impairment of goodwill and indefinite life intangible assets; impairment of investments; purchase price allocation relating to the businesses acquired; and share-based compensation expense. Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and demand deposits which are unrestricted as to withdrawal or use, and have original maturities of three months or less when purchased.

Restricted cash

Restricted cash represents cash that can not be withdrawn without the permission of third parties. The Group's restricted cash is substantially cash balance of safety deposit for business proposal.

Term deposits

Term deposits consist of deposits placed with financial institutions with original maturity terms of greater than three months but less than one year.

Investments

The group classifies its investment in debt and equity securities into one of three categories and accounts for these as follows: (i) debt securities that the group has the positive intent and the ability to held to maturity are classified as "held to maturity" and reported as amortized cost; (ii) debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as "trading securities" with unrealized holding gains and losses included in earnings; (iii) debt and equity securities not classified as held to maturity or as trading securities are classified "available for sale" and reported at fair value. Unrealized gains and losses on available for sale securities are excluded from earnings and reported as accumulated other comprehensive income (loss), net of tax.

Investment classified as "held to maturity" with remaining maturity terms of greater than 12 months are classified as non-current asset.

The group monitors its investments for other than temporary impairment by considering factors including, but not limited to, current economic and market conditions, the operating performance of the companies including current earnings trends and other company-specific information.

F - 14

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Cost method investment

For investment in an investee over which the Group does not have significant influence, the Group carries the investment at cost and recognizes income as any dividends received from the distribution of the investee's post acquisition earnings. The Group reviews the cost method investment for impairment whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable. An impairment loss is recognized in earnings equal to the difference between the investment's cost and its fair value at the balance sheet date of the reporting period for which the assessment is made. The fair value of the investment would then become the new cost basis of the investment.

Fair value

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:

Level 1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - inputs are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

F - 15

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Land use rights, net

Land use rights are recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis over the estimated useful lives, which is generally 50 years and represents the shorter of the estimated usage periods or the terms of the agreements.

Property and equipment, net

Property and equipment are carried at cost less accumulated depreciation and amortization. Assets under construction are not depreciated until they are ready for their intended use. Depreciation and amortization is calculated on a straight-line basis over the following estimated useful lives:

Buildings	20 years
Furniture, fixtures and equipment	3-5 years
Motor vehicles	5 years
Leasehold improvements	Shorter of the lease term or the
	estimated useful lives

Acquired intangible assets, net

Acquired intangible assets other than goodwill consist of trade names, service agreements with universities and high schools, operating platforms, customer base, online coursewares, agency agreements, contractual rights and prepaid operating contracts, and are carried at cost, less accumulated amortization and impairment. Amortization of acquired intangible assets (other than trade names, which are discussed below) is calculated on a straight-line basis over the shorter of the contractual terms or the expected useful lives of the acquired assets. The weighted average amortization periods by major intangible assets class are as follows:

Service agreements with universities and high schools	26 years
Operating platforms	6 years
Customer base	4 years
Online coursewares	3 years
Agency agreements	5 years
Contractual rights	16 years
Prepaid operating contracts	22 years

The Group's trade names do not have determinable useful lives. Consequently, the carrying amounts of trade names are not amortized but are tested for impairment annually or more frequently if events or circumstances indicate that the asset may be impaired. Such impairment test consists of a comparison of the fair values of the trade names with their carrying amounts and an impairment loss is recognized if and when the carrying amounts of the trade names exceed their fair values.

F - 16

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Acquired intangible assets, net - continued

The estimates of fair values of intangible assets not subject to amortization are determined using various discounted cash flow valuation methodologies. Significant assumptions are inherent in this process, including estimates of discount rate. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets.

Impairment of long-lived assets

The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the fair value of the assets.

Goodwill

The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheet as goodwill.

Revenue recognition

The Group's revenue is principally derived from three primary sources: (i) the provision of bundled online education technical, consulting and recruiting services; (ii) the provision of online tutoring services; and (iii) the provision of traditional classroom education services. Revenue is recognized when earned and is reported net of business tax and surcharges, which totaled RMB7,354, RMB10,974 and RMB13,741 for the years ended December 31, 2007, 2008 and 2009, respectively.

F - 17

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

(i)

Online education technical, consulting and recruiting services

The Group's primary business is to provide online education technical and consulting services to the online degree programs of leading Chinese universities. These services include academic program development, technology services, enrollment marketing, student support services, and finance operations. Since each of the services does not have a stand-alone value to the universities, these services are accounted for as one unit of accounting and the related revenue is recognized ratably over the service period. The Group primarily hosts the online education technology on its system and provides access to the universities to whom the Group provides services and their students. Any universities that prefer hosting the online education platform or courseware on their own systems must enter into separate arrangements with the Group.

The Group receives service fees from the universities each semester covering services to be provided to the universities during that semester. The amount of service fees to be received by the Group is derived from tuition fees collected by the universities from their students at the beginning of each semester, as adjusted for the universities' costs and expenses, such as refunds to students, fees to other service providers, and other operating costs and expenses.

The Group also provides recruiting, enrollment marketing and other student services through its learning centers network to the online degree programs of leading Chinese universities. The amount of service fees received is based on the agreements entered into with the universities, and derived from tuition fees that the Group collects from students on behalf of the universities.

Service fees received are initially recorded as deferred revenue and are recognized as revenue ratably over the six-month school semester during which the Group provides the services. The semesters generally begin in April and October of each calendar year.

(ii)

Online tutoring services

The Group offers online interactive tutoring services to primary and secondary students. These services allow the customers access to the online education services over a fixed period of time, generally ranging from one month to three years, through the use of prepaid cards. The prepaid cards are sold to distributors, from whom the Group collects payments when the prepaid cards are delivered to the distributors. The distributors then resell the cards to end users. All prepaid fees received from distributors are initially recognized as deferred revenue and revenue is recognized ratably over the applicable period that the Group provides services to the end users.

F - 18

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

(iii)

Traditional classroom education services

The Group operates a number of private primary and secondary schools, and markets and supports international post-secondary and English language curriculum programs to established learning institutions. Students must register and pay for their classes at the beginning of each semester. Fees collected from private primary and secondary schools operations upfront are initially recorded as deferred revenue at the time the students register for their classes and the Group receives payments. Revenue is recognized ratably over the service period, which is six months for each school semester, as the education services are delivered. If a student withdraws from a class, any collected but unearned portion of the fee is recognized at that time unless the student is entitled to a refund under limited circumstances.

Revenue from the online education technical and consulting services and online tutoring services also includes the rebate of value-added tax. Such value-added tax rebates are granted to the Group as part of the PRC government's strategy to encourage high technology development in the PRC, and are recorded as a component of revenue when the relevant compliance requirements are met and that, there are no further obligations, nor subject to future refunds or reimbursements. Rebates granted to the Group during the years ended December 31, 2007, 2008 and 2009 were RMB2,405, RMB9,870 and RMB6,634, respectively.

F - 19

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Accounts receivable

Accounts receivable relate to the online education technical, consulting and recruiting services provided to certain university customers. Accounts receivable are recorded at amounts that are presently due based on the service agreement, which are net of allowance for doubtful accounts.

The Group writes off accounts receivable when it becomes apparent based upon age or customer circumstances that such amounts will not be collected.

Concentration of credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, term deposits, restricted cash, investments, accounts receivable and amount due from related parties. The Group places its cash and cash equivalents and term deposits with financial institutions with high-credit ratings and quality.

The Group conducts credit evaluations of its customers and generally does not require collateral or other security from them. To date, the Group has not experienced significant losses from uncollectible accounts. An allowance for doubtful accounts amounting to RMB1,215 and RMB364 was recorded in 2008 and 2009, respectively, these amounts were written-off in the same year. Management will continue to evaluate the Group's collection experience and will provide for an allowance for doubtful accounts as appropriate.

A summary of the customers who accounted for 10% or more of the Group's consolidated net revenues was as follows:

	Years ended December 31,
Customers	2007		2008		2009
	RMB		RMB		RMB

A		55,965		70,197		71,722
B		37,075		42,377		42,701
C		*		*		*
D		45,926		48,178		47,355

F - 20

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Concentration of credit risk - continued

A summary of the customers who accounted for 10% or more of the Group's consolidated accounts receivable and amounts due from related parties was as follows:

	December 31,
Customers	2008		2009
	%		%

A		40		44
B		17		11
C		18		23
D		*		*
E		13		*

Represented less than 10% of consolidated net revenue or accounts receivable and amounts due from related parties' balances.

Research and development

Research and development expenses mainly include depreciation, payroll, employee benefits, and other headcount-related costs associated with the development of online education technology platform and courseware. The Group expenses all research and development costs when incurred.

Advertising costs

Advertising costs are expensed as incurred. The Group incurred advertising costs totaling RMB5,575, RMB8,216 and RMB7,822 for the years ended December 31, 2007, 2008 and 2009, respectively, which were recorded as a component of selling and marketing expenses in the accompanying consolidated statements of operations.

F - 21

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Royalty fees

Royalty fees payable to a middle school increase each year from the 2005 calendar year to the 2024 calendar year. Royalty fees during this period were aggregated and recognized as royalty expense on a straight-line basis. The difference between royalty fees paid and the amount reported as expenses was included as a component of accrued expenses and other current liabilities in the accompanying consolidated balance sheets.

Foreign currency translation

The functional currency of the Company, BJ-BCIT and BJ-WITT is the US$. The functional currency of all entities within the Group, excluding the Company, BJ-BCIT and BJ-WITT, is the RMB. Transactions in other currencies are recorded in each relevant entity's functional currency at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are translated into the applicable functional currencies at rates of exchange in effect at the balance sheet dates. Nonmonetary assets and liabilities are remeasured into the applicable functional currencies at historical exchange rates and transactions denominated in other currencies are converted at the applicable rates of exchange prevailing when the transactions occur. Exchange gains and losses are recorded in the consolidated statements of operations.

The Group's reporting currency is the RMB. The group’s entities with functional currency of US$ translate their operating results and financial position into the RMB, the group’s reporting currency. Assets and liabilities are translated at the exchange rates at the balance sheet date, equity amounts are translated at historical exchange rates and revenues, expenses, gains, and losses are translated using the average rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive loss in the consolidated statements of shareholders' equity.

Foreign currency risk

The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People's Bank of China, controls the conversion of RMB into foreign currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. Cash and cash equivalents and term deposits of the Group included aggregate amounts of RMB266,760 and RMB285,514 at December 31, 2008 and 2009, respectively, which were denominated in RMB.

F - 22

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Income taxes

Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.

Comprehensive income (loss)

Comprehensive income (loss) includes net income (loss), foreign currency translation adjustments and unrealized gain (loss) on available-for-sale securities. Comprehensive income (loss) is reported as a component of the consolidated statements of equity and comprehensive income (loss).

Financial instruments

Financial instruments include cash and cash equivalents, term deposits, restricted cash, short-term investments, accounts receivable, accounts payable, long-term debt, long-term investments, and amounts due from and due to related parties. The carrying values of cash and cash equivalents, term deposits, restricted cash, accounts receivable, accounts payable and amounts due from and to related parties approximate their fair values due to their short-term maturities. The fair value of the short-term investments and long-term investments measured at cost are not disclosed because they are not readily determinable. Available-for-sale investments are carried at fair value.

F - 23

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Net income (loss) per share

The Group had determined that its convertible preferred shares were participating securities as the preferred shares participate in undistributed earnings on an as-if-converted basis. The holders of the preferred shares were entitled to receive dividends on a pro rata basis, as if their shares had been converted into ordinary shares. Accordingly, the Group used the two-class method of computing net income (loss) per share, for ordinary and preferred shares according to participation rights in undistributed earnings. Under this method, net income applicable to holders of ordinary shares was allocated on a pro rata basis to the ordinary and preferred shares to the extent that each class may share income for the period; whereas undistributed net loss was allocated to ordinary shares because preferred shares were not contractually obligated to share the loss.

To calculate the number of shares for diluted net income (loss) per share, convertible preferred shares were computed using the if-converted method. The effect of the warrants and share options were computed using the treasury stock method.

Share-based compensation

The Company estimates the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods. The Company has estimated the fair value of share options as of the date of grant or assumption using the Black-Scholes option pricing model. The Black-Scholes model considers, among other factors, the expected life of the award and the expected volatility of stock price.

A change in any of the terms or conditions of share options shall be accounted for as a modification of the plan. Therefore, the Company calculates incremental compensation cost of a modification as the excess of the fair value of the modified option over the fair value of the original option immediately before its terms are modified, measured based on the share price and other pertinent factors at the modification date. For vested options, the Company would recognize incremental compensation cost in the period of the modification occurred and for unvested options, the Company would recognize, over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date.

F - 24

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Business combinations

The Group accounts for its business combinations using the purchase method of accounting. Acquisition costs are allocated to the assets and liabilities the Group acquired based on their fair values with goodwill being the excess value over the net identifiable assets acquired. On January 1, 2009, the Group adopted a new accounting pronouncement with prospective application which made certain changes to the previous authoritative literature on business combinations.

From January 1, 2009, the assets acquired, the liabilities assumed, and any noncontrolling interest of the acquiree at the acquisition date, if any, are measured at their fair values as of that date. Goodwill is recognized and measured as the excess of the total consideration transferred plus the fair value of any noncontrolling interest of the acquiree, if any, at the acquisition date over the fair values of the identifiable net assets acquired. Previously, any non-controlling interest was reflected at historical cost.

Common forms of the consideration made in acquisitions include cash and common equity instruments. Consideration transferred in a business acquisition is measured at the fair value as at the date of acquisition. For shares issued in a business combination, the Company has estimated the fair value as of the date of acquisition.

Where the consideration in an acquisition includes contingent consideration the payment of which depends on the achievement of certain specified conditions post-acquisition, from January 1, 2009, the contingent consideration is recognized and measured at its fair value at the acquisition date and if recorded as a liability it is subsequently carried at fair value with changes in fair value reflected in earnings. For periods prior to January 1, 2009, contingent consideration was not recorded until the contingency was resolved.

From January 1, 2009, changes in the Group's ownership interest while the Group retains its controlling financial interest in its subsidiary are accounted for as equity transactions (investments by owners and distributions to owners acting in their capacity as owners). Therefore, no gain or loss is recognized in consolidated net income or comprehensive income. The carrying amount of the noncontrolling interest is adjusted to reflect the change in its ownership interest in the subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest is adjusted is recognized in equity attributable to the parent. For periods prior to January 1, 2009, changes in the Group's ownership interest while the Group retains its controlling financial interest in its subsidiaries are accounted for using the purchase method of accounting.

F - 25

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Recently issued accounting standards

In October 2009, the FASB issued an authoritative pronouncement regarding the revenue arrangements with multiple deliverables. This pronouncement was issued in response to practice concerns related to the accounting for revenue arrangements with multiple deliverables under existing pronouncement. Although the new pronouncement retains the criteria from exiting pronouncement for when delivered items in a multiple-deliverable arrangement should be considered separate units of accounting, it removes the previous separation criterion under existing pronouncement that objective and reliable evidence of the fair value of any undelivered items must exist for the delivered items to be considered a separate unit or separate units of accounting. The new pronouncement is effective for fiscal years beginning on or after June 15, 2010. Entities can elect to apply this pronouncement (1) prospectively to new or materially modified arrangements after the pronouncement's effective date or (2) retrospectively for all periods presented. Early application is permitted; however, if the entity elects prospective application and early adopts this pronouncement after its first interim reporting period, it must also do the following in the period of adoption: (1) retrospectively apply this pronouncement as of the beginning of that fiscal year and (2) disclose the effect of the retrospective adjustments on the prior interim periods' revenue, income before taxes, net income, and earnings per share. The Group is in the process of evaluating the effect of adoption of this pronouncement.

F - 26

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Recently issued accounting standards - continued

In October 2009, the FASB issued an authoritative pronouncement regarding software revenue recognition. This new pronouncement amends existing pronouncement to exclude from their scope all tangible products containing both software and non-software components that function together to deliver the product's essential functionality. That is, the entire product (including the software deliverables and non-software deliverables) would be outside the scope of software revenue recognition and would be accounted for under other accounting literature. The new pronouncement include factors that entities should consider when determining whether the software and non-software components function together to deliver the product's essential functionality and are thus outside the revised scope of the authoritative literature that governs software revenue recognition. The pronouncement is effective for fiscal years beginning on or after June 15, 2010. Entities can elect to apply this pronouncement (1) prospectively to new or materially modified arrangements after the pronouncement's effective date or (2) retrospectively for all periods presented. Early application is permitted; however, if the entity elects prospective application and early adopts this pronouncement after its first interim reporting period, it must also do the following in the period of adoption: (1) retrospectively apply this pronouncement as of the beginning of that fiscal year and (2) disclose the effect of the retrospective adjustments on the prior interim periods' revenue, income before taxes, net income, and earnings per share. The Group is in the process of evaluating the effect of adoption of this pronouncement.

In January 2010, the FASB issued authoritative guidance on accounting for distributions to shareholders with components of stock and cash. The objective of this new guidance is to clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected prospectively in earnings per share and is not considered a stock dividend for purposes of accounting treatment of equity and earnings per share. This new guidance is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this guidance will not have a significant effect on its consolidated financial position or results of operations.

F - 27

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Recently issued accounting standards - continued

In January 2010, the FASB issued authoritative guidance to clarify the scope of accounting and reporting for decreases in ownership of a subsidiary. The objective of this guidance is to address implementation issues related to changes in ownership provisions. This guidance clarifies certain conditions, which need to apply to this guidance, and it also expands disclosure requirements for the deconsolidation of a subsidiary or derecognition of a group of assets. This guidance is effective in the period in which an entity adopts the authoritative guidance on noncontrolling interests in consolidated financial statements. If an entity has previously adopted the guidance on noncontrolling interests in consolidated financial statements, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. Retrospective application to the first period that an entity adopted the guidance on noncontrolling interests in consolidated financial statements is required. The adoption of this guidance will not have a significant effect on its consolidated financial position or results of operations.

In April 2010, the FASB issued an authoritative pronouncement on milestone method of revenue recognition. The scope of this pronouncement is limited to arrangements that include milestones relating to research or development deliverables. The pronouncement specifies guidance that must be met for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The guidance applies to milestones in arrangements within the scope of this consensus regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting. The pronouncement will be effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early application is permitted. Companies can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. The Group is in the process of evaluating the effect of adoption of this pronouncement.

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

F - 28

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

3.	ACQUISITIONS

In order to diversify its service offerings under the private primary and secondary schools, online tutoring programs and international curriculum programs, the Group consummated the acquisitions set forth below. Because the acquirees' business models are similar to that of the Group, the combination of their operations with the Group is expected to strengthen the Group's position in the respective service offerings. These transactions were recorded using the purchase method of accounting, and accordingly, the acquired assets and liabilities were recorded at their estimated fair values on the acquisition date.

(a)

On February 13, 2007, Hongcheng Education acquired an additional 10% equity interest in Tianchang for cash consideration of RMB3,520. After the acquisition, the equity interest in Tianchang increased to 72.5%.

The purchase price for the extra 10% equity interest was allocated based on the fair value of the acquired assets and liabilities on the date of the acquisition.

	RMB

Cash and cash equivalents		625
Accounts receivable		13
Amounts due from related parties		75
Property and equipment		355
Land use right		1,852
Amounts due to related parties		(74	)
Net assets acquired		2,846
Goodwill (allocated to private primary and secondary schools segment)		674
Total		3,520

F - 29

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

3.	ACQUISITIONS - continued

(b)

In May 2007, the Group acquired the remaining 20% equity interest in WITT Education for cash consideration of RMB12,800 (US$1,654), and WITT Education became a wholly-owned subsidiary of the Group. In addition, the Group paid an additional RMB6,000 to the original shareholder in 2007 since WITT Education met the operating performance target set forth in the purchase agreement, consequently increasing the goodwill by RMB6,000.

The purchase price for this 20% equity interest was allocated based on the fair value of the acquired assets and liabilities on the date of the acquisition.

				Weighted
				average remaining
	RMB			amortization period
Intangible assets:
Service agreement with a high school		3,154		18.7 years
Service agreements with other high schools		4,980		13.7 years
Total intangible assets		8,134		15.6 years
Deferred tax liabilities relating to intangible assets acquired		(1,907	)
Goodwill (allocated to the international curriculum programs segment)		6,573
Total		12,800

F - 30

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

3.	ACQUISITIONS - continued

(c)

In May 2008, the Group acquired the remaining 20% equity interest in Gotop Electronic and Beijing Xuezhi from Tianjin Tianxingjian Co., Ltd. ("Tianxingjian"), which were engaged in providing online tutoring service, for an aggregate purchase price a cash consideration of RMB6,700 (US$982) and Gotop Electronic and Beijing Xuezhi became wholly owned by the Group.

The purchase price for this 20% equity interest was allocated based on the fair value of the acquired assets and liabilities on the date of acquisition.

				Weighted
				average remaining
	RMB			amortization period

Intangible assets:
Trade name		854		indefinite life
Online courseware		119		2 years
Agency agreements		61		5 years
Operation platform		69		5 years
Total intangible assets		1,103
Deferred tax liabilities relating to intangible assets acquired		(275	)
Goodwill (allocated to the online tutoring programs segment)		5,872
Total		6,700

The following unaudited pro forma information summarizes the results of operations for the Group for the years ended December 31, 2007, 2008, and 2009 assuming that all significant acquisitions during the year ended December 31, 2007 occurred as of January 1, 2007; assuming that the significant acquisitions during the year ended December 31, 2008 occurred as of January 1, 2007 and 2008, respectively. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that would have resulted had the significant acquisitions occurred as of the beginning of each year, nor are they indicative of future operating results.

F - 31

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

3.	ACQUISITIONS - continued

	Years ended December 31,
	2007		2008			2009
	RMB		RMB			RMB
	(Unaudited)		(Unaudited)			(Unaudited)

Pro forma net revenues		264,988		317,720			354,706
Pro forma net income (loss) attributable to ChinaEdu Corporation shareholders		2,000		(43,046	)		34,779
Pro forma net income (loss) per shares attributable to ChinaEdu Corporation shareholders-basic		0.05		(0.75	)		0.71
Pro forma net income (loss) per preferred A share-basic		0.05		-			-
Pro forma net income (loss) per preferred B share-basic		0.05		-			-
Pro forma net income (loss) per preferred C share-basic		0.05		-			-
Pro forma net income (loss) per preferred D share-basic		0.05		-			-
Pro forma income (loss) per share attributable to ChinaEdu Corporation shareholders-diluted		0.04		(0.75	)		0.66

4.	ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consisted of the following:

	December 31,
	2008		2009
	RMB		RMB

Accounts receivable		14,854		28,334
Less: allowance for doubtful accounts		-		-
Accounts receivable, net		14,854		28,334

Movement of allowance for doubtful accounts was as follow:

	December 31,
	2008			2009
	RMB			RMB

Balance as of January 1		-			-
Charged to expenses		1,042			364
Written off		(1,042	)		(364	)
Balances as of December 31		-			-

F - 32

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

5.	PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of:

	December 31,
	2008		2009
	RMB		RMB

Staff advances and others		1,877		2,477
Advance to an online school		2,457		7,597
Prepaid expenses		4,052		6,718
Advances to suppliers		3,782		3,026
Interest receivables		2,078		777
Value-added tax rebate receivable		6,005		4,720
		20,251		25,315

Advance to an online school represented amount loaned to an online education alliance program to fund its operations. Advance to an online school is non-interest bearing and is payable on demand. Value-added tax rebate receivable represented the accrued value added tax rebate from online degree programs which will be received in 2010.

6.	SHORT-TERM INVESTMENTS

The short-term investments were comprised of investments in trust funds and bonds. The fair value of investments in trust funds was not readily determinable, therefore, the investments were classified as cost method investments and measured at cost. As of December 31, 2009, the cost method investments were carried at cost of RMB13,000.

The investments in bonds were classified as available-for-sale investments and measured at fair value. As of December 31, 2009, the available-for-sale investments were carried at fair value of RMB4,706. The fair value was measured base on level 1 input because the Group used the quoted prices for identical instruments traded in active markets to value the investments. During the year ended December 31, 2009, unrealized gains on the change of the fair value of the investments of RMB144 were recognized in other comprehensive income (loss), net of tax.

F - 33

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

7.	LONG-TERM INVESTMENTS

All long-term investments were classified as cost method investments and measured at cost.

In June 2004, the Group obtained a 10% equity interest in Hongcheng Xueyuan Technology Development Co., Ltd. ("Hongcheng Xueyuan"), a company established in the PRC that is engaged in the provision of education services in the PRC, for consideration of RMB100. In December 2006, the Group increased its equity interest in Hongcheng Xueyuan to 19% by acquiring an additional 9% equity interest for cash consideration of RMB1,110.

In July 2009, the Group invested RMB3,000 in a trust fund, which was classified as a cost method investment and carried at cost.

8.	LAND USE RIGHTS, NET

Land use rights, net consisted of the following:

	December 31,
	2008			2009
	RMB			RMB

Land use rights		30,138			30,287
Less: accumulated amortization		(1,794	)		(2,413	)
Land use rights, net		28,344			27,874

Amortization expenses for land use rights totaled RMB533, RMB606 and RMB619 for the years ended December 31, 2007, 2008, and 2009, respectively. Future amortization expenses are RMB619 per year for each of the next five years through December 31, 2014.

F - 34

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

9.	PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	December 31,
	2008			2009
	RMB			RMB

Buildings		123,428			154,795
Furniture, fixtures and equipment		47,179			53,030
Motor vehicles		9,630			11,016
Leasehold improvements		13,770			13,890
		194,007			232,731
Less: accumulated depreciation and amortization		(37,917	)		(50,594	)
		156,090			182,137
Construction in progress		5,835			21,858
		161,925			203,995

Depreciation and amortization expenses for the years ended December 31, 2007, 2008 and 2009 were RMB8,206, RMB12,212 and RMB16,603, respectively.

10.	ACQUIRED INTANGIBLE ASSETS, NET

Acquired intangible assets, net including those acquired as part of business combination consisted of the following:

	Years Ended December 31,
	2008										2009
	Gross								Net		Gross								Net
	carrying		Accumulated			Accumulated			carrying		carrying		Accumulated			Accumulate			carrying
	amount		amortization			impairment			amount		amount		amortization			impairment			amount
	RMB		RMB			RMB			RMB		RMB		RMB			RMB			RMB

Acquired intangible assets with definite lives
Service agreements with universities and high schools		89,235		(9,916	)		(29,057	)		50,262		89,235		(12,635	)		(29,057	)		47,543
Operating platforms		759		(487	)		-			272		759		(614	)		-			145
Customer base		11,708		(10,934	)		-			774		11,708		(11,708	)		-			-
Online coursewares		3,623		(3,543	)		-			80		3,623		(3,602	)		-			21
Agency agreements		356		(244	)		-			112		356		(316	)		-			40
Contract rights		16,455		(5,347	)		-			11,108		17,936		(6,581	)		-			11,355
Prepaid operating contracts		4,464		(1,011	)					3,453		4,464		(1,263	)		-			3,201
Total intangible assets definite lives		126,600		(31,482	)		(29,057	)		66,061		128,081		(36,719	)		(29,057	)		62,305
Acquired intangible assets with indefinite lives Trade name		4,316		-			-			4,316		4,316		-			-			4,316
Total		130,916		(31,482	)		(29,057	)		70,377		132,397		(36,719	)		(29,057	)		66,621

F - 35

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

10.	ACQUIRED INTANGIBLE ASSETS, NET - continued

The carrying amount of acquired intangible assets, net by operating segment was as follows:

	December 31,
	2008		2009
	RMB		RMB

Online degree programs		46,313		45,001
Online tutoring programs		4,645		4,422
Private primary and secondary schools		3,453		3,201
International curriculum programs		15,966		13,997
		70,377		66,621

Amortization expenses of acquired intangible assets with definite lives were RMB8,548, RMB8,746 and RMB5,237 for the years ended December 31, 2007, 2008 and 2009, respectively. Amortization expenses for acquired intangible assets with definite lives for the next five years are follows:

Years ending December 31,	RMB

2010		4,325
2011		3,550
2012		3,197
2013		3,048
2014		2,899

11.	IMPAIRMENT

(a)

Intangible assets impairment

Management performed the annual intangible assets impairment test as of December 31, 2007, 2008 and 2009. The Group recorded impairment loss of intangible assets with definite lives of RMB nil, RMB29,057 and RMB nil for the year ended December 31, 2007, 2008 and 2009 respectively. The impairment loss for the year ended December 31, 2008 was related to the international curriculum programs operating segment, for which management has significantly reduced its profitability forecast due to adverse changes in the government regulatory environment and the resulting early termination of an agreement with a previous overseas partner of the Group.

F - 36

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

11.	IMPAIRMENT - continued

(b)

Goodwill impairment

Management performed the annual goodwill test as of December 31, 2007, 2008 and 2009. No impairment losses were recorded in 2009. Based on the impairment assessment performed by management, the Group incurred a goodwill impairment charge of RMB16,192 and RMB41,036 for the years ended December 31, 2007 and 2008, respectively.

The impairment charge for the year ended December 31, 2007 relates to the Friendly Experimental Class program reporting unit (the "FEC program") which is a component of the international curriculum programs operating segment, as management has significantly adjusted downward the profitability forecast for this portion of the Group's business.

Of the RMB41,036 impairment charge for the year ended December 31, 2008, RMB39,112 was related to the international curriculum programs operating segment, for which management has significantly reduced its profitability forecast due to adverse change in government regulatory environment and the resulting early termination of its agreement with an overseas partner. The remaining impairment charge of RMB1,924 was related to the impairment charge taken for the private primary and secondary schools operating segment in 2008 and was primarily due to management's assessment that construction of Jingzhou School's South campus will be further delayed, and as a result there is no definite expected enrollment period.

The fair values of the reporting units were established using a combination of market approach and income approach valuation methodology. The discounted cash flows for each reporting unit were based on discrete five year financial forecasts developed by management for planning purposes. Cash flows beyond the five year discrete forecast were estimated using a terminal value calculation, which incorporated historical and forecasted financial trends for each reporting unit and considered long-term earnings growth rates for publicly traded peer companies. Specifically, the income approach valuations included reporting unit cash flow discount rate at approximately 24%, 20% and 26.5%, and a terminal value growth rate at 3% for the international curriculum programs, online degree programs and online tutoring programs operating segments, respectively. Publicly available information regarding the market capitalization of the Group was also considered in assessing the reasonableness of the cumulative fair values of the reporting units estimated using the discounted cash flow methodology.

F - 37

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

11.	IMPAIRMENT - continued

(b)

Goodwill impairment - continued

The changes in the carrying amount of goodwill by operating segments for the years ended December 31, 2008 and 2009 were as follows:

	Online		Private primary			Online		International
	degree		and secondary			tutoring		curriculum
	programs		schools			programs		programs			Total
	RMB		RMB			RMB		RMB			RMB

Balance as of January 1, 2008		12,860		1,924			14,926		43,609			73,319
Goodwill acquired during the year		-		-			5,872		-			5,872
Goodwill impairment during the year		-		(1,924	)		-		(39,112	)		(41,036	)
Balance as of December 31, 2008		12,860		-			20,798		4,497			38,155
Goodwill acquired during the year		-		-			-		-			-
Goodwill impairment during the year		-		-			-		-			-
Balance as of December 31, 2009		12,860		-			20,798		4,497			38,155

12.	ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

	December 31,
	2008		2009
	RMB		RMB

Advances from students		10,774		9,976
Accrued expenses		1,918		7,742
Accrued professional fees		5,571		3,771
Accrued employee payroll and welfare benefits		28,294		40,186
Other payables		5,072		7,242
		51,629		68,917

Advances from students represented amounts received for books and materials, which the Group collected from students on behalf of third party vendors.

F - 38

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

13.	OTHER TAXES PAYABLE

Other taxes payable consisted of the following:

	December 31,
	2008		2009
	RMB		RMB

Value-added taxes payable		5,272		4,614
Business taxes payable		6,156		10,634
Individual income taxes payable		488		572
Real estate taxes payable		92		80
		12,008		15,900

The Group is subject to business taxes at a rate of 5% to 5.5%, which are applied to service revenue generated from online education programs. The Group is also required to withhold PRC individual income taxes on employees' payroll for remittance to the tax authorities.

14.	SHARE OPTION PLAN

The Company's original employee share option plan (the "Original Plan") was effective on August 10, 2000 and allowed the Company to offer a variety of incentive awards to employees and non-employee directors of the Group and any consultant who performs services for the Group. Pursuant to the Original Plan, an incentive option could only be granted to employees and a non-qualified option could be granted to employees, non-employee directors and consultants. The number of option shares granted under the Original Plan was not permitted to exceed 15% of the aggregate number of the issued and outstanding shares of the Company, calculated on a fully-diluted basis. Under the terms of the Original Plan, the exercise price for an incentive option shall not be less than 100% of the fair market value of the ordinary share on the date of grant. Option vesting schedule shall be more than three years and no acceleration for option vesting schedule shall be permitted, unless approved by Board of Directors. On December 13, 2004, an Amended and Restated Share Option Plan (the "Amended Plan") became effective, and replaced the Original Plan. Under the Amended Plan, options to purchase ordinary shares increased to 12,846,621.

In March 2007, the Company adopted the Second Amended and Restated Share Option Plan (the "Second Amended Plan"), which replaced the Amended Plan and provided for the grant of restricted shares as well as options. Under the Second Amended Plan, the Company was permitted to grant options to purchase up to 12,846,621 ordinary shares to the Group's employees, directors and consultants. The minimum option vesting period for any option grants under the Second Amended Plan was three years and acceleration of option vesting was not permitted, unless approved by the Board of Directors.

F - 39

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

14.	SHARE OPTION PLAN - continued

The terms of the Second Amended Plan did not permit incentive share options to be granted to greater than 10% shareholders unless the exercise price equaled at least 110% of the fair market value.

The Company adopted the equity incentive plan (the "Equity Incentive Plan") in November 2007. The Equity Incentive Plan replaced the Second Amended Plan adopted in March 2007. The Equity Incentive Plan allows the Company to offer a variety of incentive awards to employees and non-employee directors of the Group and any consultant who performs services for the Group. Pursuant to the Equity Incentive Plan, an incentive share option ("ISO") may only be granted to employees and a non-qualified option may be granted to employees, non-employee directors and consultants. Not more than 12,846,621 shares may be issued under the Equity Incentive Plan; provided, however, that there shall be an annual increase on January 1 of each year in an amount equal to two percent (2%) of the total number of the Company's outstanding shares at December 31 of the preceding calendar year. Under the terms of the Equity Incentive Plan, the exercise price for an ISO shall not be less than 100% of the fair market value per share on the grant date. However, in the case of an ISO awarded to a grantee who at the time of grant owned shares representing more than 10% of the combined voting power of all classes of the Company's share capital (including any equity of any of the Company's Chinese subsidiaries), the exercise price of option may not be less than 110% of the fair market value of the ordinary shares on the date of grant of such ISO and the option period may not be greater than five years from the date of grant. The minimum option vesting period for any option grant is three years and acceleration of vesting is not permitted, unless approved by the Board of Directors.

The Company's shareholders approved certain amendments to its Equity Incentive Plan (as amended, the "Amended Equity Incentive Plan") at the Extraordinary General Meeting held on March 6, 2009. The amendments (i) provide for the administration of the Amended Equity Incentive Plan by the Compensation Committee of the Company's Board of Directors; (ii) delegate to the Compensation Committee authority to, among other things, amend or modify outstanding awards under the Amended Equity Incentive Plan, including the repricing of "underwater" options; and (iii) eliminate the requirement that subsequent amendments to the Amended Equity Incentive Plan be submitted for shareholder approval.

All options granted will vest over periods ranging from immediately to four years and any unexercised options will expire ten years from the date of grant. As of December 31, 2008 and 2009, respectively, options to purchase 9,892,800 and 10,703,803 ordinary shares were outstanding, and options to purchase 565,685 and 289,778 ordinary shares remained available for future grants.

On May 18, 2009, the Compensation Committee authorized the Company to reprice 1,255,500 "underwater" options exercise price at the fair market value on the approval date. The Compensation Committee authorized this in order to enhance the Group's ability to retain and motivate its employees, directors and consultants. The number of employees affected was 91. This was accounted for as a modification. The total incremental compensation cost resulting from the modifications was RMB1,400.

F - 40

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

14.	SHARE OPTION PLAN - continued

In June 2008, the Company transferred 8,344,305 ordinary shares to its depositary bank representing 2,781,435 ADSs, to be issued to employees and non-employees upon the exercise of their vested share options. 306,825 and 565,677 ordinary shares out of these 8,344,305 ordinary shares had been issued to employees and non-employees upon the exercise of their share options for the year ended December 31, 2008 and 2009 respectively. 7,471,803 ordinary shares remain for future issuance.

Options to employees

Through December 31, 2009, the Group had granted to its employees, officers, and directors an accumulated total of 15,785,400 share options to purchase ordinary shares, all of which were exercisable in US$.

For the share options granted after January 1, 2006, the Group recorded compensation expense based on the fair value of each option granted, using the Black-Scholes option pricing model. The Group recorded a total compensation expense of RMB3,643, RMB5,226 and RMB7,410 for the years ended December 31, 2007, 2008 and 2009, respectively.

The following assumptions were used in the employee option pricing model on the date of grant/modification:

	2007			2008			2009

Weighted average risk-free interest rate		4.45	%		2.62	%		2.19	%
Weighted average expected option life (years)		5.0			6.0			5.3
Weighted average volatility rate		44.1	%		46.6	%		49.4	%
Weighted average dividend yield		-			-			-

Options to non-employees

On January 21, 2008, the Group granted 4,000 share options with an exercise price of US$2.07 (RMB14.12) per share to two consultants. The Group recorded compensation expense of RMB nil, RMB5 and RMB6 for the years ended December 31, 2007, 2008 and 2009, respectively, estimated using the Black-Scholes option pricing model.

The following assumptions were used in the non-employee option pricing model:

	2008

Weighted average risk-free interest rate		2.64	%
Weighted average expected option life (years)		6.0
Weighted average volatility rate		44	%
Weighted average dividend yield		-

F - 41

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

14.	SHARE OPTION PLAN - continued

Options to non-employees - continued

The following assumptions were used in the employee and non-employee option pricing model:

(1)

Volatility

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

(2)

Risk-free interest rate

Risk-free interest rate was estimated based on the yield to maturity of treasury bonds of the United States with a maturity period close to the expected term of the options.

(3)

Expected term

As the Company did not have sufficient historical data on the exercise of share options, it estimated the expected term as the average between the weighted average vesting period of the options and the contractual term.

(4)

Dividend yield

The Company assumed a zero dividend yield based on its expected dividend policy over the expected term of the options. The Company anticipates growing its business with internally generated cash and does not expect to pay dividends in the foreseeable future, nor has it paid any dividends to date.

(5)

Exercise price

The exercise price of the options was determined by the Board of Directors.

(6)

Fair value of underlying ordinary shares

When estimating the fair value of the ordinary shares on the grant dates before the Company's initial public offering ("IPO"), management considered a number of factors, including the result of equity transactions of the Company, while taking into account standard valuation methods and the achievement of certain events. After the IPO, the closing market price of the Company's ordinary shares as of the grant date was used as the fair value of the underlying ordinary shares on that date.

F - 42

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

14.	SHARE OPTION PLAN - continued

Summary of share options to employees and non-employee

A summary of the share option activity, including grants to both employees and non-employees, was as follows. Each of the fair value of the ordinary shares, and exercise prices set forth in the tables below are denominated in US$ because the share options are exercisable in US$.

	Outstanding options
				Weighted			Weighted average
				average			grant-date
	Number of			exercise			fair value of
	options			price per share			ordinary shares
				US$			US$

Outstanding at January 1, 2007		8,682,600			1.22			1.10
Granted		925,000			2.85			3.05
Exercised		-			-			-
Cancelled		(172,600	)		1.43			1.43
Outstanding at December 31, 2007		9,435,000			1.38			1.29
Granted		1,279,000			1.86			1.86
Exercised		(306,825	)		0.85			0.72
Cancelled		(413,306	)		2.77			3.00
Expired		(101,069	)		1.60			1.60
Outstanding at December 31, 2008		9,892,800			1.40			1.30
Granted		1,431,000			2.12			2.12
Exercised		(565,677	)		1.08			0.67
Cancelled		(53,000	)		2.07			2.10
Expired		(1,320	)		1.60			1.60
Outstanding at December 31, 2009		10,703,803			1.39	*		1.44

The weighted average exercise price per option as of December 31, 2009 has reflected the impact of the exercise price modification in May 2009.

The weighted average per share fair values of options as of their respective grant/modification dates were as follows:

	2007		2008		2009
	US$		US$		US$

Options		1.28		0.89		0.63

F - 43

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

14.	SHARE OPTION PLAN - continued

Summary of share options to employees and non-employee - continued

The following table summarizes information regarding options issued within the 12-month period prior to December 31, 2009:

Fair value of

Intrinsic value

Grant date

No. of shares

Exercise price

ordinary shares

at grant date

May 18, 2009

400,000

US$

1.80

US$

1.80

December 8, 2009

1,031,000

2.25

Fair value of

Intrinsic value

Repricing date

No. of shares

Exercise price

ordinary shares

at grant date

May 18, 2009

1,255,500

US$

1.80

US$

1.80

Determined based on the closing market price of the ADS, as quoted on the NASDAQ Global Market on the grant dates and repricing date, divided by three.

The following table summarizes information with respect to employee and non-employee share options outstanding at December 31, 2009:

	Options outstanding							Options exercisable
			Weighted			Weighted				Weighted			Weighted
			average	Weighted		average				average	Weighted		average
	Number		remaining	average		intrinsic		Number		remaining	average		intrinsic
	outstanding		contractual life	exercise price		value		exercisable		contractual life	exercise price		value
				US$		US$					US$		US$

Average exercise price:
US$
0.50		846,000	2.80 years		0.50		1.95		846,000	2.80 years		0.50		1.95
0.86		1,092,000	4.93 years		0.86		1.59		1,092,000	4.93 years		0.86		1.59
1.00		410,000	1.58 years		1.00		1.45		410,000	1.58 years		1.00		1.45
1.09-1.85		7,221,570	6.12 years		1.46		0.99		5,918,970	5.58 years		1.41		1.04
1.86-2.85		1,134,233	9.77 years		2.23		0.22		34,411	8.06 years		2.07		0.38
		10,703,803	5.95 years		1.39		1.06		8,301,381	5.02 years		1.23		1.22

The weighted average intrinsic value in the table above represents the aggregate difference between the Company's closing stock price as of December 31, 2009 and the exercise price for in the money options.

F - 44

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

14.	SHARE OPTION PLAN - continued

Summary of share options to employees and non-employee - continued

Total intrinsic value of options exercised for the years ended December 31, 2007, 2008 and 2009 was RMB nil, RMB1,629 and RMB5,301, respectively.

As of December 31, 2009, there was RMB12,751 unrecognized share-based compensation cost related to share options. Such deferred cost is expected to be recognized over a weighted-average vesting period of 2.25 years. To the extent the actual forfeiture rate is different from the Company's original estimate; the actual share-based compensation cost related to these awards may differ from such estimate.

For share-based compensation awards that were granted to employees prior to January 1, 2006 that are not yet vested and continue to be reported under an authoritative pronouncement on accounting for stock issued to employees, the following is the Group's pro forma net income (loss) that would have been reported if such awards were accounted for under authoritative pronouncement regarding to Stock Compensation. All options granted prior to January 1, 2006 were fully vested at the end of 2008; therefore, there was no share-based compensation awards were accounted for under APB Opinion 25 for the year ended December 31, 2009.

	2007			2008			2009
	RMB			RMB			RMB

Net income (loss) attributable to
ChinaEdu Corporation shareholders, as reported		2,487			(43,019	)		34,779
Add: Share-based compensation as reported		3,643			5,231			7,416
Less: Share-based compensation determined using the fair value method		(7,108	)		(5,686	)		(7,416	)
Pro forma net income (loss) attributable to ChinaEdu Corporation shareholders		(978	)		(43,474	)		34,779
Basic income (loss) per share attributable to ChinaEdu Corporation shareholders:
As reported		0.06			(0.75	)		0.71
Pro forma		(0.02	)		(0.75	)		0.71
Diluted income (loss) per share attributable to ChinaEdu Corporation shareholders:
As reported		0.05			(0.75	)		0.66
Pro forma		(0.02	)		(0.75	)		0.66

F - 45

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

15.	INCOME TAXES

Cayman Islands

The Company is a tax-exempt entity incorporated in the Cayman Islands.

British Virgin Islands

Under the current BVI law, income from BJ-BCIT and BJ-WITT are not subject to taxation.

PRC

The Group's PRC entities were subject to PRC Enterprise Income Tax ("EIT") on the taxable income in accordance with the relevant PRC income tax laws. In 2007, the EIT rate for companies operating in the PRC was 33%.

Prior to January 1, 2008, the Group's PRC entities which qualified as "high and new technology enterprises" ("HNTE") under the EIT Law included CMR Web, Hongcheng Technology, Hongcheng Liye, Hongcheng Education, Beijing Xuezhi, WITT Education, Zhongnongda Network, Beijing Mingdao, Beiyuda, Dongcai, Chongda. Among those, CMR Web, Hongcheng Technology, Hongcheng Liye, Hongcheng Education, Beijing Xuezhi, WITT Education, Zhongnongda Network, Beijing Mingdao and Beiyuda were entitled to a preferential tax rate of 15% with three-year exemption followed by a reduced tax rate of 7.5% for the subsequent three years. Dongcai and Chongda were entitled to a preferential tax rate of 15% with two-year exemption followed by a reduced tax rate of 7.5% for the subsequent three years.

On March 16, 2007, the National People's Congress adopted the Enterprise Income Tax Law ("the New EIT Law") which became effective on January 1, 2008. The New EIT Law applies a uniform 25% enterprise income tax rate to both foreign invested enterprises and domestic enterprises.

Under the New EIT Law, an enterprise which qualifies as a "high and new technology enterprise" ("the new HNTE") is entitled to a tax rate of 15%. CMR Web, Hongcheng Liye, Hongcheng Education, Gotop Hongcheng, Beiyuda, Dongcai, and Zhongnongda Network obtained the new HNTE in 2008, Hongcheng Technology obtained the new HNTE in 2009.

One of the Company's subsidiaries, Chongda, which qualified as a "software enterprise" under the new EIT law is entitled to a preferential tax rate of 12.5% for 2008, 2009 and 2010.

F - 46

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

15.	INCOME TAXES - continued

PRC - continued

The preferential tax rates, different from the statutory rates, which were used to calculate the tax provision based on the Group's interpretation of the New EIT Law as of the balance sheet date (see Note 27 Subsequent Events), are presented in the following table.

PRC entities	2007			2008			2009			2010			2011

CMR Web (1)		15.0	%		15.0	%		15.0	%		15.0	%		15.0	%
Hongcheng Technology (1)		15.0	%		25.0	%		15.0	%		15.0	%		15.0	%
Hongcheng Liye(1)Web (1)		7.5	%		7.5	%		15.0	%		15.0	%		15.0	%
Hongcheng Education (1)		0.0	%		7.5	%		7.5	%		7.5	%		15.0	%
Beijing Xuezhi		7.5	%		25.0	%		25.0	%		25.0	%		25.0	%
WITT Education		7.5	%		25.0	%		25.0	%		25.0	%		25.0	%
Zhongnongda Network (1)		7.5	%		15.0	%		15.0	%		15.0	%		15.0	%
Beijing Mingdao		0.0	%		25.0	%		25.0	%		25.0	%		25.0	%
Beiyuda (1)		0.0	%		0.0	%		0.0	%		7.5	%		15.0	%
Dongcai (1)		7.5	%		15.0	%		15.0	%		15.0	%		15.0	%
Chongda		0.0	%		12.5	%		12.5	%		12.5	%		25.0	%
Gotop Hongcheng (1)		33.0	%		0.0	%		7.5	%		7.5	%		7.5	%

(1)

The new HNTE status obtained by CMR Web, Hongcheng Technology, Hongcheng Liye, Hongcheng Education, Zhongnongda Network, Beiyuda, Dongcai and Gotop Hongcheng under the New EIT Law is valid for three years and qualifying entities can then apply to renew for an additional three years provided their business operations continue to qualify for the new HNTE status. The Group believes it is highly likely that its qualifying entities will continue to obtain the renewal in the future.

Accordingly, in calculating deferred tax assets and liabilities, the Group assumed its qualifying entities will continue to renew the new HNTE status at the conclusion of the initial three year period.

F - 47

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

15.	INCOME TAXES - continued

PRC - continued

The current and deferred components of the income tax expense appearing in the consolidated statements of operation were as follows:

	Year ended December 31,
	2007			2008			2009
	RMB			RMB			RMB

Current tax		16,286			11,860			18,981
Deferred tax		(1,283	)		(8,387	)		306
		15,003			3,473			19,287

The principal components of the Group's deferred income tax assets and liabilities were as follows:

	December 31,
	2008			2009
	RMB			RMB

Current deferred tax assets:
Deferred revenues		3,986			3,309
Total current deferred tax assets		3,986			3,309
Non-current deferred tax assets
Acquired intangible assets		1,204			804
Deferred revenues		219			179
Net operating loss carryforwards		3,129			4,068
Total non-current deferred tax assets		4,552			5,051
Less: valuation allowance on deferred tax assets		(2,456	)		(3,510	)
Total net non-current deferred tax assets		2,096			1,541
Non-current deferred tax liabilities
Property and equipment		249			109
Acquired intangible assets		10,820			10,034
Total deferred tax liabilities		11,069			10,143

F - 48

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

15.	INCOME TAXES - continued

PRC - continued

The Group has net operating loss carryforwards of RMB22,361 from its PRC entities for the year ended December 31, 2009 that will expire on various dates between December 31, 2010 and December 31, 2014.

As of December 31, 2009, a valuation allowance of RMB3,510 was provided against deferred tax assets including net operating loss carryforwards of certain of the Group's PRC entities due to the Group's determination that it is more likely than not that these deferred tax assets related to the respective entities will not be realized. Adjustments will be made to the valuation allowance if events occur in the future that indicate changes in the amount of deferred tax assets that may be realized.

The Group operates through multiple PRC entities and the valuation allowances are considered separately for each PRC entity. The Group does not file consolidated tax returns, and, therefore, losses and deferred taxes from one PRC entity may not be used to offset another entity's earnings or deferred taxes.

Reconciliation between total income tax expense and the amount computed by applying the statutory income tax rate to income before income taxes was as follows:

	Years ended December 31,
	2007			2008			2009
	%			%			%

Statutory rate		33			25			25
Tax holiday		(42	)		406			(15	)
Effect on tax rates in different tax jurisdiction		7			(116	)		5
Permanent book-tax differences		27			(356	)		3
Changes in valuation allowance		-			(34	)		1
Increased in unrecognized tax benefit		1			(36	)		3
Effect of new tax law		9			-			-
Effective tax rates		35			(111	)		22

F - 49

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

15.	INCOME TAXES - continued

PRC - continued

For the years ended December 31, 2007, 2008 and 2009, if the Group's PRC entities had not been awarded tax holidays or received special tax concessions, provision for income taxes, net income (loss), and net income (loss) per share would have been as follows:

	Years ended December 31,
	2007			2008			2009
	RMB			RMB			RMB

Net income (loss) attributable to ChinaEdu Corporation shareholders, as reported		2,487			(43,019	)		34,779
Less: Increase in provision for income taxes		(18,006	)		(10,862	)		(12,530	)
Pro forma net income (loss) attributable to ChinaEdu Corporation shareholders		(15,519	)		(53,881	)		22,249
Pro forma net income (loss) per share attributable to ChinaEdu Corporation shareholders-basic		(0.37	)		(0.93	)		0.46
Pro forma net income (loss) per preferred A share-basic		-			-			-
Pro forma net income (loss) per preferred B share-basic		-			-			-
Pro forma net income (loss) per preferred C share-basic		-			-			-
Pro forma net income (loss) per preferred D share-basic		-			-			-
Pro forma net income (loss) per share attributable to ChinaEdu Corporation shareholders-diluted		(0.37	)		(0.93	)		0.42

The Group recognized RMB3,744 accumulated impact of unrecognized tax benefit to accumulated deficits as of January 1, 2007 and the accumulated unrecognized tax benefits was RMB5,473 and RMB7,727 as of December 31, 2008 and 2009, respectively.

RMB93 interest and RMB872 penalties were recognized in the consolidated financial statements for the year ended December 31, 2009.

F - 50

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

15.	INCOME TAXES - continued

PRC - continued

A reconciliation of the beginning and ending amount of unrecognized tax benefit was as follows:

	RMB

Balance at January 1, 2008		4,332
Additions based on tax positions related to the current year		872
Additions for tax positions of prior years		-
Reductions for tax positions of current year		-
Audit settlement paid in current year		-
Other - interest and penalty		269
Balance at January 1, 2009		5,473
Additions based on tax positions related to the current year		1,289
Additions for tax positions of prior years		-
Reductions for tax positions of current year		-
Audit settlement paid in current year		-
Other - interest and penalty		965
Balance at December 31, 2009		7,727

The Group's PRC entities are subject to taxation in the PRC. There are no ongoing examinations by taxing authorities at this time. Tax years of each of the Group's PRC entities from 2004 through 2009 remain subject to review and potential recourse by the PRC.

The Group does not anticipate any significant change within 12 months of this reporting date of its uncertain tax positions.

F - 51

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

15.	INCOME TAXES - continued

PRC - continued

The EIT Law includes a provision specifying that legal entities organized outside China will be considered residents for Chinese income tax purposes if their place of effective management or control is within China. If legal entities organized outside China were considered residents for Chinese income tax purpose, they would become subject to the EIT Law on their worldwide income. This would cause any income legal entities organized outside China earned to be subject to China's 25% EIT. The Implementation Rules to EIT Law provide that non-resident legal entities will be considered China residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. resides within China. Pursuant to the additional guidance released by the Chinese government on April 22, 2009, management does not believe that the legal entities organized outside China should be characterized as China tax residents for EIT Law purposes.

Under the PRC tax laws effective prior to January 1, 2008, dividends paid to foreign investors by foreign-invested enterprises, such as dividends paid to the overseas holding companies by the PRC subsidiaries, were exempt from PRC withholding tax. Under the EIT Law and its implementation rules which became effective on January 1, 2008, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign investors who are nonresident enterprises are subject to a 10% withholding tax, unless any such foreign investor's jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

The Company's subsidiaries located in the PRC had aggregate accumulated gain of approximately RMB38,513 as of December 31, 2009. Since the Company have decided to reinvest those profits for future development, no provision has been made for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to the Company. Accordingly, no deferred tax liability has been accrued for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to the Company as of December 31, 2009.

Under applicable accounting principles, a deferred tax liability should be recorded for taxable temporary differences attributable to the excess of carrying amount over tax basis, including those differences attributable to a more than 50% interest in a domestic subsidiary. However, recognition is not required in situations where the tax law provides a means by which reported amounts of such interest can be recovered tax-free and the enterprise expects that it will ultimately use that means. The Group has not recorded any such deferred tax liability attributable to the financial interest in its variable interest entities because the variable interest entities were in an accumulated loss position as of December 31, 2009.

F - 52

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

16.	NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated:

	Years ended December 31,
	2007		2008			2009
	RMB		RMB			RMB

Net income (loss)-basic (numerator):
Net income (loss) attributable to ChinaEdu Corporation shareholders		1,215		(43,019	)		34,779
Net income allocated to Series A preferred shares		295		-			-
Net income allocated to Series B preferred shares		682		-			-
Net income allocated to Series C preferred shares		190		-			-
Net income allocated to Series D preferred shares		105		-			-
Net income (loss) attributable to ChinaEdu Corporation shareholders-diluted (numerator)		2,487		(43,019	)		34,779
Shares (denominator):
Weighted average ordinary shares outstanding used in computing basic net income (loss) per share		20,585,074		57,679,504			48,844,606
Weighted average preferred A shares using if-converted method		4,991,507		-			-
Weighted average preferred B shares using if-converted method		11,561,814		-			-
Weighted average preferred C shares using if-converted method		3,221,030		-			-
Weighted average preferred D shares using if-converted method		1,787,745		-			-
Incremental weighted average ordinary shares from assumed conversions of share option and warrants using treasury stock method:
Employee options (treasury share effect)		3,714,016		-			3,262,419
Non-employee options (treasury share effect)		436,936		-			331,920
Warrants (treasury share effect)		1,024,062		-			80,738
Weighted average ordinary shares outstanding used in computing diluted net income (loss) per share		47,322,184		57,679,504			52,519,683
Net income (loss) per share attributable to ChinaEdu Corporation shareholders-basic		0.06		(0.75	)		0.71
Net income (loss) per preferred A share-basic		0.06		-			-
Net income (loss) per preferred B share-basic		0.06		-			-
Net income (loss) per preferred C share-basic		0.06		-			-
Net income (loss) per preferred D share-basic		0.06		-			-
Net income (loss) per share attributable to ChinaEdu Corporation shareholders-diluted		0.05		(0.75	)		0.66

F - 53

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

16.	NET INCOME (LOSS) PER SHARE - continued

Ordinary share equivalents of options and warrants are calculated using the treasury stock method. Under the treasury stock method, the proceeds from the assumed conversion of options and warrants are used to repurchase outstanding ordinary shares using the average fair value for the period. The Group has determined that its convertible preferred shares are participating securities as the preferred shares participate in undistributed earnings on an as-if-converted basis. The holders of the preferred shares are entitled to receive dividends on a pro rata basis, as if their shares had been converted into ordinary shares. Accordingly, the Group uses the two-class method of computing net income per share, for ordinary and preferred shares according to participation rights in undistributed earnings. All convertible preferred shares have been automatically converted into one ordinary share upon the qualified IPO on December 14, 2007.

For the years ended December 31, 2007, 2008, and 2009, the Group had the following securities outstanding, which could potentially dilute basic net income per share in the future, but were excluded from the computation of diluted net income (loss) per share in 2007, 2008 and 2009 because their effect would be anti-dilutive:

	Years ended December 31,
	2007		2008		2009

Outstanding employee options to purchase ordinary shares		-		9,892,800		-
Outstanding warrants to purchase ordinary shares		-		1,933,677		-

17.

WARRANTS

Pursuant to the terms of the Series B preferred share agreement dated December 13, 2004, the Company granted warrants to one of its Series B preferred shareholders, Tiger Global Private Investment Partners II, L.P. and Tiger Global II, L.P. (collectively, "Tiger Global"), to purchase up to 1,768,300 ordinary shares. These warrants have an exercise price of US$1.48 per share and are exercisable at any time prior to December 13, 2009. The fair value and the allocated value of the warrants were approximately RMB4,719 (US$570) and RMB4,487 (US$542) at the grant date, respectively.

F - 54

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

17.	WARRANTS - continued

In November 2008, the Company entered into a share repurchase agreement with Tiger Global. The share repurchase agreement stipulated that 1,768,300 warrants held by Tiger Global, which represented the right to purchase an aggregate of 1,768,300 ordinary shares, would be cancelled. The Company recorded the first batch of cancelled warrants in November 2008, representing 321,109 underlying ordinary shares, and has recorded the second batch of cancelled warrants in January 2009, representing an additional 1,447,191 underlying ordinary shares.

Pursuant to the terms of the Series C preferred share agreement dated July 14, 2005, the Company granted warrants to Series C preferred shareholders to purchase up to 608,108 ordinary shares. The warrants have an exercise price of US$1.85 per share and are exercisable commencing on July 14, 2005 and ending on August 12, 2010. The fair value and the allocated value of the warrants were approximately RMB2,459 (US$305) and RMB2,353 (US$292), respectively, at the grant date.

Up to the end of 2009, 121,622 warrants were exercised at US$1.85 to purchase the same number of ordinary shares. The fair value of the exercised warrants was approximately RMB471 (US$65).

As of December 31, 2009, the outstanding warrants have a carrying value of RMB1,883. The total number of shares underlying the above referenced warrants was 486,486.

18.	SHARE REPURCHASES

Pursuant to the November 2008 share repurchase agreement with Tiger Global (discussed in Note 17), the Company agreed to purchase from Tiger Global an aggregate of 8,364,634 ordinary shares (2,788,211 ADSs) at US$1.3167 per ordinary share (US$3.95 per ADS), for an aggregate purchase price of RMB75,315 (US$11,014). The agreement also stipulated that all warrants held by Tiger Global, which represented the right to purchase an aggregate of 1,768,300 ordinary shares, would be cancelled.

In addition, the Company Board approved a share repurchase plan in 2008. Pursuant to this plan, the Company repurchased an aggregate of 2,183,634 ordinary shares in open market transactions conducted in 2008 for a cash consideration of RMB20,522 (US$3,002). The repurchases were made at an average price of US$1.37 per ordinary share (US$4.11 per ADS). In 2009, the Company repurchased an aggregate of 983,115 ordinary shares in open market transactions conducted between October and December 2009 for a cash consideration of RMB14,738 (US$2,159). The repurchases were made at an average price of US$2.20 per ordinary share (US$6.6 per ADS).

F - 55

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

19.	MAINLAND CHINA CONTRIBUTION PLAN AND PROFIT APPROPRIATION

Full time employees of the Group in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Group to accrue for these benefits based on certain percentages of the employees' salaries. Total provisions for such employee benefits were RMB14,659, RMB20,225 and RMB23,231 for the years ended December 31, 2007, 2008 and 2009, respectively.

20.	COMMITMENTS

(a)

Pursuant to a contract signed between Hongcheng Technology and another university, Hongcheng Technology has committed to contribute RMB35,000 for the use of the university's education resources. As of December 31, 2009, the remaining commitment was approximately RMB1,000, which is expected to be paid within 2010.

(b)

Pursuant to a contract signed between Hongcheng Education and a middle school for the use of the school's education resources in 2005, Hongcheng Education has committed to pay a royalty fee of RMB650 per annum from 2005 to 2007, RMB1,000 per annum from 2008 to 2010, and RMB1,200 per annum from 2011 to 2024. The aggregate fees committed through 2024 were recognized as expenses on a straight-line basis, and the difference between the amount paid and the amount recognized reported as deferred commitment fees. For the years ended December 31, 2008 and 2009, the amounts reported as expenses were RMB1,088 during both periods. The amounts recorded as deferred commitment fees as of December 31, 2008 and 2009 were RMB1,400 and RMB1,488, respectively.

(c)

The Group leases certain office premises under non-cancelable operating leases through 2014. Rent expenses under operating leases for 2007, 2008, and 2009 were RMB9,088, RMB10,814 and RMB10,355, respectively.

Future minimum lease payments under non-cancelable operating leases agreements are as follows:

Years ending December 31	RMB

2010		7,041
2011		4,017
2012		2,684
2013		1,124
2014		705
		15,571

F - 56

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

20.	COMMITMENTS - continued

(d)

As of December 31, 2009, the Group had commitments totaling RMB75,834 for the expansion of the schools in Anqing, Pingdingshan and Jingzhou, which included capital commitments for on-going construction in progress of RMB16,654. Since the construction of Jinzhou School is delayed, the Group is unable to make reasonable estimates regarding the timing of capital commitments for Jingzhou School. The capital commitments totaling RMB11,082 of Anqing and Pingdingshan are expected to be paid within 2010.

21.	SEGMENT AND GEOGRAPHIC INFORMATION

The Group has been organized as four business segments:

(i)

Online degree programs, which enables leading higher education institutions in the PRC to operate and grow their online degree-granting programs. The Group provides online education technical and consulting services to these institutions. In addition, the Group also licenses online education technology platform and courseware to them. Moreover, the Group provides recruiting, enrollment marketing and other student services through its learning centers network to the online degree programs of leading Chinese universities.

(ii)

Online tutoring programs, which provides online tutoring services for students to obtain review course through the online program.

(iii)

Private primary and secondary schools, which provide educational services to the students through traditional classroom education.

(iv)

International curriculum programs, which includes an integrated English language learning service for high schools in the PRC and international polytechnic curriculum programs through traditional classroom education.

The Group's chief operating decision maker is its chief executive officer. Segment information provided to the chief operating decision maker is prepared using US GAAP.

F - 57

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

21.	SEGMENT AND GEOGRAPHIC INFORMATION - continued

The following sets forth the relevant information for the Group's operating segments:

	December 31,
	2008		2009
	RMB		RMB

Assets
Online degree programs		516,138		605,210
Online tutoring programs		44,118		50,662
Private primary and secondary schools		94,920		141,669
International curriculum programs		40,949		31,818
Reconciling amounts		222,555		106,933
Total assets		918,680		936,292
Significant reconciling item:
Corporate assets		222,555		106,933
Liabilities
Online degree programs		101,215		93,527
Online tutoring programs		30,332		36,440
Private primary and secondary schools		71,596		117,664
International curriculum programs		26,992		14,914
Reconciling amounts		14,401		11,594
Total liabilities		244,536		274,139
Significant reconciling item:
Corporate liabilities		14,401		11,594

F - 58

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

21.	SEGMENT AND GEOGRAPHIC INFORMATION - continued

	Years ended December 31,
	2007		2008		2009
	RMB		RMB		RMB

Net revenue
Online degree programs		202,185		255,388		285,178
Online tutoring programs		18,013		15,436		19,584
Private primary and secondary schools		13,356		19,289		30,627
International curriculum programs		31,434		27,607		19,317
Total net revenue		264,988		317,720		354,706
Cost of revenue
Online degree programs		58,027		76,224		95,428
Online tutoring programs		3,875		4,017		5,713
Private primary and secondary schools		10,944		17,572		26,109
International curriculum programs		23,503		19,920		11,112
Total cost of revenue		96,349		117,733		138,362
Gross profit
Online degree programs		144,158		179,164		189,750
Online tutoring programs		14,138		11,419		13,871
Private primary and secondary schools		2,412		1,717		4,518
International curriculum programs		7,931		7,687		8,205
Total gross profit		168,639		199,987		216,344

The Group does not allocate operating expenses to individual segments when making decisions about allocating resources to such segments and assessing their performance. The Group primarily operates in the PRC. All of the Group's long-lived assets are located in the PRC.

F - 59

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

21.	SEGMENT AND GEOGRAPHIC INFORMATION - continued

Net revenue from each type of services the Group provides was as follows:

	Years ended December 31,
	2007		2008		2009
	RMB		RMB		RMB
Third parties:
Online education technical, consulting and recruiting services		40,801		45,618		64,517
Traditional classroom education services		44,790		46,896		49,944
Online tutoring services		18,013		15,436		19,584
		103,604		107,950		134,045
Related parties:
Online education technical, consulting and recruiting services		161,384		209,770		220,661
Traditional classroom education services		-		-		-
Online tutoring services		-		-		-
		161,384		209,770		220,661
		264,988		317,720		354,706

The carrying amounts of goodwill and acquired intangible assets by operating segments were as follows:

	December 31,
	2008		2009
	RMB		RMB
Acquired intangible assets, net:
Online degree programs		46,313		45,001
Online tutoring programs		4,645		4,422
Private primary and secondary schools		3,453		3,201
International curriculum programs		15,966		13,997
		70,377		66,621
Goodwill:
Online degree programs		12,860		12,860
Online tutoring programs		20,798		20,798
Private primary and secondary schools		-		-
International curriculum programs		4,497		4,497
		38,155		38,155

F - 60

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

22.	RELATED PARTY TRANSACTIONS

The noncontrolling shareholders of a number of the Company's subsidiaries are universities that also purchase online education technical, consulting and recruiting services from the Group. These universities are considered related parties of the Group. Revenue generated from services provided to these universities was as follows:

	Years ended December 31,
	2007		2008		2009
	RMB		RMB		RMB

Online education technical, consulting and recruiting services:
Online Education School of Dongbei University of Finance and Economics		34,132		42,403		42,701
Online Education School of Renmin University of China		54,743		70,197		71,722
Online Education School of Chongqing University		19,391		28,719		34,474
Online Education School of China Agricultural University		43,995		48,315		47,335
Online Education School of Beijing Language and Culture University		9,123		19,153		23,907
Online Education School of Central University of Finance and Economics		-		983		104
Online Education School of Guangxi Radio and TV University		-		-		152
Asset Management Company of Beijing Forestry University		-		-		266
Total		161,384		209,770		220,661

Deferred revenues associated with services provided to related parties were as follows:

	December 31,
	2008		2009
	RMB		RMB

Online Education School of Dongbei University of Finance and Economics		7,657		8,998
Online Education School of Renmin University of China		17,395		17,594
Online Education School of Chongqing University		8,668		7,741
Online Education School of China Agricultural University		11,815		9,896
Online Education School of Beijing Language and Culture University		10,080		8,932
		55,615		53,161

F - 61

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

22.	RELATED PARTY TRANSACTIONS - continued

As of December 31, 2008 and 2009, the following balances were due from related parties:

	December 31,
	2008		2009
	RMB		RMB

Schools owned by the noncontrolling shareholders of the Company's subsidiaries:
Online Education School of Dongbei University of Finance and Economics (i)		28,275		22,176
Online Education School of Renmin University of China (i)		65,792		90,746
Online Education School of Chongqing University (i)		30,312		46,727
Online Education School of China Agricultural University of China (i)		3,617		3
Online Education School of Beijing Language and Culture University (i)		20,397		17,120
Online Education School of Central University of Finance and Economics (i)		49		-
Former noncontrolling shareholders of the Company's subsidiaries:
Shanghai Guangdian Communication Network Co., Ltd.		1,000		-
Company owned by shareholder or management:
Wellent Institute of Education International (Asia) Limited		1,000		-
Equity owners of the Company's subsidiaries:
Wu Jiayong		30		30
		150,472		176,802

(i)

The fees for services provided to the online schools are collected on a periodic basis. The excess amount of revenue recognized over the cash collection is recorded as amounts due from related parties.

All of the amounts due from related parties are unsecured and non-interest bearing. The Group expects the amounts to be received within the next 12 months.

F - 62

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

22. RELATED PARTY TRANSACTIONS - continued

As of December 31, 2008 and 2009, the following balances were due to related parties:

	December 31,
	2008		2009
	RMB		RMB

Former owner of an entity consolidated by the Company:
Fourth Middle School of Anqing (ii)		3,632		2,065
Schools owned by the noncontrolling shareholders of the Company's subsidiaries:
Online Education School of Dongbei University of Finance and Economics (i)		22,018		20,709
Online Education School of Chongqing University (i)		79		204
Online Education School of Central University of Finance and Economics (i)		40		1,003
Online Education School of Guangxi Radio and TV University (i)		-		19
Online Education School of Beijing Language and Culture University (iii)		-		1,668
		25,769		25,668

(i)

The amounts represented cash collected on behalf of the related parties.

(ii)

The amount primarily represents royalty fees to be paid.

(iii)

The amount primarily represents declared dividend which will be paid to related party.

All the amounts due to related parties are non-interest bearing and unsecured. The Group expects the amounts to be repaid within one year.

23.	STATUTORY RESERVES

PRC legal restrictions permit payments of dividends by the Company's PRC subsidiaries only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. Prior to payment of dividends, pursuant to the laws applicable to the PRC's Foreign Investment Enterprises, the Company's subsidiaries and variable interest entities in the PRC must make appropriations from after-tax profit to non-distributable reserve funds as determined by the Board of Directors of each company. These reserves include (i) general reserve, (ii) enterprise expansion reserve, and (iii) a staff bonus and welfare reserve. The PRC subsidiaries and variable interest entities elected not to make any appropriations to the enterprise expansion reserve and staff bonus and welfare reserve in any of the years presented.

F - 63

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

23.	STATUTORY RESERVES - continued

Subject to certain cumulative limits, the general reserve requires annual appropriations of 10% of after-tax profits (as determined under generally accepted accounting principles in the PRC ("PRC GAAP") at each year-end); the other reserve appropriations are at the Company's discretion. These reserves may be applied against prior year losses, if any, and may be used for business expansion and increase in registered capital of the subsidiaries. For the years ended December 31, 2007, 2008 and 2009, the Company's PRC subsidiaries and variable interest entities made appropriations to the general reserve of RMB7,540, RMB2,700 and RMB4,064, respectively. For the year ended December 31, 2008, general reserve of RMB5,264 was used to increase registered capital for one of the Group's subsidiaries, as permitted by PRC law.

24.	RESTRICTED NET ASSETS

Relevant PRC statutory laws and regulations restrict the payments of dividends by the Company's PRC subsidiaries and variable interest entities from their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, general reserve (see Note 23) requires annual appropriations of 10% of after-tax profit should be set aside prior to the payment of dividends.

As a result of these PRC laws and regulations, the Company's PRC subsidiaries and variable interest entities are restricted in their ability to transfer a portion of their net assets to the Company. As of December 31, 2008 and 2009, the amounts of restricted net assets were approximately RMB341,505 and RMB379,725, respectively.

F - 64

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

25.	NONCONTROLLING INTERESTS

A summary of the percentage of noncontrolling interests in the Company's subsidiaries and variable interest entities as of December 31, 2009 was as follows:

	Date of incorporation	Percentage of	Percentage of
Name	or acquisition	legal ownership	noncontrolling interests	Principal activities

CMR Web-learning Co., Ltd. ("CMR Web")	July 29, 1999	70%	30%	Online degree program

Dalian Dongcai Technology Co., Ltd. ("Dongcai")	June 4, 2003	70%	30%	Online degree program

Chongqing Chongda Yuanxing Co., Ltd. ("Chongda")	December 24, 2003	51%	49%	Online degree program

Beijing Beiyuda Education Technology Co., Ltd. ("Beiyuda")	September 26, 2006	51%	49%	Online degree program

Beijing Mingdaoyuan Technology Co., Ltd. ("Beijing Mingdao")	March 27, 2007	51%	49%	Online degree program

Shanghai Shangcai Education Technology Co., Ltd. ("Shanghai Shangcai")	April 18, 2008	51%	49%	Online degree program

Dongcai Online Training Center ("Dongcai Online")	July 10, 2008	70%	30%	Online degree program

Beijing Zhonglin Technology Co., Ltd. ("Zhonglin")	November 3, 2008	51%	49%	Online degree program

Guangxi Hongcheng Times Technology Development Co., Ltd. ("Guangxi Hongcheng")	February 10, 2009	51%	49%	Online degree program

Fuzhou Haojiaoshi Distance Education Service Co., Ltd. ("Fuzhou Good Teacher")	December 7, 2009	51%	49%	Online degree program

Jingzhou Tianchang Investment Co., Ltd. ("Tianchang")	September 6, 2005	72.5%	27.5%	Private primary and secondary schools

Jingzhou Middle School South Campus ("South Campus")	December 28, 2005	54%	46%	Private primary and secondary schools

Beijing Distance Education Technology Co., Ltd. ("Yuancheng Education")	March 31, 2006	65%	35%	Online tutoring program

Zhong Nongda Networks Development Co., Ltd. ("Zhongnongda Networks")	October 30, 2001	55%	45%	Online degree program

26.	ADOPTION OF AUTHORITATIVE GUIDANCE REGARDING NONCONTROLLING INTEREST

Effective January 1, 2009, the Group adopted authoritative guidance regarding noncontrolling interests in consolidated financial statements, which clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity and should be reported as equity on the financial statements. The authoritative guidance requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interests. Furthermore, disclosure of the amounts of consolidated net income attributable to the parent and to the noncontrolling interests is required on the face of the financial statements.

F - 65

CHINAEDU CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(In thousands, except share-related data)

26.	ADOPTION OF AUTHORITATIVE GUIDANCE REGARDING NONCONTROLLING INTEREST - continued

For the Group, this authoritative guidance is effective as of the beginning of the year ended December 31, 2009. However, the adoption of this authoritative guidance requires retrospective application of the presentation and disclosure requirements of the standard to all periods presented. Consequently, the Group adjusted its previously issued financial statements for the years ended December 31, 2007 and 2008, contained in its annual report on Form 20-F for the year ended December 31, 2008, for the adoption of this authoritative guidance. The following adjustments have been made:

(a)

the noncontrolling interests (previously described as minority interest) has now been included as a component of total equity whereas previously it was shown outside of equity;

(b)

the net income or loss attributable to the noncontrolling interests is now shown as an allocation of net income for the year rather than being deducted in arriving at net income; and

(c)

consolidated comprehensive income or loss now includes the comprehensive income or loss attributable to the noncontrolling interests.

27.	SUBSEQUENT EVENTS

On April 21, 2010, the State Administration of Taxation issued Circular 157 Further Clarification on Implementation of Preferential EIT Rate during Transition Periods ("Circular 157"). Circular 157 seeks to provide additional guidance on the interaction of certain preferential tax rates under the transitional rules of the New EIT Law. Prior to Circular 157, the Group interpreted the law to mean that if an entity was in a period where it was entitled to a 50% reduction in the tax rate and was also entitled to a 15% rate of tax due to HNTE status under the New EIT Law then it was entitled to pay tax at the rate of 7.5%. Circular 157 appears to have the effect that such an entity is entitled to pay tax at either 15% or 50% of the standard PRC tax rate. The effect of Circular 157 is retrospective and would apply to 2008 and 2009.

As a consequence of Circular 157, the preferential tax rate enjoyed by Hongcheng Liye, Hongcheng Education, Gotop Hongcheng, and Beiyuda which each qualified as a HNTE during their 50% reduction period will be 12.5% for the relevant years rather than 7.5% which is the rate the Group had used prior to the issuance of Circular 157. Because the Group believes that Circular 157 is similar to a change in tax law the cumulative effect of which should be reflected in the period of the change.

As a result, the Group will adjust the deferred tax asset and deferred tax liability as of December 31, 2009 for those impacted entities. The resulting additional tax charge of RMB680 will be recorded in the quarter ending June 30, 2010.

F - 66

CHINAEDU CORPORATION

ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

BALANCE SHEETS

(In thousands, except share-related data)

	December 31,
	2008			2009			2009
	RMB			RMB			US$
Assets

Current assets:
Cash and cash equivalents		150,578			12,379			1,814
Term deposit		-			27,304			4,000
Short-term investments		-			4,706			689
Prepaid expenses and other current assets		1,258			1,464			214
Amounts due from related parties		70,720			61,079			8,948
Total current assets		222,556			106,932			15,665
Investments in subsidiaries and variable interest entities		381,674			464,630			68,070
Total assets		604,230			571,562			83,735

Liabilities and Equity

Current liabilities:
Accrued expenses and other current liabilities		5,654			5,713			836
Amount due to related parties		5,321			1,799			263
Total current liabilities		10,975			7,512			1,099
Deferred other income		3,426			4,077			597
Total liabilities		14,401			11,589			1,696

Equity:
Ordinary shares (RMB0.08 (US$0.01) par value;
100,000,000 shares authorized; 63,076,129 shares
issued and outstanding in 2008; 55,247,329 shares
issued and outstanding in 2009)		4,573			4,076			597
Additional paid-in capital		734,733			673,847			98,719
Warrants		5,555			1,883			276
Accumulated deficits		(134,112	)		(99,333	)		(14,550	)
Accumulated other comprehensive loss		(20,920	)		(20,500	)		(3,003	)
Total equity		589,829			559,973			82,039
Total liabilities and equity		604,230			571,562			83,735

F - 67

CHINAEDU CORPORATION

ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

STATEMENTS OF OPERATIONS

(In thousands, except share-related data)

	Years ended December 31,
	2007			2008			2009			2009
	RMB			RMB			RMB			US$
Operating expenses:
General and administrative (including share-based compensation of RMB1,225, RMB2,603 and RMB3,707 for 2007, 2008 and 2009, respectively)		8,176			15,016			12,887			1,888
Loss from operations		(8,176	)		(15,016	)		(12,887	)		(1,888	)
Other income		394			562			1,748			256
Interest income		1,179			6,879			830			122
Interest expense		(1,715	)		-			(2	)		-
Equity in earnings of subsidiaries and variable interest entities (including share-based compensation of RMB2,418, RMB2,628 and RMB3,709 for 2007, 2008 and 2009, respectively)		10,805			(35,444	)		45,090			6,606
Net income (loss)		2,487			(43,019	)		34,779			5,096

F - 68

CHINAEDU CORPORATION

ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

STATEMENTS OF SHAREHOLDERS' DEFICIENCY AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share-related data)

																																											Accumulated
	Series A convertible						Series B convertible						Series C convertible						Series D convertible												Additional												other
	preferred shares						preferred shares						preferred shares						preferred shares						Ordinary shares						paid-in			Subscription						Accumulated			comprehensive						Comprehensive
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			capital			receivable			Warrants			deficits			income (loss)			Total			income (loss)
				RMB						RMB						RMB						RMB						RMB			RMB			RMB			RMB			RMB			RMB			RMB			RMB

Balance at January 1, 2007		5,150,000			426			12,140,495			1,005			3,378,379			272			-			-			19,007,408			1,710			343,167			(1,117	)		8,076			(89,836	)		616			264,319
Issuance of Series D convertible preferred shares		-			-			-			-			-			-			2,598,503			200			-			-			74,322			-			-			-			-			74,522
Repurchase of ordinary share as treasury stock		-			-			-			-			-			-			-			-			(2,300,000	)		(178	)		(49,869	)		-			-			-			-			(50,047	)
Issuance of treasury shares to new shareholders		-			-			-			-			-			-			-			-			2,300,000			178			49,869			-			-			-			-			50,047
Collection of subscription receivable		-			-			-			-			-			-			-			-			-			-			-			1,117			-			-			-			1,117
Amortization of share-based compensation		-			-			-			-			-			-			-			-			-			-			3,643			-			-			-			-			3,643
Accumulated adjustment of unrecognized tax benefit		-			-			-			-			-			-			-			-			-			-			-			-			-			(3,744	)		-			(3,744	)
Repurchase and cancellation of ordinary shares		-			-			-			-			-			-			-			-			(600,000	)		(46	)		(12,767	)		-			-			-			-			(12,813	)
Repurchase and cancellation of Series B convertible preferred shares		-			-			(30,000	)		(2	)		-			-			-			-			-			-			(638	)		-			-			-			-			(640	)
Exercise of warrants for Series A convertible preferred shares		300,000			23			-			-			-			-			-			-			-			-			3,386			-			(1,235	)		-			-			2,174
Exercise warrants for ordinary shares		-			-			-			-			-			-			-			-			121,622			9			2,126			-			(471	)		-			-			1,664
Conversion of series A, B, C, D preferred shares		(5,450,000	)		(449	)		(12,110,495	)		(1,003	)		(3,378,379	)		(272	)		(2,598,503	)		(200	)		23,537,377			1,924			-			-			-			-			-			-
Issuance of ordinary shares on IPO (net of insurance cost of RMB25,665)		-			-			-			-			-			-			-			-			16,368,000			1,208			347,619			-			-			-			-			348,827
Foreign currency translation adjustments		-			-			-			-			-			-			-			-			-			-			-			-			-			-			(2,822	)		(2,822	)		(2,822	)
Net income		-			-			-			-			-			-			-			-			-			-			-			-			-			2,487			-			2,487			2,487

Balance at December 31, 2007		-			-			-			-			-			-			-			-			58,434,407			4,805			760,858			-			6,370			(91,093	)		(2,206	)		678,734			(335	)

Ordinary shares converted to ADS shares for future exercise of share options		-			-			-			-			-			-			-			-			8,344,305			-			-			-			-			-			-			-			-
Amortization of share-based compensation		-			-			-			-			-			-			-			-			-			-			5,231			-			-			-			-			5,231
Repurchase of ordinary shares and forfeiture of warrants		-			-			-			-			-			-			-			-			(3,702,583	)		(253	)		(33,122	)		-			(815	)		-			-			(34,190	)
Exercise of share options		-			-			-			-			-			-			-			-			-			21			1,766			-			-			-			-			1,787
Foreign currency translation adjustments		-			-			-			-			-			-			-			-			-			-			-			-			-			-			(18,714	)		(18,714	)		(18,714	)
Net loss		-			-			-			-			-			-			-			-			-			-			-			-			-			(43,019	)		-			(43,019	)		(43,019	)

Balance at December 31, 2008		-			-			-			-			-			-			-			-			63,076,129			4,573			734,733			-			5,555			(134,112	)		(20,920	)		589,829			(61,733	)

Amortization of share-based compensation		-			-			-			-			-			-			-			-			-			-			7,416			-			-			-			-			7,416
Repurchase of ordinary shares		-			-			-			-			-			-			-			-			(7,828,800	)		(536	)		(76,098	)		-			-			-			-			(76,634	)
Forfeiture of warrants		-			-			-			-			-			-			-			-			-			-			3,672			-			(3,672	)		-			-			-
Exercise of share options		-			-			-			-			-			-			-			-			-			39			4,124			-			-			-			-			4,163
Foreign currency translation adjustments		-			-			-			-			-			-			-			-			-			-			-			-			-			-			276			276			276
Unrealized gains		-			-			-			-			-			-			-			-			-			-			-			-			-			-			144			144			144
Net income		-			-			-			-			-			-			-			-			-			-			-			-			-			34,779			-			34,779			34,779

Balance at December 31, 2009		-			-			-			-			-			-			-			-			55,247,329			4,076			673,847			-			1,883			(99,333	)		(20,500	)		559,973			35,199
																												US$	597		US$	98,719					US$	276		US$	(14,550	)	US$	(3,003	)	US$	82,039

F - 69

CHINAEDU CORPORATION

ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

STATEMENTS OF CASH FLOWS

(In thousands, except share-related data)

	Years ended December 31,
	2007			2008			2009			2009
	RMB			RMB			RMB			US$
Cash flows from operating activities:
Net income (loss)		2,487			(43,019	)		34,779			5,096
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Share based compensation		1,225			2,603			3,707			543
Gain on conversion of warrants of series D convertible preferred shares		(394	)		-			-			-
Interest expense		1,715			-			-			-
Equity in earnings of subsidiaries and variable interest entities		(10,805	)		35,444			(45,090	)		(6,606	)
Changes in assets and liabilities:
Prepaid expenses and other current assets		717			(861	)		(205	)		(30	)
Amounts due from related parties		(1,302	)		(3,929	)		9,608			1,408
Accrued expense and other liabilities		7,767			(6,985	)		57			8
Amount due to a related party		1,479			821			(3,522	)		(516	)
Deferred revenue		-			3,435			648			95
Net cash provided by (used in) operating activities		2,889			(12,491	)		(18	)		(2	)

Cash flows from investing activities:
Investments in subsidiaries and variable interest entities		(62,505	)		(116,671	)		(34,156	)		(5,002	)
Purchase of term deposits		-			-			(27,298	)		(4,000	)
Purchase of investments		-			-			(4,568	)		(669	)
Net cash used in investing activities		(62,505	)		(116,671	)		(66,022	)		(9,671	)

Cash flows from financing activities:
Proceeds from IPO (net of issuance cost of RMB25,665)		348,827			-			-			-
Proceeds from issuance of Series D convertible preferred shares (net of issuance costs of RMB2,598)		72,033			-			-			-
Proceeds from exercise of warrants		3,838			-			-			-
Repurchase and cancellation of Series B convertible preferred shares		(640	)		-			-			-
Repurchase and cancellation of ordinary shares		(12,813	)		(34,190	)		(76,634	)		(11,226	)
Repayment of convertible notes		(27,783	)		-			-			-
Collection of subscription receivable		1,117			-			-			-
Proceeds from exercise of share options		-			1,787			4,163			610
Net cash provided by (used in) financing activities		384,579			(32,403	)		(72,471	)		(10,616	)
Effect of exchange rate changes		(4,930	)		(19,182	)		312			43
Net increase (decrease) in cash and cash equivalents		320,033			(180,747	)		(138,199	)		(20,246	)
Cash and cash equivalents, beginning of year		11,292			331,325			150,578			22,060
Cash and cash equivalents, end of year		331,325			150,578			12,379			1,814

Supplemental disclosure of non-cash financing activities:
Conversion of convertible notes into Series D preferred shares		2,489			-			-			-
Conversion of Series A,B,C,D preferred shares into ordinary shares		1,924			-			-			-

F - 70

CHINAEDU CORPORATION

NOTES TO ADDITIONAL INFORMATION - FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

(In thousands, except share-related data)

1.	BASIS FOR PREPARATION

The condensed financial information of the Company has been prepared using the same accounting policies as set out in the Company's consolidated financial statements, except that the Company used the equity method to account for investments in its subsidiaries and variable interest entities.

2.	INVESTMENTS IN SUBSIDIARIES AND VARIABLE INTEREST ENTITIES

The Company and its subsidiaries and variable interest entities are included in the consolidated financial statements where the inter-company balances and transactions are eliminated upon consolidation. For the purpose of the Company's stand-alone financial statements, its investments in subsidiaries and variable interest entities are reported using the equity method of accounting. The Company's share of income and losses from its subsidiaries and variable interest entities is reported as earnings from subsidiaries and variable interest entities in the accompanying condensed financial information of the parent company.

3.	INCOME TAXES

The Company is a Cayman Islands company, and therefore is not subject to income taxes for all the years presented.

4.	RELATED PARTY TRANSACTIONS

The following represents related party balances as of December 31, 2008 and 2009:

	December 31,
	2008		2009
	RMB		RMB
Amounts due from related parties:
Former director-Yang Xueshan (i)		14,840		14,840
Vice President-Xie Changqing (i)		39,360		39,360
CMR Web (ii)		12,026		4,249
Hongcheng Liye		2,754		2,499
Others		1,740		131
		70,720		61,079

Amount due to related parties:
Hongcheng Technology		5,121		1,380
Others		200		419
		5,321		1,799

(i)

The amounts represent loans to the two equity owners of Hongcheng Education.

(ii)

The amount represents the receivable of profit distribution from a subsidiary company.

F - 71