Table of Contents
(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
oo REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
xx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OR
OF 1934
For the fiscal year ended March 31, 2013
OR
oo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
oo 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 . . . . . . . . . . . . . . . . . . .
For the transition period from to
Commission file number: 001-33910
ATA Inc.
(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)
8th Floor, Tower E
6 Gongyuan West Street
Jian Guo Men Nei
Beijing 100005, China
(Address of principal executive offices)
Benson Tsang
Chief Financial Officer
ATA Inc.
8th Floor, Tower E
6 Gongyuan West Street
Jian Guo Men Nei
Beijing 100005, China
Telephone: 8610-6518-1122
Facsimile: 8610-6517-9517
(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
American Depositary Shares, each
representing two common shares, par value
$0.01 per share
Name of each exchange on which registered
NASDAQ Global market
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
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:
46,000,312 common shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes x No
If this report is an annual or transaction 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.
o Yes x No
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.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer. See the definitions of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer x
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 x
International Financial Reporting Standards as issued
by the International Accounting Standards Board o
Other 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:
o Item 17 o Item 18
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.
o Yes x No
Table of Contents
TABLE OF CONTENTS
Introduction
Item 1. Identity of Directors, Senior Management and Advisors
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on the Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Page
1
2
2
2
24
43
43
60
68
70
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16. Reserved
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Change in Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
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INTRODUCTION
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78
79
81
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84
85
85
85
Except where the context otherwise requires and for purposes of this annual report only:
· all references to years are to the calendar year from January 1 to December 31 and references to our fiscal year or years are to the
fiscal year or years ended March 31;
· “we,” “us,” “our company,” “our,” and “ATA” refer to ATA Inc. and its subsidiaries and affiliated PRC entity as the context requires;
· “China,” “Chinese” and “PRC” refers to the People’s Republic of China, excluding, for purposes of this annual report only, Taiwan
and the Special Administrative Regions of Hong Kong and Macau;
· all references to “Renminbi” or “RMB” are to the legal currency of China, and all references to “U.S. dollars,” “dollars,” “$” or
“US$” are to the legal currency of the United States;
· “U.S. GAAP” refers to generally accepted accounting principles in the United States; and
· “PRC GAAP” refers to generally accepted accounting principles in the People’s Republic of China.
This annual report on Form 20-F includes our audited consolidated statements of comprehensive income for the fiscal years ended
March 31, 2011, 2012 and 2013 and audited consolidated balance sheets as of March 31, 2012 and 2013. Each of our ADSs represents two
common shares. Our ADSs are listed on the Nasdaq Global Market under the symbol “ATAI.”
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that are based on our current expectations, assumptions,
estimates and projections about us and our industry. All statements other than statements of historical fact in this annual report are forward-
looking statements. In some cases, these forward-looking statements can be identified by words and phrases such as “may,” “should,”
“intend,” “predict,” “potential,” “continue,” “will,” “expect,” “anticipate,” “estimate,” “plan,” “believe,” “is /are likely to” or the negative form
of these words and phrases or other comparable expressions. The forward-looking statements included in this annual report relate to, among
others:
· our goals and strategies;
· our future prospects and market acceptance of our technologies, products and services;
· our future business development and results of operations;
· projected revenues, profits, earnings and other estimated financial information;
· our plans to expand and enhance our products and services;
· competition in the computer-based testing, educational services and test preparation and training markets; and
· Chinese laws, regulations and policies, including those applicable to the education industry, Internet content providers, Internet
content and foreign exchange.
content and foreign exchange.
These forward-looking statements involve various risks, assumptions and uncertainties. Although we believe that our expectations
expressed in these forward-looking statements are reasonable, our expectations may turn out to be incorrect. Our actual results could be
materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our
expectations are generally set forth in Item 3.D. of this annual report, “Key information — Risk Factors” and elsewhere in this annual report.
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. All forward-looking statements included herein attributable to us or other parties or any person acting on our
behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent
required by applicable laws and regulations, we undertake no obligation to update any forward-looking statements to reflect events or
circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.
Table of Contents
1
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 Consolidated Financial Data
The following selected consolidated statements of comprehensive income data for the fiscal years ended March 31, 2011, 2012 and
2013 (other than ADS data) and the selected consolidated balance sheet data as of March 31, 2012 and 2013 are derived from our audited
consolidated financial statements included elsewhere in this annual report and should be read in conjunction with such consolidated financial
statements and related notes. Our selected consolidated statements of comprehensive income data for the years ended March 31, 2009 and
2010 (other than ADS data) and the selected consolidated balance sheet data as of March 31, 2009, 2010 and 2011 are derived from audited
consolidated financial statements not included in this annual report. The following information should also be read in conjunction with Item
5. “Operating and Financial Review and Prospects.” Our audited consolidated financial statements are prepared in accordance with U.S.
GAAP.
For the fiscal year ended March 31,
2009
RMB
2010
RMB
2011
RMB
2012
RMB
2013
RMB
US$
(In thousands, except for share and ADS data)
Selected Consolidated Statements
of Comprehensive Income Data:
Net Revenues
Testing services
Test preparation and training
solutions
(1)
Other
Total net revenues
Gross profit
Total operating expenses
Income (loss) from operations
Foreign currency exchange gains
(losses), net
Income tax expense
Net income (loss)
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137,046
187,158
243,103
290,881
335,791
25,071
55,428
217,545
124,937
98,549
26,388
665
(6,638)
22,810
11,149
46,725
245,032
115,497
145,552
(30,055)
(284)
(5,742)
(35,350)
2
15,427
45,374
303,904
154,688
133,796
20,892
1,138
(3,312)
19,754
26,996
34,208
352,085
193,267
128,781
64,486
3,633
(14,339)
55,841
11,343
19,541
366,675
177,844
150,830
27,013
77
(7,005)
23,208
54,066
1,826
3,146
59,038
28,635
24,285
4,349
12
(1,128)
3,737
2009
RMB
For the fiscal year ended March 31,
2010
RMB
2011
RMB
2012
RMB
2013
RMB
US$
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Basic earnings (loss) per ADS
Diluted earnings (loss) per ADS
Dividends declared per common share
Weighted average common shares
(2)
(2)
RMB
RMB
RMB
RMB
RMB
US$
0.50
0.49
1.00
0.98
—
(In thousands, except for share and ADS data)
0.44
(0.79)
0.44
(0.79)
0.88
(1.58)
0.88
(1.58)
—
—
1.22
1.19
2.44
2.38
1.393
0.50
0.50
1.00
1.00
0.554
0.08
0.08
0.16
0.16
0.087
outstanding
Basic
Diluted
45,376,008
46,431,518
44,789,512
44,789,512
44,469,182
44,469,182
44,713,418
45,664,887
44,967,823
45,115,617
(1)
Includes net revenues from test-based educational services of RMB42,545,536, RMB31,786,398, RMB25,727,038,
RMB12,614,294 and RMB6,778,429 ($1,091,394) in the fiscal years ended March 31, 2009, 2010, 2011, 2012 and 2013, respectively.
(2)
Each ADS represents two common shares.
Selected Consolidated Balance
Sheet Data:
Cash
Accounts receivable, net
Total current assets
Total assets
Deferred revenues, current
Total current liabilities
Total liabilities
Accumulated deficit
Common shares
Total shareholders’ equity
Key Operating Data:
Number of tests delivered
(1)
2009
RMB
2010
RMB
2011
RMB
2012
RMB
2013
RMB
US$
(In thousands, except for share and ADS data)
As of March 31,
310,503
71,077
399,002
471,245
40,238
85,189
91,004
(92,102)
3,504
380,241
213,874
82,900
309,074
428,503
25,837
78,223
83,028
(127,452)
3,419
345,475
268,058
47,052
325,491
435,447
19,101
67,448
71,384
(107,698)
3,429
364,063
257,168
81,845
355,069
460,720
27,333
91,066
94,305
(51,857)
3,443
366,415
290,030
51,115
354,770
457,818
7,377
79,568
82,271
(28,649)
3,461
375,548
46,698
8,230
57,121
73,713
1,188
12,811
13,246
(4,613)
557
60,467
2009
For the fiscal year ended March 31,
2011
2010
2012
2013
5,063,379
5,760,147
7,162,462
8,529,095
9,266,581
(1)
Includes Microsoft royalty tests overseas, tests delivered through our test delivery platform and tests using our Dynamic
Simulation Technology. Also includes free tests delivered for business development purpose. The number of tests delivered excluding free
tests in the fiscal years ended March 31, 2009, 2010, 2011, 2012 and 2013 was 5,063,379, 5,760,147, 6,907,158, 8,026,639 and 8,744,859,
respectively.
Exchange Rate Information
We conduct our business primarily in China and a substantial majority of our revenues and expenses are denominated in Renminbi.
The conversion of Renminbi into U.S. dollars in this annual report is based on the noon buying rate in The City of New York for cable
transfers of Renminbi per U.S. dollar certified for customs purposes by the Federal Reserve Bank of New York, as set forth in the H.10
weekly statistical release of Federal Reserve Board. Unless otherwise noted, all translations from Renminbi to U.S. dollars in this annual
report were made at a rate of RMB6.2108 to US$1.00, which was the noon buying rate in effect as of March 29, 2013. The noon buying rate
on June 21, 2013 was RMB6.1328 to US$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 below, or at all. The Chinese
government restricts or prohibits the conversion of Renminbi into foreign currency and foreign currency into Renminbi for certain types of
transactions.
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The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods
indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this annual report.
Fiscal year ended March 31, 2009
Fiscal year ended March 31, 2010
Fiscal year ended March 31, 2011
Fiscal year ended March 31, 2012
Renminbi per U.S. Dollar Noon Buying Rate
Average
(1)
High
Low
Period-end
6.8684
6.8268
6.5645
6.3980
7.0185
6.8319
6.5743
6.5477
6.7800
6.8180
6.5483
6.2935
6.8329
6.8258
6.5483
6.2975
Fiscal year ended March 31, 2012
Fiscal year ended March 31, 2013
6.3980
6.2880
6.5477
6.3879
6.2935
6.2105
6.2975
6.2108
Most recent six months:
December 2012
January 2013
February 2013
March 2013
April 2013
May 2013
June 2013 (period through June 21)
Renminbi per U.S. Dollar Noon Buying Rate
Average
(1)
High
Low
Period-end
6.2328
6.2215
6.2323
6.2154
6.1861
6.1416
6.1307
6.2502
6.2303
6.2438
6.2246
6.2078
6.1665
6.1359
6.2251
6.2134
6.2213
6.2105
6.1647
6.1213
6.1248
6.2301
6.2186
6.2213
6.2108
6.1647
6.1340
6.1328
Source: H.10 weekly statistical release of the Federal Reserve Board
(1)
Annual averages are calculated using the exchange rates for the last day of each month during the relevant year. Monthly averages are
calculated using daily exchange rates during the month.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
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Risks Relating to Our Business
A limited number of our clients have accounted and are expected to continue to account for a high percentage of our revenues.
The loss of or significant reduction in orders from any of these clients could significantly reduce our revenues and have a material
adverse effect on our results of operations.
Our three largest clients in the fiscal year ended March 31, 2013, the Securities Association of China, or SAC, the China Banking
Association, or CBA, and the Chinese Institute of Certified Public Accountants, or CICPA, accounted for 23.0%, 16.5% and 14.8%,
respectively, of our net revenues in that period. We provide both computer-based testing services and online test preparation services to the
SAC. We generated RMB76.5 million ($12.3 million ) and RMB7.7 million ($1.3 million ) from provision of computer-based testing
services and online test preparation services, respectively, to the SAC in the fiscal year ended March 31, 2013. For computer-based testing
services, we enter into an annual contract with the SAC each year providing detailed terms of our engagement. We are currently delivering
tests for the SAC under our 2013 contract, which was entered into in January 2013 and expires in December 2013. For test preparation
services, since December 2011 the SAC has been in the process of assessing the feasibility of running its online training program internally
rather than outsourcing its operation to us. In place of our previous contract under which we operated the online training program on behalf
of the SAC, we entered into a contract through March 2013 under which we provide technical and services support during the contract
period. We are currently providing data transfer services to the SAC, upon the completion of which we will earn revenue of RMB1.0
million. We do not expect any further revenue from providing test preparation services to the SAC subsequent to our completion of these
data transfer services.
As of March 31, 2013, our accounts receivable from SAC were RMB19.6 million ($3.2 million).
Due to our dependence on a limited number of clients, any one of the following events, among others, could cause material
fluctuations or declines in our revenues and have a material adverse effect on our financial condition or results of operations:
· a reduction, delay or cancellation of contracts or product or service orders from one or more of our major clients;
· a delay in paying or failure to pay outstanding accounts receivable;
· a decision by one or more of our major clients to award contracts or orders to one of our competitors; and
· a decision by one or more of our major clients to significantly reduce the price they are willing to pay for our services or products.
Any of these events could occur due to causes outside of our control, such as macro-economic conditions, changes in a client’s
management or the personnel with whom we interact, changes in technology, the actions of our competitors, changes in governmental
regulations and policies and changes in a client’s budgeting or financial prospects.
Our financial results are subject to fluctuations and seasonality related to the revenue cycles for our products and services, our
relatively long and unpredictable sales cycle and other factors beyond our control, any of which may decrease our revenues in a
particular period. As a result, it is difficult for us to predict our results of operations and you should not rely on our historical
operating results as an indication of our future financial performance.
Our results of operations have varied in the past from period to period, and are likely to vary in the future, due to the fact that a
substantial portion of our sources of revenues are seasonal. We have experienced seasonality and expect in the future to continue to
experience seasonality in net revenues and accounts receivable related to our test delivery services, with the quarters ending June 30 and
December 31 typically having higher net revenues from testing services and the quarters ending September 30 and March 31 typically having
lower net revenues from testing services. This is primarily because the tests from which we derive substantial revenues are mostly delivered
in the quarters ending June 30 and December 31. Test timing can be a major contributing factor to quarterly fluctuations of financial results.
For example, we had RMB46.8 million in revenues in the quarter ended September 30, 2012 as compared to RMB179.4 million in revenues
in the quarter ended December 31, 2012 primarily because one of our major test sponsors, the CICPA, held tests during the third quarter for
the fiscal year ended March 31, 2013.
In addition, our sales cycles are generally long and unpredictable. A client’s decision to purchase our products and services often
involves a lengthy evaluation process. Throughout the sales cycle, we often spend considerable time educating and providing information to
prospective clients regarding the use and benefits of our products and services. Moreover, budget constraints and the need for multiple
approvals within large enterprises, governmental agencies and educational institutions may also delay purchasing decisions. As a result, the
sales cycle for our services may last a year or longer. Such a lengthy sales cycle, and any future increases in our sales cycle, could lead to
higher sales and marketing expenses and adversely affect our cash flow from operations. In addition, the lengthy sales cycle has made, and
may continue to make, our financial results prone to fluctuations or decrease our revenues in a particular period.
If our revenues for a particular quarter are lower than we expect, we may be unable to reduce our operating expenses for that quarter
by a corresponding amount, which could negatively affect our operating results for that quarter. As a result, you should not rely on our
quarter-to-quarter comparisons of our operating results as indicators of likely future performance. Our operating results may be below the
expectations of public market analysts and investors in one or more future quarters. If that occurs, the market price of our ADSs could
decline and you could lose part or all of your investment. Fluctuations of our quarterly financial results may also lead to increased volatility in
the market price of our ADSs.
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The Chinese market for our services is still emerging and evolving rapidly. If market acceptance of our services declines or fails
to grow, our revenue growth may slow or we may experience a decrease in revenues.
As the Chinese market for our services is still emerging, our success will depend to a large extent on our ability to convince our
clients that our technologies and services are valuable and that it is more cost-effective for them to utilize our services than for them to
develop similar services in-house.
We must address the following concerns, among others, with our clients as they decide to implement our computer-based testing and
career-oriented educational services and to use our technologies and services:
· concern over the commitment of time, personnel and funding necessary to implement our computer-based testing services and career-
oriented educational services;
· ability of clients to develop their own computer-based testing services or career-oriented educational services;
· possible perceived security and academic integrity risks associated with computer-based testing services and third-party curriculum
providers; and
· reluctance of the academic community to adopt computer-based learning materials and computer-based tests.
A decline in the demand for computer-based testing services by test sponsors could negatively affect demand for our computer-based
testing services and technologies. Even if demand for computer-based testing services continues to grow, this demand may not grow as
quickly as we anticipate.
In addition, we have allocated, and intend to continue to allocate, time, effort and capital to expand our service offerings, including our
HR Select employee assessment solution, distribution and administration of the Test of English for International Communication, or TOEIC,
exam in China, all of which we launched in 2009. We generated RMB54.5 million, RMB88.0 million and RMB88.4 million ($14.2 million)
from the HR Select and TOEIC services in the fiscal years ended March 31, 2011, 2012, and 2013, respectively. As the markets for these
offerings are relatively new for us, we cannot assure you that we will succeed in adapting to client needs in these markets or effectively
addressing risks associated with this expansion. It may be difficult for us to accurately predict demand for these and other new service
offerings we develop. Furthermore, the PRC government may enact unforeseen regulations and policies that could limit our ability to provide
or expand certain services, such as prohibitions on foreign-invested entities engaging in certain businesses. Additional risks that we face
expanding in this market include the following:
· we may underestimate the amount of capital, personnel and other resources required to carry out our expansion plans, which may
affect the success of our expansion and/or negatively impact the quality of our other product and service offerings;
affect the success of our expansion and/or negatively impact the quality of our other product and service offerings;
· if we are unsuccessful in the relevant new market, it may negatively affect our reputation and the status of our brand in our other
markets; and
· we may fail to develop sufficient payment collection, technical support and other administrative capabilities necessary to successfully
develop and manage our new service offerings on an increasingly large scale.
The success of our service offerings going forward also depends on our ability to gain and maintain relevant business relationships,
such as our relationship with major test sponsors for computer-based tests in China, our relationship with Educational Testing Services, or
ETS, in relation to our distribution and administration of TOEIC exams in China, and our relationship with Saville Consulting in relation to
psychometric tests for our HR Select employee assessment solution. If our new service offerings are ultimately unsuccessful or do not grow
as rapidly as we expect, our net revenues and profitability will be adversely affected.
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Breaches or perceived breaches of our security measures relating to test collection, scoring and storage or unauthorized
disclosure or misuse of personal data through breach of our computer systems or otherwise could cause us to receive negative publicity
and lose clients and expose us to protracted and costly litigation.
As part of our service offerings, we collect, process, transmit and store highly confidential information, including personal
information and test questions, answers and scores. Maintaining the security and confidentiality of the information we handle as part of our
testing services is essential to protecting the integrity and accuracy of the test taking process and retaining our client base. In addition, any
breach or perceived breach in our security measures pertaining to the collection, processing, transmission or storage of such information as a
result of third-party action, employee error, and malfeasance or otherwise, or any instances or claims of cheating on tests that we administer,
could result in liability claims and have a negative impact on our reputation. Additionally, we could be subject to liability claims or regulatory
penalties for misuses of information collected from clients or students or for the unauthorized disclosure or unauthorized or inappropriate use
of such information. Any such negative publicity or liability claims could have a significant negative impact on our future business, cause us
to lose clients and expose us to costly litigation.
Reductions in public funding available to our clients that are governmental agencies could adversely impact demand by these
agencies and institutions for our products and services.
We have derived a significant portion of our total net revenues from licensing and service fees from Chinese governmental agencies.
Demand and ability to pay for our products and services by these agencies are affected by government budgetary cycles, funding availability
and government policies. Funding reductions, reallocations or delays could adversely impact demand for our products and services by our
clients or reduce the fees these clients are willing to pay for our products and services. For example, in the fiscal year ended March 31, 2010,
NTET sales decreased significantly relative to the previous fiscal years, due to a delay in the government’s implementation of the national
NTET certification requirement and the associated cuts in relevant government budgets. We had no NTET sales in the fiscal years ended
March 31, 2011, 2012 and 2013.
A significant portion of our revenues are dependent on market acceptance of our E-testing platform and other computer-based
testing technologies, and if we are unable to anticipate and meet our clients’ technological needs and challenges from new technologies
and industry standards, our products and services may lose market acceptance or become obsolete, and our margins and results of
operations may be adversely affected.
Our advanced technologies for the creation and delivery of computer-based tests, including our E-testing platform and our
performance-based testing technologies, are a key factor in growing and maintaining our relationships with test sponsors, educational
institution clients and educational program content providers. Our future success depends on our ability to upgrade our systems, develop
new technologies and anticipate and meet the technical needs of our clients on a regular basis. The emergence in the market of new test
creation and delivery technologies or substitute products and services could reduce the competitiveness or result in the obsolescence of our
current technologies and services. Moreover, if other companies develop similar technologies offering functionality comparable to that of our
technologies, pricing pressure may increase and our margins and results of operations may be adversely affected. Additionally, industry
standards such as standard interfaces and data exchange protocols may be developed for testing technologies, and if these industry standards
are incompatible with our technologies, demand for our technologies, products and services may decline significantly. To the extent we are
unable to maintain our market leadership position in key testing technologies or anticipate and respond to technological developments and
changes in industry standards in a timely and cost-effective manner, our products and services may lose market acceptance or become
obsolete.
Technical errors or failures in relation to computer-based tests delivered through our test delivery platform could result in
negative publicity, loss of clients, liability claims and costly and disruptive litigation.
Due to the complexity of the technologies we have developed and use to create and deliver computer-based tests for our clients, there
is a risk that technical errors or failures may occur in relation to these services. These may include errors, failures or bugs in our self-
developed software applications and test security technologies, breakdowns or failures of our servers and computer networks, and
connectivity failures between our networks. While we have not experienced major problems to date due to errors, breakdowns, failures, bugs
or defects, we cannot assure you that we will not experience such problems in the future. If such a problem were to occur, it could disrupt or
compromise the integrity of the test taking process or of test content and results, which could lead to negative publicity and loss of clients and
may subject us to liability claims. Although we have established a formal crisis management system to respond to technical problems, it has
may subject us to liability claims. Although we have established a formal crisis management system to respond to technical problems, it has
never been tested in a real crisis situation. Any litigation or negative publicity resulting from an error or failure, with or without merit, could
result in substantial costs and divert management’s attention and resources from our business and operations.
If we fail to maintain a strong brand identity, our business may not grow and our financial results may be adversely impacted.
We believe that maintaining and enhancing the value of the “ATA” brand is important to attracting clients. Our success in maintaining
brand awareness will depend on our ability to consistently provide high quality, value-adding, user-friendly and secure products and
services. As we expand our product and service offerings, we are increasing our efforts to establish a wider recognition of the “ATA” brand.
To establish a wider recognition of our “ATA” brand among test takers, test sponsors and companies, we may need to spend significant
resources on advertising. As we have limited experience with advertising and other activities required to establish a widely recognized brand,
we cannot assure you that we will effectively allocate our resources for these activities or succeed in maintaining and broadening our brand
recognition and appeal. If we fail to maintain a strong brand identity, our business may not grow and our financial results may be adversely
impacted.
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Actions by our authorized test centers could lead to damage to our brand and reputation, which could cause us to incur
substantial costs and strain our relationships with our clients.
As of March 31, 2013, we had contractual relationships with 2,804 authorized test centers. We do not own these centers and their
employees are not our employees. Under our contracts with these test centers, we require them to provide sufficient facilities to properly
administer computer-based tests and to follow prescribed guidelines for facility maintenance and test administration. We also conduct regular
reviews of their facilities and operations and provide consulting services on test administration. However, our contractual arrangements with
the test centers provide us with only limited ability to oversee their activities, and most test centers engage in other activities, such as serving
as classrooms, when not administering tests. If a test center were to engage in unauthorized or unlawful conduct, whether related to
administering computer-based tests or otherwise, our clients, prospective clients and the general public may associate this conduct with our
brand, and negative publicity associated with this conduct could harm our reputation and lessen overall demand for computer-based testing
services. Furthermore, our business may also be adversely affected if our authorized test centers do not maintain their premises, administer
our computer-based tests, or hire qualified personnel and train them properly in a manner consistent with our standards and requirements. In
addition, a liability claim against an ATA authorized test center or any center personnel may result in unfavorable publicity for us, our
products and services and our other test centers, and could damage our brand and reputation, whether or not the claim is successful. While
we may terminate our contracts and relationships with our authorized test centers if any of these events were to occur, we may not be able to
identify problems or take action quickly enough to prevent harm to our reputation.
We may face increasing competition from international and domestic Chinese competitors. If we fail to successfully compete, our
revenues and market share may decrease, and our results of operations may be adversely affected.
We anticipate that as our business and markets continue to expand, we will face increasing competition, including competition from
new entrants, both domestic and international, who will try to gain market share from us. In the future, competitors may introduce new
technologies, products and services that have better performance, offer lower prices and gain broader acceptance than our technologies,
products and services. Such new products may reduce the overall market for our products and services.
In the computer-based testing services market, we compete primarily on the basis of technology, price, management experience and
established infrastructure. In the future, as more companies enter this market, we believe pricing may become increasingly competitive as
well. For our HR Select employee assessment solution, while there are other companies providing services to corporate human resources
departments, we are differentiated by our focus on offering more professional testing services with proprietary testing technologies.
Traditional Chinese test preparation material providers, such as publishing companies, indirectly compete with our test preparation and
training solutions. Increased competition could cause us to lose clients or make it necessary for us to reduce our prices in order to retain our
clients, which may negatively affect our revenues and results of operations.
We depend on our key personnel and our business may be severely disrupted if we lose their services and are unable to replace
them.
Our future success is dependent upon the continued services of our key executives, as we rely on their industry experience and
expertise in our business operations. In particular, we rely heavily on Kevin Xiaofeng Ma, our chairman and chief executive officer for his
business vision, management skills, technical expertise, experience in the testing, IT and education industries and working relationships with
many of our clients, shareholders and other participants in the testing, IT and education industries. If Mr. Ma is unable or unwilling to
continue in his present positions, or if he joined a competitor or formed a competing company in violation of his employment agreement, we
may not be able to replace him easily and our business may be severely disrupted. We do not maintain key-man life insurance for Mr. Ma or
for any of our other employees.
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Because competition for highly skilled employees is intense, we may not be able to attract and retain the highly skilled employees
we need to support our planned growth.
Due to intense market competition for highly skilled workers, we have faced difficulties locating experienced and skilled personnel in
certain areas, such as administration, marketing, product development, sales, finance and accounting. In particular, we have had difficulty
finding personnel with experience in the relatively new computer-based testing services market. We cannot assure you that we will be able to
attract or retain the key personnel that we will need to achieve our business objectives. Even if we can find qualified candidates, they may be
subject to non-competition agreements with their prior employers that prevent us from hiring them. In addition, we cannot assure you that we
will be able to retain our current skilled personnel. According to our contracts with our employees, all of our employees are prohibited from
engaging in any activities that compete with our business during the period of their employment and for two years after termination of their
employment with us. Furthermore, all employees are prohibited, for a period of two years following termination, from soliciting other
employees to leave us and, for a period of five years following termination, from soliciting our existing clients. However, we may have
difficulty enforcing these non-competition and non-solicitation provisions in China because the Chinese legal system, especially with respect
to the enforcement of such provisions, is still developing.
Many of our contracts with governmental agencies and public educational institutions take the form of framework agreements
and offer little contractual or legal protections, and it may be impractical for us to pursue or obtain legal remedies against these clients.
Many governmental agencies and other public sector entities in China require the use of simple framework agreements for the
procurement of products and services from us that lack many of the detailed aspects of our business arrangement. For example, the terms of
service may lack the clarity we would normally have in our contracts with commercial enterprises, or contract terms protecting our intellectual
property may not be as clear and detailed as we would normally have in our contracts with commercial enterprises. Moreover, it may not be
feasible or practicable under current Chinese law for us to take legal action against our government and public sector clients to enforce our
contractual rights. As a result, we may lack the same contractual or legal protections, or ability to enforce such protections, that we would
normally have under the contracts we typically enter into with our other clients.
Unauthorized use of our intellectual property by third parties, including infringement of our “ATA” brand, and the expenses
incurred in protecting our intellectual property rights, may adversely affect our business.
Our copyrights, trademarks, trade secrets, patents and other intellectual property are important to our success. In particular, we believe
that our “ATA” brand name represents a valuable asset as we have sought to gain a reputation for high quality and secure testing services
and advanced testing technologies within our markets. Unauthorized use of any of our intellectual property may adversely affect our business
and reputation. We rely on trademark, patent, and copyright law, trade secret protection and confidentiality agreements with our employees,
clients, business partners and others to protect our intellectual property rights. Nevertheless, it may be possible for third parties to obtain and
use our intellectual property without authorization. The unauthorized use of intellectual property is common and widespread in China and
enforcement of intellectual property rights by Chinese regulatory agencies is inconsistent. Moreover, litigation may be necessary in the future
to enforce our intellectual property rights. Future litigation could result in substantial costs and diversion of our management’s attention and
resources, and could disrupt our business, as well as have a material adverse effect on our financial condition and results of operations.
Given the relative unpredictability of China’s legal system and potential difficulties enforcing a court judgment in China, there is no guarantee
that we would be able to halt the unauthorized use of our intellectual property through litigation.
We may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if
determined adversely against us, may materially disrupt our business.
We cannot assure you that our software and other technologies do not or will not infringe upon patents, valid copyrights or other
intellectual property rights held by third parties. We may become subject to legal proceedings and claims from time to time relating to the
intellectual property of others in the ordinary course of our business. For example, we have been unable to register our “ATA” trademark
with the China Trademark Office due to similarity with other marks. Although we have not received notice of trademark infringement claims
since we began using the mark in 1999 and believe that the risk of litigation is remote, we may be subject to such claims in the future. If we
are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, and we may
incur licensing fees or be forced to develop alternatives. In addition, we may incur substantial expenses, and may be forced to divert
management and other resources from our business operations, to defend against these third-party infringement claims, regardless of their
merit. Successful infringement or licensing claims against us may result in substantial monetary liabilities or may materially disrupt the
conduct of our business by restricting or prohibiting our use of the intellectual property in question.
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Because there is limited business insurance coverage in China, any business disruption or litigation we experience might result
in our incurring substantial costs and diverting significant resources to handle such disruption or litigation.
The insurance industry in China is not fully developed. Insurance companies in China offer limited business insurance products.
While business disruption insurance may be available to a limited extent in China, we have determined that the risks of disruption and the
difficulties and costs associated with acquiring such insurance render it commercially impractical for us to have such insurance. As a result,
we do not have any business liability, disruption or litigation insurance coverage for our operations in China. Any business disruption or
litigation might result in our incurring substantial costs and the diversion of resources.
We may face challenges and risks in connection with possible acquisitions, including identifying suitable opportunities and
integrating acquired businesses and assets with our existing operations, which could interrupt our business operations or adversely
affect our results of operations.
As part of our business strategy, we may seek to broaden our service offerings, obtain additional clients and strengthen our service
quality by acquiring other companies or businesses. However, our ability to implement our acquisition strategy will depend on a number of
factors, including the availability of suitable acquisition candidates at an acceptable cost or at all, our ability to compete effectively to attract
and reach agreement with acquisition candidates or joint venture partners on commercially reasonable terms, and the availability of financing
to complete acquisitions or joint ventures as well as our ability to obtain any required government approvals or licenses. In addition, we
cannot assure you that any particular acquisition or joint venture transaction will produce the intended benefits or synergies. For example, we
may not be successful in integrating acquisitions with our existing operations and personnel. Moreover, the acquisitions we pursue may
require us to expend significant management and other resources, which may result in interruption to our business operations.
There are other risks associated with acquisitions, including:
· unforeseen or hidden liabilities, including exposure to legal proceedings, associated with newly acquired companies;
· failure to generate sufficient revenues to offset the costs and expenses of acquisitions;
· integration of the management of the acquired business into our own;
· potential impairment losses or amortization expenses relating to goodwill and intangible assets arising from any of such acquisitions,
which may materially reduce our net income or result in a net loss;
· potential conflicts with our existing employees as a result of our integration of newly acquired companies; and
· possible contravention of Chinese regulations applicable to such acquisitions.
Furthermore, raising capital to finance acquisitions could cause earnings or ownership dilution to your shareholding interests, which
in turn could result in losses to you. Any one or a combination of the above risks could interrupt our business operations and adversely
affect our results of operations.
We may need additional capital and any failure by us to raise additional capital on terms favorable to us, or at all, could limit our
ability to grow our business and develop or enhance our product and service offerings to respond to market demand or competitive
challenges.
Capital requirements are difficult to plan in our rapidly changing industry. We believe that our current cash and expected future cash
flows from operations will be sufficient to meet our anticipated working capital and capital expenditures for the next 12 months and the
foreseeable future beyond that point. 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 our sources of liquidity 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 dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could
require us to agree to operating and financing covenants that would restrict our operations. Our ability to obtain additional capital on
acceptable terms is subject to a variety of uncertainties, including:
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· investors’ perception of, and demand for, securities of computer-based testing and education companies;
· conditions of the U.S. and other capital markets in which we may seek to raise funds;
· our future results of operations and financial condition;
· Chinese government regulation of foreign investment in China;
· economic, political and other conditions in China; and
· Chinese government policies relating to the borrowing and remittance outside China of foreign currency.
We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise
additional funds on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our product and
service offerings to respond to market demand or competitive challenges.
We may be unable to maintain an effective system of internal control over financial reporting, and as a result we may be unable
to accurately report our financial results or prevent fraud.
We are subject to provisions of the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act requires that we include a
report from management on the effectiveness of our internal control over financial reporting in our annual reports on Form 20-F. In addition,
our independent registered public accounting firm must report on the operating effectiveness of our internal control over financial reporting.
While our management concluded that our internal control over financial reporting is effective as of March 31, 2013, and our independent
registered public accounting firm reported on our internal controls over financial reporting, our management may conclude in the future that
registered public accounting firm reported on our internal controls over financial reporting, our management may conclude in the future that
our internal controls are not effective. Our failure to maintain effective internal control over financial reporting could result in a loss of
investor confidence in the reliability of our reporting processes, which could materially and adversely affect the trading price of our ADSs.
Our reporting obligations as a public company will continue to place a significant strain on our management, operational and financial
resources and systems for the foreseeable future. Our failure to maintain effective internal control over financial reporting could result in the
loss of investor confidence in the reliability of our financial reporting processes, which in turn could harm our business and negatively
impact the trading price of our ADSs.
Our independent registered public accounting firm’s audit documentation related to their audit reports included in this annual
report may include audit documentation located in China. The Public Company Accounting Oversight Board currently cannot inspect
audit documentation located in China and, as such, you may be deprived of the benefits of such inspection.
Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the U.S.
Securities and Exchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the
U.S. Public Company Accounting Oversight Board (United States) , or the PCAOB, is required by the laws of the United States to undergo
regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Our operations
are conducted in China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the PRC
authorities. Accordingly, any audit documentation located in China related to our independent registered public accounting firm’s reports
included in our filings with the U.S. Securities and Exchange Commission is not currently inspected by the PCAOB. On May 24, 2013, the
PCAOB announced that it had entered into a memorandum of understanding on enforcement and cooperation with the China Securities
Regulatory Commission, or CSRC, and the PRC Ministry of Finance, or MOF, which establishes a cooperative framework between the
parties for the production and exchange of audit documents relevant to investigations in the United States and China. However, direct
PCAOB inspections of independent registered accounting firms in China are still not permitted by Chinese authorities.
Inspections conducted by the PCAOB outside of China have identified deficiencies in those firms’ audit procedures and quality
control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB
inspections in China prevents the PCAOB from regularly evaluating audit documentation located in China and its related quality control
procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.
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The inability of the PCAOB to conduct inspections in China makes it more difficult to evaluate the effectiveness of our auditor’s audit
procedures or quality control procedures as compared to audits outside of China that are subject to PCAOB inspections. Investors may lose
confidence in our reported financial information and procedures and the quality of our financial statements.
Proceedings instituted recently by the Securities Exchange Comission, or SEC, against five PRC-based accounting firms,
including the mainland China affiliate of our independent registered public accounting firm, could result in financial statements being
determined to not be in compliance with the requirements of the Securities Exchange Act of 1934.
In December 2012, the SEC instituted proceedings under Rule 102(e)(1)(iii) of the SEC’s Rules of Practice against five PRC-based
accounting firms, including the mainland China affiliate of our independent registered public accounting firm, alleging that these firms had
violated U.S. securities laws and the SEC’s rules and regulations by failing to provide to the SEC the firms’ work papers related to their
audits of certain PRC-based companies that are publicly traded in the United States. Rule 102(e)(1)(iii) grants to the SEC the authority to
deny to any person, temporarily or permanently, the ability to practice before the SEC who is found by the SEC, after notice and opportunity
for a hearing, to have willfully violated any such laws or rules and regulations. While we cannot predict the outcome of the SEC’s
proceedings, if the mainland China affiliate of our independent registered public accounting firm were denied, temporarily or permanently,
the ability to practice before the SEC, and we are unable to find timely another China-based registered public accounting firm which can audit
and issue a report on our financial statements, our financial statements could be determined to not be in compliance with the requirements for
financial statements of public companies with a class of securities registered under the Securities Exchange Act of 1934, as amended, or the
Exchange Act. Such a determination could ultimately lead to the delisting of our ordinary shares from the NASDAQ Global Select Market,
which event would effectively terminate the trading market for our ordinary shares in the United States, and/or to the SEC’s revoking the
registration of our ordinary shares under the Exchange Act pursuant to Section 12(j) thereof, in which event broker-dealers thereafter would
be prohibited from effecting transactions in, or inducing the purchase or sale of, our ordinary shares in the United States.
We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax
consequences to U.S. holders of our ADSs or ordinary shares.
We believe that we were not a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our taxable
year ended March 31, 2013, and we do not expect to be a PFIC in any future taxable year. However, PFIC status is tested each year and
depends on the composition of our assets and income and the value of our assets from time to time. Since we currently hold, and expect to
continue to hold, a substantial amount of cash and other passive assets and, since the value of our assets is to be determined in large part by
reference to the market prices of our ADSs and ordinary shares, which is likely to fluctuate over time, there can be no assurance that we will
not be a PFIC for any future taxable year. If we are a PFIC for any taxable year during which a U.S. investor held our ADSs or ordinary
shares, certain adverse U.S. federal income tax consequences would apply to the U.S. investor. See “Item 10. — Additional Information —
E. Taxation — United States Federal Income Taxation — Passive Foreign Investment Company.”
Risks Relating to Regulation of Our Business
Substantial uncertainties and restrictions exist with respect to the application and implementation of Chinese laws and
regulations relating to Internet content distribution. If the Chinese government finds that the structure for our online test preparation
services and other services we provide through the Internet do not comply with Chinese laws and regulations, we could be subject to
penalties and may not be able to continue those businesses.
The Chinese government regulates internet access, the distribution of online information, the conduct of online commerce and the
provision of online services through strict business licensing requirements and other government regulations. These laws and regulations
also include limitations on foreign ownership of Chinese companies that provide Internet content. Specifically, foreign investors are not
allowed to own more than a 50% equity interest in any Chinese company engaging in Internet content provision.
Because we are a Cayman Islands company, we and our Chinese subsidiaries and their branch companies in China are treated as
foreign or foreign-invested enterprises under Chinese laws and regulations. To comply with Chinese laws and regulations, we conduct our
online businesses in China through a series of contractual arrangements entered into among ATA Testing Authority (Holdings) Limited, or
ATA BVI, ATA Learning (Beijing) Inc., or ATA Learning and ATA Online (Beijing) Education Technology Limited, or ATA Online,
which is a domestic Chinese company incorporated in the PRC and owned by Kevin Xiaofeng Ma, our co-founder, chairman and chief
executive officer and Walter Lin Wang, our co-founder and director. Our contractual arrangements with ATA Online include a technical
support agreement and a strategic consulting service agreement. These contractual arrangements also include an equity pledge agreement and
powers of attorney entered into with each of the shareholders of ATA Online and a call option and cooperation agreement entered into with
ATA Online and its shareholders. Under PRC law, a pledge of equity interests can only be valid after such pledge is registered at the relevant
agency. The equity pledges under the equity pledge agreement were registered with the relevant local authority, Haidian Branch of Beijing
Administration for Industry and Commerce, on April 25, 2012. We may enforce the pledge by foreclosing on the pledge equity interest to
recover amounts due in the event of breach by ATA Online of the technical support agreement, strategic consulting service agreement or
covenants under the equity pledge agreement.
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In or around September 2011, various media sources reported that the CSRC had prepared a report proposing pre-approval by a
competent central government authority of offshore listings by China-based companies with variable interest entity structures, such as ours,
that operate in industry sectors subject to foreign investment restrictions. However, it is unclear whether the CSRC officially issued or
submitted such a report to a higher level government authority or what any such report provides, or whether any new PRC laws or
regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. In addition, the Notice on
Establishing a Security Review System for Merger and Acquisition of Domestic Enterprises by Foreign Investors, which was promulgated
by MOFCOM and became effective on September 1, 2011, require acquisitions by foreign investors of PRC companies engaged in military
related or certain other industries that are crucial to national security be subject to security review before consummation of any such
acquisition. According to Industry list of Security Review System for Merger and Acquisition of Domestic Enterprises by Foreign
Investors, industries relating to our business, such as other storage, telecom and other information transfer services, may fall under the
purview of the national security review rules.
ATA Online holds a Telecommunications and Information Services Operating License, or ICP license, issued by the Beijing
Telecommunications Administration Bureau, a local branch of the Ministry of Industry and Information Technology, or MIIT, which allows
ATA Online to provide Internet content distribution services. This license is essential to the operation of our online test preparation and
training services business.
The relevant Chinese regulatory authorities have broad discretion in determining whether a particular contractual structure is in
violation of Chinese law. If our ATA Online corporate and contractual structure is deemed by MIIT to be illegal, either in whole or in part,
we may have to modify such structure to comply with regulatory requirements. However, we cannot assure you that we can achieve this
without material disruption to our business. Further, if our ATA Online corporate and contractual structure is found to be in violation of any
existing or future Chinese laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violations,
including:
· revoking our business and operating licenses;
· levying fines on us;
· confiscating any of our income that they deem to be obtained through illegal operations;
· shutting down a portion or all of our servers or blocking a portion or all of our web site;
· discontinuing or restricting our operations in China;
· imposing conditions or requirements with which we may not be able to comply;
· requiring us to restructure our corporate and contractual structure;
· restricting or prohibiting our use of the proceeds from our initial public offering to finance ATA Online’s business and operations;
and
· taking other regulatory or enforcement actions that could be harmful to our business.
The occurrence of any of these events could materially and adversely affect our business, financial condition and results of operations.
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Our contractual arrangements with ATA Online may be subject to scrutiny by the Chinese tax authorities and create a potential
double layer of taxation for our revenue-generating services conducted by ATA Online.
The new PRC Enterprise Income Tax Law, or New EIT Law requires every enterprise in China to submit its annual enterprise income
tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax authorities may impose
reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm’s length principles. We
could face material and adverse tax consequences if the Chinese tax authorities determine that our contractual arrangements with ATA Online
were not priced at arm’s length for purposes of determining tax liability. If the Chinese tax authorities determine that these contracts were not
entered into on an arm’s-length basis, they may adjust our income and expenses for Chinese tax purposes in the form of a transfer pricing
adjustment. A transfer pricing adjustment could result in a reduction, for Chinese tax purposes, of deductions recorded by ATA Online,
which could adversely affect us by increasing the tax liabilities of ATA Online. This increased tax liability could further result in late
payment fees and other penalties to ATA Online for underpaid taxes. Any payments we make under these arrangements or adjustments in
payments under these arrangements that we may decide to make in the future will be subject to the same risk.
Our contractual arrangements with ATA Online and its shareholders do not provide us with ownership interest in ATA Online.
If ATA Online or its shareholders fail to perform their respective obligations under these contractual arrangements, we may have to
legally enforce such arrangements and our business, financial condition and results of operations may be materially and adversely
affected if these arrangements cannot be enforced.
Because of PRC restrictions on foreign ownership of Internet-based businesses in China, we depend on a series of contractual
arrangements with ATA Online, in which we have no equity ownership interest, to conduct our online businesses. These contractual
arrangements include loan agreements, technical support agreement, strategic consulting service agreement, call option and cooperation
agreement, equity pledge agreement and powers of attorney. They are intended to provide us with the power to direct the activities of ATA
Online that most significantly impact ATA Online’s performance and allow us to obtain the economic benefits from ATA Online, but may
not be as effective in providing control over ATA Online as equity ownership. For example, ATA Online and its shareholders could breach
the terms of the contractual arrangements by, among other things, failing to operate our online businesses in an acceptable manner or taking
other actions that are detrimental to our interests. As a protection against such risks, ATA Online and its shareholders are prohibited under
the contractual arrangements from engaging in certain activities without our consent, including a prohibition on any transfer by ATA
Online’s shareholders of their equity interest in ATA Online and a prohibition on ATA Online entering into similar technical support and
strategic consulting agreements with third parties. In addition, we have the exclusive option to purchase or have our designee purchase each
shareholder’s equity interest in ATA Online at any time so long as such purchase is in compliance with PRC laws. Due to restrictions under
PRC law on foreign ownership of Internet-based businesses in China, we are not permitted to exercise the exclusive option to directly
purchase ATA Online’s equity interests. There are no material restrictions under PRC law if we were to designate PRC citizens or non-
foreign-invested PRC enterprises as our designees to purchase ATA Online’s equity interests or assets.
The shareholders of ATA Online have pledged their entire equity interest in ATA Online to ATA Learning to guarantee ATA
Online’s and its shareholders’ performance of their obligations under the technical support agreement and the strategic consulting service
agreement. Pursuant to the Property Law of the PRC, a pledge must be registered with the competent local branch of the State Administration
of Industry and Commerce after the execution of the relevant pledge agreement. We registered the equity pledges under the equity pledge
agreement with the relevant local authority, Haidian Branch of Beijing Administration for Industry and Commerce in April 2012. The
shareholders of ATA Online have also assigned their rights as a shareholder of ATA Online to ATA Learning, including but not limited to
voting rights and rights to appoint directors and executive management of ATA Online pursuant to the powers of attorney.
Although we have significant protections under the contractual arrangements, if ATA Online or its shareholders fail to perform their
obligations under the contractual arrangements, we may have to resort to litigation or other contract remedies to enforce our rights, which
may be time-consuming, unpredictable, expensive and damaging to our operations and reputation. For example, if the shareholders of ATA
Online were to refuse to transfer their equity interest to us or our designated persons when we exercise the call option, we may have to take
legal action to compel them to fulfill their contractual obligations. All of these contractual arrangements are governed by PRC or Hong Kong
Law and provide for the resolution of disputes through binding arbitration in China. The legal framework and system in China is not as
developed as other jurisdictions such as the United States. As a result, significant uncertainties relating to the enforcement of legal rights
through arbitration, litigation and other legal proceedings remain in China, which could limit our ability to enforce the contractual
arrangements and exert effective control over our consolidated affiliated entity. In addition, a PRC court may refuse to enforce the contractual
arrangements on the grounds that they are designed to circumvent PRC foreign investment restrictions and therefore are against PRC public
policy. If we are unable to enforce the contractual arrangements, or if we suffer significant delay or other obstacles in the process of
enforcing the contractual arrangements, our business and operations could be significantly disrupted, which could materially and adversely
affect our results of operations and damage our reputation.
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The shareholders of ATA Online may have potential conflicts of interest with us, which may materially and adversely affect our
business and financial condition.
The shareholders of ATA Online, Kevin Xiaofeng Ma and Walter Lin Wang, are also beneficial holders of our common shares. They
are also directors of both ATA Online and our company. Conflicts of interests between their dual roles as shareholders and directors of both
ATA Online and our company may arise. We cannot assure you that when conflicts of interest arise, 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. In addition, these individuals may breach or cause
ATA Online to breach or refuse to renew the existing contractual arrangements that allow us to receive economic benefits from ATA Online.
Currently, we do not have existing arrangements to address potential conflicts of interest between these individuals and our company. We
rely on these individuals to abide by the laws of the Cayman Islands and China, both of which provide that directors owe a fiduciary duty to
the company, which requires them to act in good faith and in the best interests of the company and not to use their positions for personal
gain. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of ATA Online, 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.
We may lose the ability to use and enjoy assets held by ATA Online that are important to the operation of our business if ATA
Online goes bankrupt or becomes subject to a dissolution or liquidation proceeding.
To comply with PRC laws and regulations relating to foreign ownership restrictions in the Internet content distribution businesses, we
currently conduct our operations in China through contractual arrangements with ATA Online. As part of these arrangements, ATA Online
holds certain of the assets that are important to the operation of our online test preparation business. We have not entered into any pledge
agreements with respect to the underlying assets as collateral to secure the responsibilities of ATA Online. We have, however, entered into a
call option and cooperation agreement under which our wholly owned subsidiary, ATA BVI, has an exclusive purchase option to acquire the
entirety or any portion of ATA Online’s equity interest or the assets owned by ATA Online, exercisable at ATA BVI’s discretion.
Nonetheless, if ATA Online goes bankrupt and all or part of its assets become subject to license or rights of third-party creditors, we may be
unable to continue some or all of our online test preparation business operations, which could materially and adversely affect our business,
financial condition and results of operations.
If ATA Online undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may
claim rights to some or all of its assets, thereby hindering our ability to operate our online test preparation business. We can take part in the
liquidation procedures as a general creditor pursuant to PRC law and to recover any outstanding liabilities owed by ATA Online to our
wholly owned subsidiaries under the contractual arrangements. We could also enforce the pledges contained in the equity pledge agreement
entered into with each of the shareholders of ATA Online against ATA Online’s shareholders and dispose the pledged equity to indemnify
any losses under the technical support agreement and strategic consulting service agreement with priority over any unsecured creditors of
ATA Online’s shareholders.
If the China Securities Regulatory Commission, or CSRC, or another PRC regulatory agency determines that CSRC approval
was required in connection with our initial public offering, we may become subject to penalties.
On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Provisions Regarding Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rule, which became effective on September 8, 2006. The M&A
Rule, among other things, requires that an offshore company controlled by PRC companies or individuals that has acquired a PRC domestic
company for the purpose of listing the PRC domestic company’s equity interest on an overseas stock exchange must obtain the approval of
the CSRC prior to the listing and trading of such offshore company’s securities on an overseas stock exchange. On September 21, 2006 the
CSRC, pursuant to the M&A Rule, published on its official web site procedures specifying documents and materials required to be
submitted to it by offshore companies seeking CSRC approval of their overseas listings.
Our PRC counsel, Jincheng Tongda & Neal Law Firm, advised us that CSRC approval was not required for our initial public offering
in February 2008 because the CSRC approval required under the M&A Rule only applies to an offshore company that has acquired a
domestic PRC company for the purpose of listing the domestic PRC company’s equity interest on an overseas stock exchange, while (i) we
obtained our equity interest in each of our PRC subsidiaries by means of direct investment other than by acquisition of the equity or assets of
a PRC domestic company and (ii) our contractual arrangements with ATA Online do not constitute the acquisition of ATA Online.
However, if it is determined that CSRC approval was required, we may face regulatory actions or other sanctions from the CSRC or other
PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our operating
privileges in China, or take other actions that could have a material adverse effect on our business, financial condition, results of operations,
reputation and prospects, as well as the trading price of our ADSs.
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Because we may rely on dividends and other distributions on equity paid by our current and future Chinese subsidiaries for our
cash requirements, restrictions under Chinese law on their ability to make such payments could materially and adversely affect our
ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct
our businesses.
We have adopted a holding company structure, and our holding companies may rely on dividends and other distributions on equity
paid by our current and future Chinese subsidiaries for their cash requirements, including the funds necessary to service any debt we may
incur or financing we may need for operations other than through our Chinese subsidiaries. Chinese legal restrictions permit payments of
dividends by our Chinese subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC GAAP.
dividends by our Chinese subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC GAAP.
Our Chinese subsidiaries are also required under Chinese laws and regulations to allocate at least 10% of their after-tax profits determined in
accordance with PRC GAAP to statutory reserves until such reserves reach 50% of the company’s registered capital. Allocations to these
statutory reserves and funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash
dividends. As of March 31, 2013, our Chinese subsidiaries allocated RMB14.9 million ($2.4 million) to the general reserve fund, which is
restricted for distribution to the Company. We are in full compliance with PRC laws and regulations relating to such allocations. Any
limitations on the ability of our Chinese subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make
investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.
The discontinuation of any of the preferential tax treatments currently enjoyed by our subsidiaries in the PRC could materially
increase our tax obligations.
Effective from January 1, 2008, the new PRC Enterprise Income Tax Law, or New EIT Law, imposes a tax rate of 25% on all
enterprises, including foreign-invested enterprises, and terminates many of the tax exemptions, reductions and preferential treatments
available under previous tax laws. However, enterprises that were established before March 16, 2007 and already enjoyed preferential tax
treatments may continue to enjoy them (i) in the case of certain preferential tax rates that are specified by tax legislations for a transition
period of five years from January 1, 2008 or (ii) in the case of tax exemption or reduction for a specified term, until the expiration of such
term.
Under the New EIT Law, qualified “high-and-new technology enterprises eligible for key support from the State” (“HNTE”) are
entitled to a preferential tax rate of 15%, subject to an annual review during the valid period of their HNTE certificates. In December 2008,
ATA Testing was recognized as a HNTE and obtained its HNTE certificate, which entitled ATA Testing to a preferential tax rate of 15% for
calendar years 2008 to 2010. In October 2011, ATA Testing successfully renewed its HNTE certificate for another three years from 2011
and therefore is entitled to a preferential tax rate of 15% retroactively for calendar years 2011 to 2013. In December 2009, each of ATA
Learning, ATA Online and Beijing JDX received an approval from the tax authority that it qualified as an HNTE for three years, entitling
them to a preferential income tax rate of 15% for calendar years 2009 to 2011. In July, May and July of 2012, ATA Learning, ATA Online
and Beijing JDX successfully renewed their HNTE certificates, respectively, for another three years from 2012 and therefore are entitled to a
preferential tax rate of 15% for calendar years 2012 to 2014. We cannot assure you that ATA Testing, ATA Learning, ATA Online and
Beijing JDX will continue to qualify as an HNTE after the expiration of their HNTE certificates, or that the local tax authorities will not, in
the future, change their position and revoke any of our past preferential tax treatments.
The discontinuation of any of our preferential tax treatments could materially increase our tax obligations and adversely affect our
business, operating results and financial condition.
Under the New EIT Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in
unfavorable tax consequences to us and U.S. holders of our ADSs or ordinary shares.
Under the New EIT Law, an enterprise established outside of China with its “de facto management body” in China is considered a
“resident enterprise,” meaning that it can be treated the same as a Chinese enterprise for enterprise income tax purposes. In addition, a tax
circular, or Circular 82, issued by the State Administration of Taxation, or the SAT on April 22, 2009 regarding the standards used to
classify certain Chinese controlled enterprises established outside of China as “resident enterprises” clarified that dividends and other income
paid by such “resident enterprises” will be considered to be PRC source income, subject to PRC withholding tax currently at a rate of 10%,
when paid to non-PRC enterprise shareholders. Circular 82 also subjects such “resident enterprises” to various reporting requirements with
the PRC tax authorities. Under the Implementation Rules to the New EIT Law, a “de facto management body” is defined as a body that
exercises “substantial and overall management and control over the manufacturing and business operations, personnel, and human resources,
finances and properties of an enterprise. “ In addition, Circular 82 details that certain Chinese-controlled enterprises will be classified as
“resident enterprises” if the following are located or resident in China: senior management personnel and departments that are responsible for
daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company
seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting
rights.
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Currently, a substantial majority of the members of our management team as well as the management team of some of our offshore
holding companies are located in China. However, Circular 82 only applies to offshore enterprises controlled by PRC enterprises or PRC
enterprise groups, not those controlled by PRC individuals or foreign entities like us. In the absence of detailed implementing regulations or
other guidance determining that offshore companies controlled by PRC individuals or foreign entities like us are PRC resident enterprises,
we do not currently consider our Company or any of our overseas subsidiaries to be a PRC resident enterprise.
However, the SAT may take the view that the determining criteria set forth in Circular 82 reflects the general position on how the “de
facto management body” test should be applied in determining the tax resident status of all offshore enterprises. Or additional implementing
regulations or guidance may be issued determining that our Cayman Islands holding company is a “resident enterprise” for PRC enterprise
income tax purposes. If the PRC tax authorities determine that our Cayman Islands holding company is a “resident enterprise” for PRC
enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we will be subject to enterprise income
tax at a rate of 25% on our worldwide income as well as PRC enterprise income tax reporting obligations. This would mean that income such
as interest on offering proceeds and other non-China source income would be subject to PRC enterprise income tax at a rate of 25%, in
comparison to no taxation in the Cayman Islands. Second, although under the New EIT Law and its implementing rules dividends paid to us
by our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10%
withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with
respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes.
respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes.
Finally, a 10% withholding tax will be imposed on dividends we pay to our non-PRC enterprise shareholders, and future guidance may
extend the withholding tax to dividends we pay to our non-PRC individual shareholders and gains derived by our non-PRC shareholders
from transferring our ADSs or ordinary shares. Similar results would follow if our BVI holding company is considered a PRC “resident
enterprise.” In addition to the uncertainty in how the new “resident enterprise” classification could apply, it is also possible that the rules may
change in the future, possibly with retroactive effect. We are closely monitoring the development of this area of rules and are evaluating
appropriate arrangements of our management activity to avoid being classified as a PRC “resident enterprise.”
China’s regulation of loans and direct investments by offshore holding companies or their Chinese subsidiaries or affiliates may
restrict our ability to execute our business strategy.
In order to execute our business strategy, we must invest the funds in our Chinese subsidiaries, through loans or capital contributions,
and in our affiliated PRC entity, ATA Online, through loans. Under applicable Chinese laws, any loan made by us to ATA Testing or ATA
Learning, both of which are foreign-invested enterprises, cannot exceed statutory limits tied to each company’s registered capital and total
investment as approved by the Ministry of Commerce or its local counterpart, and all such loans must be registered with China’s State
Administration of Foreign Exchange, or SAFE, or its local counterpart. Loans by us to ATA Online, as a domestic PRC enterprise, must be
approved by the relevant government authority and must also be registered with SAFE. We may also decide to finance ATA Testing by
increasing their registered capital through capital contributions. The Ministry of Commerce or its local counterpart must approve any capital
contributions to ATA Testing or ATA Learning.
In 2008, SAFE promulgated the Circular on the Relevant Operating Issues concerning Administration Improvement of Payment and
Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Circular 142, a notice regulating the conversion by a foreign-
invested enterprise, or FIE, of foreign currency into Renminbi by restricting how the converted Renminbi may be used. Circular 142 requires
that Renminbi converted from the foreign currency-denominated capital of a FIE may only be used for purposes within the business scope
approved by the applicable governmental authority and may not be used for equity investments within the PRC unless specified otherwise in
its business scope. For example, such converted amounts may not be used for investments in or acquisitions of other companies, which can
inhibit the ability of companies to consummate such transactions. In addition, SAFE strengthened its oversight of the flow and use of
Renminbi funds converted from the foreign currency-denominated capital of FIEs under Circular 142. The use of such Renminbi may not be
changed without approval from SAFE, and may not be used to repay Renminbi loans if the proceeds of such loans have not yet been utilized.
Violations of Circular 142 will result in severe penalties, including heavy fines. As a result, Circular 142 may limit our ability to convert net
proceeds raised in subsequent offerings or financings by our overseas companies into Renminbi and use such net proceeds in investments or
acquisitions of other companies, which may adversely affect our liquidity and our ability to fund and expand our business in China.
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A failure by us to obtain the necessary government approvals or complete any required registrations for a capital contribution, an
increase in approved total investment or a loan on a timely basis, may restrict our ability to execute our business strategy.
A failure by our shareholders who are Chinese citizens or residents in China to comply with regulations issued by SAFE could
restrict our ability to distribute profits, restrict our overseas and cross-border investment activities or subject us to liability under
Chinese laws, which could adversely affect our business and prospects.
In October 2005, SAFE, issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Return
Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which became effective as
of November 1, 2005. Notice 75 states that Chinese residents must register with the relevant local SAFE branch in connection with their
establishment or control of an offshore entity established for the purpose of overseas equity financing involving a round-trip investment
whereby the offshore entity acquires or controls onshore assets or equity interests held by the Chinese residents. Notice 75 applies to our
shareholders who are Chinese residents and also applies to our offshore acquisitions.
To further clarify and simplify the implementation of Notice 75, SAFE has issued various rules, including Circular19, which was
issued on May 20, 2011 and took effect on July 1, 2011. Circular 19 established more specific and stringent supervision on the registration
process required by Notice 75. For example, Circular19 imposes obligations on onshore subsidiaries of an offshore entity to make true and
accurate statements to the local SAFE authorities concerning any shareholder or beneficial owner of the offshore entity who is a PRC citizen
or resident. Untrue statements by the onshore subsidiaries may lead to potential liability for the subsidiaries. Under these foreign exchange
regulations, PRC residents who make, or have previously made direct or indirect, investments in special purpose vehicles or SPVs prior to
the implementation of these foreign exchange regulations will be required to register those investments. In addition, any PRC resident who is
a direct or indirect shareholder of an SPV is required to update the previously filed registration with the local branch of SAFE, with respect
to that SPV, to reflect any material change not involving its round-trip investment, capital variation, such as an increase or decrease in capital,
a transfer or swap of shares, a merger, division, long-term equity or debt investment or creation of any security interest. Moreover, the PRC
subsidiaries of that SPV are required to urge the PRC resident shareholders to update their registration with the local branch of SAFE when
such updates are required under applicable foreign exchange regulations. If any PRC shareholder fails to make the required registration or
update the previously filed registration, the PRC subsidiaries of that SPV may be prohibited from distributing their profits and the proceeds
from any reduction in capital, share transfer or liquidation to their SPV parent and the SPV may also be prohibited from injecting additional
capital into its PRC subsidiaries. Moreover, failure to comply with the various foreign exchange registration requirements described above
could result in liability under PRC laws for evasion of applicable foreign exchange restrictions, even though here is no explicit deadline for
such registration.
Two of our significant shareholders, Kevin Xiaofeng Ma and Walter Lin Wang, have completed their registrations with SAFE, and
we have urged our other Chinese resident shareholders to register under Notice 75 and they are currently in the application process.
However, we cannot assure you that their applications will be accepted by SAFE. Failure by such shareholders to comply with Notice 75
However, we cannot assure you that their applications will be accepted by SAFE. Failure by such shareholders to comply with Notice 75
could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make
distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects. See “Risks
Relating to Regulation of Our Business — Because we may rely on dividends and other distributions on equity paid by our current and
future Chinese subsidiaries for our cash requirements, restrictions under Chinese law on their ability to make such payments could materially
and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and
otherwise fund and conduct our businesses.”
Furthermore, as these foreign exchange regulations are still relatively new and there is uncertainty concerning the reconciliation of the
new regulations with other approval requirements, it is unclear how these regulations, and any future regulation concerning offshore or
cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We cannot predict how
these regulations will affect our business operations or future strategy. For example, we may be subject to a more stringent review and
approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign currency-denominated
borrowings, which may adversely affect our financial condition and results of operations. In addition, if we decide to acquire a PRC
domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary
approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to
implement our acquisition strategy and could adversely affect our business and prospects.
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Risks Relating to the People’s Republic of China
China’s economic, political and social conditions, as well as changes in any government policies, laws and regulations, could
adversely affect the overall economy in China or the prospects of the industries in which we operate, which in turn could reduce our
net revenues.
Substantially all of our operations are conducted 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. Although the Chinese economy has
been transitioning from a planned economy to a more market-oriented economy since the late 1970s, the Chinese government continues to
play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant
control over China’s economic growth through the allocation of resources, controlling the incurrence and payment of foreign currency-
denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Changes in any
of these policies, laws and regulations could adversely affect the overall economy in China or the prospects of the industries in which we
operate, which could harm our business.
China’s social and political conditions are also not as stable as those of the United States and other developed countries. Any sudden
changes to China’s political system or the occurrence of widespread social unrest could have negative effects on our business and results of
operations. In addition, China has contentious relations with some of its neighbors, most notably Taiwan. A significant further deterioration
in such relations could have negative effects on the Chinese economy and lead to changes in governmental policies that would be adverse to
our business interests.
The Chinese legal system embodies uncertainties that could limit the legal protections available to you and us.
Unlike common law systems, the Chinese legal system is based on written statutes and decided legal cases have little precedential
value. In 1979, the Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters
in general. The overall effect of legislation since then has been to significantly enhance the protections afforded to various forms of foreign
investment in China. Our Chinese operating subsidiaries, ATA Testing and ATA Learning, are wholly foreign-owned enterprises, which are
enterprises incorporated in China and wholly owned by foreign investors, and both are subject to laws and regulations applicable to foreign
investment in China in general and laws and regulations applicable to wholly foreign-owned enterprises in particular. Our affiliated entity,
ATA Online, is subject to laws and regulations governing the formation and conduct of domestic PRC companies. Relevant Chinese laws,
regulations and legal requirements may change frequently, and their interpretation and enforcement involve uncertainties. For example, we
may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However,
since Chinese administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms,
it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in
more developed legal systems. Such uncertainties, including the inability to enforce our contracts and intellectual property rights, could
materially and adversely affect our business and operations. In addition, confidentiality protections in China may not be as effective as in the
United States or other countries. Accordingly, we cannot predict the effect of future developments in the Chinese legal system, particularly
with regard to the computer-based testing services sectors, including the promulgation of new laws, changes to existing laws or the
interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal
protections available to us and other foreign investors, including you.
Restrictions on currency exchange may limit our ability to utilize our revenues effectively and the ability of our Chinese
subsidiaries to obtain financing.
A substantial majority of our revenues and operating expenses are denominated in Renminbi. Restrictions on currency exchange
imposed by the Chinese government may limit our ability to utilize revenues generated in Renminbi to fund our business activities outside
China, if any, or expenditures denominated in foreign currencies. Under current Chinese regulations, Renminbi may be freely converted into
China, if any, or expenditures denominated in foreign currencies. Under current Chinese regulations, Renminbi may be freely converted into
foreign currency for payments relating to “current account transactions,” which include among other things dividend payments and payments
for the import of goods and services, by complying with certain procedural requirements. Pursuant to the relevant regulations, a company
applying for the remittance of dividends should provide to the bank handling the remittance: (i) proof of taxes paid, (ii) an audit report on the
status of dividends, (iii) the relevant company’s foreign exchange registration certificate, (iv) a capital verification report issued by an
accounting firm, and (v) an audit report on the company’s financial condition during the current year. These procedural requirements
generally do not pose any risk to a wholly foreign-owned company’s ability to remit dividends to its offshore parent. However, should
SAFE focus on our use of the variable interest entity structure for ATA Online during the approval or registration process, there is a risk that
it may disapprove remittance of dividends or other capital account transactions in order to enforce the restrictions against foreign investment
in online education business under the Guidance Catalogue of Industries for Foreign Investment. Revenues generated in the PRC can be
converted into foreign currency to pay salaries of employees located outside of the PRC upon the employee completing registration
procedures. Revenues generated in the PRC can also be used to pay off debt generated outside of the PRC, provided that the Company
completes relevant foreign debt registration or approval requirements. Although the Renminbi has been fully convertible for current account
transactions since 1996, we cannot assure you that the relevant Chinese government authorities will not limit or eliminate our ability to
purchase and retain foreign currencies for current account transactions in the future.
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Conversion of Renminbi into foreign currencies and of foreign currencies into Renminbi for payments relating to “capital account
transactions,” which include among other things investments, loans and acquisitions of land and other fixed assets overseas, generally
requires the approval of SAFE and other relevant Chinese governmental authorities. Restrictions on the convertibility of the Renminbi for
capital account transactions could affect the ability of our Chinese subsidiaries to make investments overseas or to obtain foreign exchange
through debt or equity financing, including by means of loans or capital contributions from us.
Fluctuations in exchange rates could result in foreign currency exchange losses.
Because substantially all of our revenues and expenditures are denominated in Renminbi, fluctuations in the exchange rate between the
U.S. dollar and Renminbi will affect our balance sheet and earnings per share in U.S. dollars. In addition, appreciation or depreciation in the
value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any
underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend
we issue that 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.
The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political
and economic conditions and China’s foreign exchange policies. The People’s Bank of China regularly intervenes in the foreign exchange
market to limit fluctuations in Renminbi exchange rates and achieve policy goals. Very 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 in an effort 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 hedging transactions 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.
Any future outbreak of severe acute respiratory syndrome or avian flu in China, or similar adverse public health developments,
may disrupt our business and operations.
Our business and operations could be materially and adversely affected by the outbreak of avian influenza, severe acute respiratory
syndrome, or SARS, or other similar adverse public health development. In recent years, there have been reports on the occurrences of avian
influenza in various parts of China and neighboring countries, including a few confirmed human cases. China reported the occurrence of a
number of cases of H1N1 virus in China related to the global outbreak of H1N1 that began in the first half of 2009. A new avian flu strain
H7N9 began appearing in China in early 2013, which has reportedly infected over 100 people and killed 23 across multiple provinces in
China as of late April 2013. Any prolonged adverse public health development may result in health or other government authorities requiring
the closure of our offices or the offices of our clients, or the cancellation of exams or classes to avoid students and others from congregating
in closed spaces. Such occurrences would disrupt our business operations and adversely affect our results of operations. We have not
adopted any written preventive measures or contingency plans to combat any future outbreak of avian flu, SARS or any other epidemic.
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Risks Relating to Our ADSs
Our ADS price and the ADS or stock prices of other companies with business operations primarily in China have fluctuated
widely in recent years, which could result in substantial losses to investors.
The trading prices of our ADSs are volatile, and this volatility may continue. For instance, between April 1, 2012 and June 1, 2013,
our ADS price as reported on Nasdaq ranged between a low of $3.18 and a high of $7.45. Numerous factors that are beyond our control
may cause the market price of our ADSs to fluctuate significantly. In particular, the performance and fluctuation of the market prices of other
technology companies with business operations mainly in China that have listed their securities in the United States may affect the volatility
technology companies with business operations mainly in China that have listed their securities in the United States may affect the volatility
in the price of and trading volumes for our ADSs. In recent years, a number of Chinese companies have listed their securities, or are in the
process of preparing for listing their securities, on U.S. stock markets. Some of these companies have experienced significant volatility,
including significant price declines in connection with their initial public offerings. The trading performances of these Chinese companies’
securities at the time of or after their offerings may affect the overall investor sentiment towards Chinese companies listed in the United
States and consequently may impact the trading performance of our ADSs. These broad market and industry factors may significantly affect
the market price and volatility of our ADSs, regardless of our actual operating performance.
In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for specific business
reasons. Factors such as variations in our revenues, earnings and cash flow, announcements of new investments, cooperation arrangements
or acquisitions, and fluctuations in market prices for our services could cause the market price for our ADSs to change substantially. Any of
these factors may result in large and sudden changes in the volume and price at which our ADSs will trade. We cannot give any assurance
that these factors will not occur in the future.
Although publicly traded, the trading market in our ADSs has been substantially less liquid than the ADSs or stock of many
companies quoted on the Nasdaq Global Market, and this low trading volume may adversely affect the price of our ADSs.
Although our ADSs are traded on the Nasdaq Global Market, the trading volume of our ADSs has generally been very low. Reported
average daily trading volume of our ADSs for the three-month period ended May 31, 2013 was approximately 3,914 ADSs. Limited trading
volume will subject our ADSs to greater price volatility and may make it difficult for our shareholders to sell their ADSs at a price that is
attractive to them.
The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.
Sales of substantial amounts of our ADSs in the public market or the perception that these sales could occur, could adversely affect
the market price of our ADSs and could materially impair our future ability to raise capital through offerings of our ADSs.
As of June 26, 2013, there were 46,169,410 common shares outstanding. In addition, there were outstanding options to purchase an
aggregate of 2,747,342 common shares, including options to purchase an aggregate of 2,684,842 common shares immediately exercisable as
of June 26, 2013. All of the ADSs sold in our initial public offering are freely tradable without restriction or further registration under the
U.S. Securities Act of 1933, or the Securities Act, unless held by our “affiliates” as that term is defined in Rule 144 under the Securities Act.
Subject to applicable restrictions and limitations under Rule 144 of the Securities Act of 1933, all of our shares outstanding as of the date of
this annual report eligible for sale in the public market. In addition, the common shares subject to options for the purchase of our common
shares will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up
agreements described below and Rules 144 and 701 under the Securities Act of 1933. If these additional shares are sold, or if it is perceived
that they will be sold in the public market, the trading price of our common shares could decline.
A significant percentage of our outstanding common shares are held by a small number of our existing shareholders, and these
shareholders may have significantly greater influence on us and our corporate actions by nature of the size of their shareholdings
relative to our public shareholders.
Three of our existing shareholders, Kevin Xiaofeng Ma, Lijun Mai and SB Asia Investment Fund II L.P., beneficially own,
collectively, approximately 55.5% of our outstanding common shares as of June 26, 2013. SB Asia Investment Fund II L.P. has one board
representative on our five-director board, and beneficially owns approximately 33.0% of our outstanding common shares as of June 26,
2013. Accordingly, these shareholders have had, and may continue to have, significant influence in determining the outcome of any corporate
transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all
of our assets, election of directors and other significant corporate actions. In addition, without the consent of these shareholders, we could be
prevented from entering into transactions that could be beneficial to us.
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Anti-takeover provisions in our organizational documents may discourage our acquisition by a third party, which could limit
your opportunity to sell your shares at a premium.
Our amended and restated memorandum and articles of association include provisions that could limit the ability of others to acquire
control of us, modify our structure or cause us to engage in change of control transactions, including, among other things, the following:
· provisions that provide for a staggered board which operates to prevent a third party from obtaining control of our board in a
relatively short period of time because at least two annual shareholders’ meetings, instead of one, would generally be required to effect
a change in majority of the board.
· provisions that restrict the ability of our shareholders to call meetings and to propose special matters for consideration at shareholder
meetings; and
· provisions that authorize our board of directors, without action by our shareholders, to issue preferred shares and to issue additional
common shares, including common shares represented by ADSs.
These provisions could have the effect of depriving you of an opportunity to sell your ADSs at a premium over prevailing market
prices by discouraging third parties from seeking to acquire control of us in a tender offer or similar transactions.
prices by discouraging third parties from seeking to acquire control of us in a tender offer or similar transactions.
The voting rights of holders of ADSs must be exercised in accordance with the terms of the deposit agreement, the ADRs, and
the procedures established by the depositary. The process of voting through the depositary may involve delays that limit the time
available to you to consider proposed shareholders’ actions and also may restrict your ability to subsequently revise your voting
instructions.
A holder of ADSs may exercise its voting rights with respect to the underlying common shares only in accordance with the
provisions of the deposit agreement and the ADRs. We do not recognize holders of ADSs representing our common shares as our
shareholders, and instead we recognize the ADS depositary as our shareholder.
When the depositary receives from us notice of any shareholders meeting, it will distribute the information in the meeting notice and
any proxy solicitation materials to you. The depositary will determine the record date for distributing these materials, and only ADS holders
registered with the depositary on that record date will, subject to applicable laws, be entitled to instruct the depositary to vote the underlying
common shares. The depositary will also determine and inform you of the manner for you to give your voting instructions, including
instructions to give discretionary proxies to a person designated by us. Upon receipt of voting instructions of a holder of ADSs, the
depositary will endeavor to vote the underlying common shares in accordance with these instructions. You may not receive sufficient notice
of a shareholders’ meeting for you to withdraw your common shares and cast your vote with respect to any proposed resolution, as a holder
of our common shares. In addition, the depositary and its agents may not be able to send materials relating to the meeting and voting
instruction forms to you, or to carry out your voting instructions, in a timely manner. 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. The additional time required for the depositary to receive
from us and distribute to you meeting notices and materials, and for you to give voting instructions to the depositary with respect to the
underlying common shares, will result in your having less time to consider meeting notices and materials than holders of common shares
who receive such notices and materials directly from us and who vote their common shares directly. If you have given your voting
instructions to the depositary and subsequently decide to change those instructions, you may not be able to do so in time for the depositary to
vote in accordance with your revised instructions. The depositary and its agents will not be responsible for any failure to carry out any
instructions to vote, for the manner in which any vote is cast or for the effect of any such vote.
Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote our common shares
underlying your ADSs if you do not vote at shareholders’ meetings, which could adversely affect your interests.
Under the deposit agreement for the ADSs, the depositary will give us a discretionary proxy to vote our common shares underlying
your ADSs at shareholders’ meetings if you do not vote, unless we notify the depositary that:
· we do not wish to receive a discretionary proxy;
· we think there is substantial shareholder opposition to the particular question; or
· we think the subject of the particular question would have a material adverse impact on our shareholders.
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The effect of this discretionary proxy is that, absent the situations described above, you cannot prevent our common shares underlying
your ADSs from being voted and it may make it more difficult for shareholders to influence the management of our company. Holders of
our common shares are not subject to this discretionary proxy.
You may not receive distributions on our common shares or any value for them if such distribution is illegal or if any required
government approval cannot be obtained in order to make such distribution available to you.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian for our ADSs
receives on our common shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in
proportion to the number of our common shares your ADSs represent. However, the depositary is not responsible to make a distribution
available to any holders of ADSs if it decides that it is unlawful to make such distribution. For example, it would be unlawful to make a
distribution to a holder of ADSs if it consisted of securities that required registration under the Securities Act but that were not properly
registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution
available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after
reasonable efforts made by the depositary. We have no obligation to take any other action to permit the distribution of our ADSs, common
shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our common
shares or any value for them if it is unlawful or unreasonable from a regulatory perspective for us 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 ADRs are transferable on the books of the depositary. However, the depositary may close its books at
any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books
from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the
depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in
emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs
generally when the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any
generally when the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any
requirement of law or any government or government body, or under any provision of the deposit agreement, or for any other reason.
We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under
Cayman Islands law than under U.S. federal or state laws, you may have less protection of your shareholder rights than you would
under U.S. federal or state laws.
Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Cayman Islands
Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by
minority 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, which has persuasive, but not binding, authority 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 than the United States. In addition, some jurisdictions, such as Delaware, have more fully
developed and judicially interpreted bodies of corporate law than the Cayman Islands. As a result of all of the above, public shareholders
may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or
controlling shareholders than they would as public shareholders of a U.S. company.
Certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company and substantially all of our assets are located outside of the United States. Nearly all of our current
operations are conducted in China. In addition, most of our directors and officers are nationals and residents of countries other than the
United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for
you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. court
judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and
directors, none of whom is resident in the United States and the substantial majority of whose assets is located outside of the United States.
In addition, there is uncertainty as to whether the courts of the Cayman Islands or China would recognize or enforce judgments of U.S.
courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In
addition, there is uncertainty as to whether such Cayman Islands or Chinese courts would be competent to hear original actions brought in
the Cayman Islands or China against us or such persons predicated upon the securities laws of the United States or any state.
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Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make
rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act
or an exemption from the registration requirements is available. 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.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Our predecessor company, American Testing Authority, Inc., a New York company, began operations in 1999, and in that same year
established ATA Testing Authority (Beijing) Limited, or ATA Testing, as a wholly owned subsidiary in China. In November 2001, our
founders established ATA Testing Authority (Holdings) Limited, or ATA BVI, in the British Virgin Islands. The following year American
Testing Authority, Inc. merged into ATA BVI and ATA BVI became our holding company.
In June 2003, we established a Chinese joint venture company, ATA Learning (Beijing) Inc., or ATA Learning, with Yinchuan
Economic and Technological Development Zone Investment Holding Co. Ltd., or Yinchuan Holding. Initially, we held a 40% equity interest
in ATA Learning. In May 2005, we acquired Yinchuan Holding’s 60% equity interest and converted ATA Learning into a wholly owned
subsidiary of ATA BVI.
We incorporated ATA Inc. in the Cayman Islands in September 2006 as our listing vehicle. ATA Inc. became our ultimate holding
company in November 2006 when it issued shares to the existing shareholders of ATA BVI in exchange for all of the outstanding shares of
ATA BVI.
In February 2009, we completed the acquisition of the entire equity interest of Beijing Jindixin Software Technology Company
Limited, or Beijing JDX, and JDX Holdings Limited, or JDX BVI, which are related companies incorporated in China and the British
Virgin Islands, respectively, engaged in the development and marketing of software for computer-based tests. JDX BVI was dissolved in
October 2009.
For additional information on our organizational structure, see Item 4.C. “Organizational Structure.”
Our principal executive offices are located at 8th Floor, Tower E, 6 Gongyuan West Street, Jian Guo Men Nei, Beijing 100005,
Our principal executive offices are located at 8th Floor, Tower E, 6 Gongyuan West Street, Jian Guo Men Nei, Beijing 100005,
People’s Republic of China, and our telephone number is (86-10) 6518-1122. Our web site address is http://www.ata.net.cn. The
information on our web site does not form a part of this annual report. On February 1, 2008, we completed our initial public offering, which
involved the sale by us of 4,874,012 of our ADSs, representing 9,748,024 of our common shares. Our agent for service of process in the
United States in CT Corporation System, located at 111 Eight Avenue, New York, New York 10011.
B. Business overview
Overview
We believe that we are the leading provider of computer-based testing services in China, based on test delivery capacity and
geographic coverage. We offer comprehensive services for the creation and delivery of computer-based tests utilizing our nation-wide test
delivery platform, proprietary testing technologies and extensive experience providing testing services in China. Our computer-based testing
services are used for professional licensure and certification tests in various industries, including IT services, banking, securities, teaching
and insurance. Our computer-based testing services clients principally include professional associations, such as the SAC, China Banking
Association and China Futures Association, and Chinese governmental agencies, including the PRC Ministry of Human Resources and
Social Security.
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Our test center network, which we believe is the largest test center network of any commercial testing service provider in China,
comprised 2,804 authorized test centers located throughout China as of March 31, 2013. Combined with our test delivery technologies, this
network allows our clients to administer large-scale nationwide computer-based and paper-based tests in a consistent, secure and cost-
effective manner. From our inception in 1999 through March 31, 2013, we have delivered approximately 59.2 million tests, including
approximately 11.4 million free tests for business development purposes. Over the course of two days on October 13 and October 14, 2012,
we delivered tests to more than 1.3 million test takers for the CPA, demonstrating our ability to administer computer-based tests across the
country on a massive scale through our nationwide test delivery platform. During the fiscal year ended March 31, 2013, approximately 9.3
million tests were delivered using our computer-based testing technologies and services.
Our proprietary computer-based testing technologies include our E-testing platform for delivering computer-based tests and our
content creation and management technologies. Our E-testing platform is composed of a set of self-developed tools and applications for
facilitating the computer-based testing process, and is capable of handling large-scale tests and quickly and securely transmitting, processing
and storing large amounts of data. Our self-developed test content creation and management technologies include our Dynamic Simulation
Technology, an advanced performance-based testing technology which leading IT certification sponsors, including Microsoft, have adopted
for their computer-simulated tests given around the world. We have also developed content creation technologies for the conversion of paper-
based tests into computer-based formats and a new mobile testing platform to make test administration easier and cheaper.
Leveraging our testing platform, technologies and expertise, we have expanded our service offerings beyond our core computer-based
testing services to include other test-focused services. We offer targeted test preparation and training solutions for certain professional
licensure and certification tests in the securities and teaching industries. ATA Online has launched online training web sites in coordination
with the SAC and the China Futures Association to help candidates across China attain continuing educational requirement after their
professional licensure and certification tests, which are delivered through our test delivery platform. In March 2009, we launched HR Select,
our self-developed online system that utilizes our proprietary software and a large inventory of test titles to assist companies in streamlining
and optimizing their employee selection and assessment processes. HR Select offers tools for filtering and categorizing employee candidates,
testing candidates and analyzing the test results. Since March 2009, we have been the exclusive agent for delivering the Test of English for
International Communication, or TOEIC, in China.
Our total net revenues increased from RMB303.9 million in the fiscal year ended March 31, 2011 to RMB352.1 million in the fiscal
year ended March 31, 2012 and RMB366.7 million ($59.0 million) in the fiscal year ended March 31, 2013. We had net income of
RMB19.8 million in the fiscal year ended March 31, 2011, RMB55.8 million in the fiscal year ended March 31, 2012 and RMB23.2 million
($3.7 million) in the fiscal year ended March 31, 2013.
Our Test Delivery Platform and Technologies
We offer our clients a comprehensive platform and suite of technologies for the development and delivery of computer-based tests.
Our E-testing platform integrates all aspects of the test delivery process for computer-based tests, from test form compilation to test scoring
and results analysis. Our test delivery services are further enhanced by our nation-wide network of test centers, which allows us to deliver
both computer-based and paper-based tests on a large scale in a consistent, secure and cost-effective manner. We also offer our clients
advanced technologies and software applications for the creation of sophisticated computer-based tests, including advanced performance-
based tests. While we still offer a choice between paper-based testing and computer-based testing for our institutional clients, currently all of
our national public exams are delivered using computer-based testing, and we expect the trend towards computer-based exams to continue in
the future. For example, we successfully helped the General Administration of Customs, or China Customs, to transfer from paper-based
testing to computer-based testing for its unified national customs declarer certification test in 175 cities in November 2011. By combining our
advanced test content creation technologies with our test delivery platform and network of test centers, we can offer our clients a
comprehensive and integrated solution to enhance the effectiveness of the entire testing process, as shown in the following diagram.
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Our E-Testing Platform
Our E-testing platform incorporates a number of technologies and protocols designed to ensure the stable, cost-effective, secure,
accurate, fast and easy-to-manage delivery of computer-based tests on a large scale. It is flexible and is easily customized for many types of
test content and the specific requirements of the test sponsor. Tests delivered through our E-testing platform may be conducted at our ATA
authorized test centers or at other locations at the test sponsor’s discretion. Our E-testing platform is composed of a set of tools and
applications for facilitating the computer-based testing process, including a network sub-system for managing and transferring test content,
test taker information and test results data in a secure and efficient manner. Our E-testing platform software applications are designed to
handle large-scale testing environments and are capable of transmitting, receiving, processing and storing large amounts of information in a
short time span. We currently have the capability to deliver more than 1,000,000 tests per day using our 75 servers, which can be increased
to enlarge capacity. We periodically upgrade our equipment and software applications to handle increasing testing volume as required.
Our ATA Authorized Test Center Network
To help our clients reach a broad base of test takers, we have established a large network of authorized test centers across China and
in Macao, which we refer to as our ATA authorized test centers. As of March 31, 2013, we had contractual relationships with 2,804 ATA
authorized test centers, of which 1,929 hosted tests delivered through our testing platform within the last 24-month period and 1,506 possess
the right to use our “ATA” brand name and logo. Our network of ATA authorized test centers provides the means for delivering and
administering tests nationally both simultaneously and on a regularly scheduled basis under consistent and secure testing conditions.
The following map shows the geographic distribution of our ATA authorized test centers as of March 31, 2013:
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Extensive Network of Test Centers
We do not own any of our ATA authorized test centers but instead enter into a standard form of contract with qualified independent
operators to act as ATA authorized test centers. Most of our ATA authorized test centers are owned by Chinese vocational schools, which
we believe enhances the quality and dependability of the centers. Under our contracts with the test centers, we license our ATA E-testing
platform technology and provide ongoing technical support and training during the contract period. We require each test center to provide
sufficient facilities to properly administer computer-based tests and to follow prescribed guidelines for facility maintenance and test
administration. We also conduct regular reviews of their facilities and operations. We assist our clients in liaising and coordinating testing
arrangements with our ATA authorized test centers.
Our ATA authorized test centers are divided into general test centers, which offer a wide range of tests and have the right to use our
“ATA” brand name and logo, and special test centers with which we enter into contracts to carry out specific tests for specific test sponsor
clients. We receive license fees from our general test center operators in the form of either a single initial license fee or a combination of initial
license fee and annual continuing license fees. Under either fee arrangement, our licensees can extend their licensing agreement with us
indefinitely.
Our Test Content Creation and Management Technologies
We offer our clients advanced technologies and software applications for the creation of sophisticated computer-based tests, including
advanced performance-based tests.
Our Dynamic Simulation Technology is a performance-based testing technology that provides the format for creating, illustrating,
running and scoring tests in a virtual computer environment that accurately and realistically simulates the operating environment and
functions of the software applications being tested without requiring the installation or use of those applications. Our Dynamic Simulation
Technology is designed to provide maximum interactivity and allow the test taker to perform tasks in the simulated environment and operate
through multi-level testing paths. The current version of Dynamic Simulation Technology, version 5.0, is an interpreter-based simulation
technology, which represents our fifth generation of simulation testing technologies.
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Interpreter-based simulation offers high flexibility, adaptability to most applications, low disk space usage and short lead times for
developing new tests once the system is in place. Based on feedback from our clients, we believe that we are the only company in the world
that has developed and marketed interpreter-based simulation technology for testing and educational use. For this reason, we believe that our
Dynamic Simulation Technology is the world’s leading technology for the creation and illustration of performance-based tests through
simulation. Currently content of over eight languages have been delivered through this technology around the world.
We have also developed two non-simulation testing technologies: Real Environment Technology and ATA Markup Language. Our
Real Environment Technology is used for creating and running performance-based tests and learning exercises that track and score within the
actual operating system or software application being tested. We have also developed our ATA Markup Language for the creation and
actual operating system or software application being tested. We have also developed our ATA Markup Language for the creation and
illustration of knowledge-based test items that require the test taker to respond to specific questions in a traditional question-and-answer
format. While less sophisticated than our performance-based testing technologies, ATA Markup Language remains a key technology for our
large base of clients who contract with us for the conversion of paper-based tests to computer-based tests. In addition, many performance-
based tests also include traditional multiple-choice questions created and run by our ATA Markup Language and related software
applications.
We have developed test item authoring tool applications for our Dynamic Simulation Technology, Real Environment Technology and
ATA Markup Language. We have also developed other authoring tools, such as user interface cloning and translation software, for
increasing the efficiency of the test content creation and revision process. To meet individual client needs, we have developed test engine
applications for integrating tests using our testing technologies on multiple testing platforms. For instance, we have developed test engine
applications that allow running Dynamic Simulation Technology tests on our own test delivery platform, on Microsoft’s test port and on
other test platforms.
We have developed a mobile test administration platform to service our clients called the Mobile Testing Service, or MTS, which we
believe significantly enhances the security and efficiency and cost-effectiveness of test administration. Our mobile platform has already been
deployed for use in our administration of the Cambridge Computer-based Young Learners Exam in Hong Kong, and we expect it to garner
widespread use in the future.
All of our computer-based testing technologies have been developed in-house, and none incorporates any third-party intellectual
property.
In addition to incorporating our technologies into our test service offerings, we also directly generate revenue from our Dynamic
Simulation Technology and related simulation authoring tools by licensing them to international IT certification sponsors, such as Microsoft,
Citrix and CompTIA for the creation of test items and test preparation course exercise items delivered to students and test takers all over the
world.
Our Service Offerings
Testing Development and Delivery Services
Computer-based test authoring, delivery and result analysis services. Our test delivery platform and technologies allow us to offer
our clients a comprehensive set of services for the authoring, delivery and analysis of computer-based tests as well as logistical services
such as test registration, scheduling and fee collection. We have assisted our clients with creating and delivering a wide range of computer-
based tests, including professional association or licensure tests required by governmental agencies for positions within various
governmental agencies or industry associations that test the competence of individuals who operate in certain industries that require
technical expertise and which carry professional titles, such as:
· the National Unified Certified Public Accountants Exam, designed and regulated by the CICPA;
· the Certification of China Banking Professionals Exam, designed and regulated by the CBA under the supervision of the China
Banking Regulatory Commission;
· the Qualifications Exam for Individuals Engaged in the Securities Industry, designed and regulated by the SAC under the supervision
of the China Securities Regulatory Commission;
· the Security Fund Exam, designed and regulated by the SAC under the supervision of the China Securities Regulatory Commission;
· the National Security Guard Exam, designed and regulated by the Ministry of Public Security of the People’s Republic of China;
· IT vendor tests that assess the technical skills and competence of IT professionals in relation to specific types of IT applications,
computer operating systems or other IT skill sets, and that allow test takers to obtain a professional license or certification in a specific
subject area, job title or career path; and
· corporate assessment services for large scale/daily recruitment and internal personnel assessment purposes.
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Utilizing our comprehensive and advanced item authoring system and rendering technologies, we assist our clients in developing
sophisticated computer-based tests, including performance-based items. Creation of effective and user-friendly computer-based tests involves
a multi-step process:
· Test design. Our content development consultants work together with the client to determine the test purpose, target audience, test
objectives and required competency level to formulate an overall test blueprint. We then arrange for the client to work with our subject
matter experts, or to engage outside subject matter experts with specific experience in the subject area, to work with us on the scope of
knowledge covered by the test and to design and author specific testing items for required knowledge points.
· Test item authoring. Based on the test blueprint and using our advanced test engine technologies, we work together with subject
matter experts to create test items designed to determine a test taker’s proficiency and speed in solving both practical and conceptual
problems. The test items are designed to support immediate test scoring and results analysis. Test items generally fall into two types:
traditional items and performance-based items. Once all of the test items have been created, our content development consultants and
subject matter experts commence a review process to ensure the validity of each test item, clarity of language and overall quality. All of
the test items are then deposited in a master test item pool.
· Test form and item bank construction. Once the test items are ready, we tag parameters to test items for building up test item banks,
which enable test forms to be formulated. Test forms with equal level of difficulty are generated from the test item bank based on the
pre-defined blueprint of the test to ensure fairness across test forms.
· Final user acceptance beta test. Before publication, the test undergoes a final user acceptance beta test during which volunteer test
takers take the test and provide feedback. Based on the test results from the beta test, we are able to evaluate the efficacy of the test,
eliminate problematic test items and otherwise fine tune the test items to ensure quality.
· Continuous upgrades through result analysis and user feedback. As we deliver tests in real-world environments, we monitor and
analyze the quality and adequacy of the test content and implement upgrades as we develop or adopt new technologies and techniques.
We also communicate with test users and collect feedback from the test sponsors and test takers to ensure that desired improvements
are made in a timely manner.
Depending on the client’s needs, we perform some or all of the above services to each client. For example, in some cases, clients may
have already created all of the test items and may only require us to build the test using our ATA E-testing platform. Computer-based tests
can also be scheduled on an on-demand basis, or as regularly scheduled tests, which must be prescheduled and taken by test takers at a
designated time.
Our computer-based testing delivery services generally include the following, subject to the test sponsor’s specific needs:
· installing our ATA E-testing platform on the client’s computer system to enable centralized administrative tasks to be implemented for
the test or, in the case of repeat clients, updating the platform as necessary, for new tests;
· providing technical support throughout the test administration process;
· updating test session information and performing test rehearsals and final testing environment inspection;
· implementing the test sessions and collecting responses from candidates; and
· processing test scores, summarizing and analyzing test scores and generating results.
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We also offer a number of logistical support services relating to test administration that we incorporate into the testing fee for our test
delivery platform based on client’s customized needs. These support services include:
· managing test taker registration and scheduling;
· managing test taker fee collection;
· preparing and conducting pre-test training of personnel at each ATA authorized test center;
· providing test data management, such as test score publishing and inquiry; and
· preparing and delivering certificates for test takers who have satisfied the test sponsor certification requirements.
We usually offer test content creation services and test delivery services as an integrated solution and collect a fixed fee per test per
test taker. The fee we charge depends on the length and complexity of the test, the amount of effort it takes to transform the testing content
into a computer-based test format and other factors in the test development and administration process, such as security levels and the amount
of logistical services provided.
Distribution and administration of TOEIC exams in China. Since March 2009, we have become the exclusive distributor and test
administrator of TOEIC exams in China, which are operated by ETS, the world’s largest educational research and assessment organization.
Originally designed in 1979 by ETS for governmental agencies and corporations, TOEIC measures the ability of non-native speakers of
English to communicate in English in the workplace. According to ETS, the TOEIC exam is being used by over 14,000 companies,
government agencies and English language learning programs in 150 countries, with around seven million TOEIC exams administered
around the world last year. TOEIC has become the top professional English language assessment tool in the world, according to ETS.
TOEIC tests include large-scale tests open to the general public for a set fee as well as on-demand tests given for specific enterprises
or organizations. We administered our first TOEIC exam in three cities in China in March 2009. We collect a per-test taker fee for each test
delivered. TOEIC exams in China used to be only available in a paper-based format, but since August 2011, we began also delivering
delivered. TOEIC exams in China used to be only available in a paper-based format, but since August 2011, we began also delivering
computer-based TOEIC exams through our ATA authorized test center network and expect this trend towards more computer-based exams
to continue in the future.
Distribution and administration of ACT exams in China. We entered into a three-year Master Agreement in October 2012 with
ACT, Inc. (“ACT”) to distribute and market certain ACT test titles and assessment-related products. Under a separate addendum signed on
the same day, we will administer the ACT college admission test at test centers operated by ATA and schools running the Global
Assessment Certificate Program in China, and collect a per-test taker fee for each test delivered.
Distribution and administration of Cambridge tests. We entered into an exclusive ten-year Master Distribution and Services
Agreement in March 2013 with The Chancellor, Masters and Scholars of the University of Cambridge (“Cambridge”), an affiliate of the
University of Cambridge which has the largest dedicated research department of any UK-based language assessment organization. Under
this agreement, we will develop, host, market, and distribute certain Cambridge tests and collect a per-test taker fee for each test delivered. As
of March 31, 2013, we have enabled the delivery of 49 of its Computer-based Young Learners Exam (“CBYLE”) in Hong Kong with ATA
testing technologies and expect to expand delivery of this and other Cambridge test titles in the future through ATA testing technologies.
Test Preparation and Training Solutions
We offer test preparation and training programs and services to test candidates preparing to take professional certification tests as well
as candidates aiming to fulfill their continuing educational requirement after passing their licensure exams in these industries. Our test
preparation and training solutions integrate our testing and assessment technologies with test preparation and training content targeted at
professional licensure and certification tests in China.
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Online test preparation and training platform for the securities and banking industries. Leveraging the increased scale of ATA-
delivered securities certification test, ATA Online launched an online test preparation Internet web site in coordination with the SAC to
provide a flexible and scalable platform aimed at helping candidates across China to fulfill their Continuous Professional Development
(CPD) requirement after passing their professional licensure and certification tests delivered by ATA. Test preparation and training
customers gain access to Internet web sites that contain the latest training materials provided by the test sponsors and streaming video
teaching sessions and practice tests developed by ATA. Since December 2011, the SAC has been in the process of assessing the feasibility
to run its online training program internally rather than outsourcing its operation to us. In place of our previous contract under which we
operated the online training program on behalf of the SAC, we entered into a contract under which we provided technical and services
support during the assessment period. We are currently providing data transfer services to the SAC, upon the completion of which we will
earn revenue of RMB 1.0 million. We do not expect any further revenue from providing test preparation services to the SAC subsequent to
our completion of these data transfer services.
Cambridge ESOL Young Learners English online tutorials. In September 2008, we entered into a business partnership with the PRC
Ministry of Education to develop and provide online tutorials to students enrolled in Cambridge ESOL’s “Cambridge Young Learners
English” programs in China. The tutorials contain audio-visual study aids and practice items that we have developed in conjunction with the
Institute of Online Education of Beijing Foreign Studies University. We began earning revenues from these online tutorials in
September 2009.
HR Select Employee Assessment Solution
In March 2009, we launched our self-developed “HR Select” employee assessment solution. HR Select is an online system that
utilizes our proprietary software and a large inventory of test titles to help employers in China maximize the efficiency and accuracy of their
employee recruitment process. HR Select covers the entire employee selection process from resume filtering to talent assessment and skills
testing to test results analysis.
HR Select incorporates sophisticated database technologies for retaining and categorizing key candidate data, allowing human
resource managers to effectively and efficiently process and filter a large number of candidate resumes. More importantly, we believe HR
Select as a platform for testing, comparing and analyzing general, industry-specific and job title-specific capabilities and skill-sets makes it a
unique offering in the market. Employers using HR Select can choose to adopt any of a multitude of evaluation parameters, including:
· General work skills, including among others foreign language skills, software application skills, management skills, reading
comprehension ability and data processing skills;
· Position-specific skills, including customized tests for IT, finance, management, customer service, administrative and sales positions;
and
· Compatibility traits, which look at non-skills elements that indicate a candidate’s likelihood of success, such as personal values, self-
image, self-motivation and other personality traits.
HR Select leverages our computer-based testing technologies and expertise to allow employers to evaluate candidates on each of these
parameters and to analyze and categorize the results to make effective recruitment decisions. We have also leveraged our particular expertise
in certain industries where we have been delivering computer-based tests and educational services, including the IT and finance industries, to
provide targeted services to employer clients. HR Select currently offers tailored evaluation tests for 600 positions with over 260 evaluation
modules. For example, TOEIC and Saville, which is a career aptitude test, are available via the HR Select service to assess a candidate’s
business English skill and job aptitude, respectively. Employers may adopt ready-made tests available in the HR Select system, or use their
business English skill and job aptitude, respectively. Employers may adopt ready-made tests available in the HR Select system, or use their
own self-developed tests. If they use their own tests, they can choose to keep the test confidential or permit other HR Select clients to view
the tests. By allowing test content to be shared, we believe HR Select can facilitate the standardization of recruitment criteria within
industries. HR Select incorporates our computer-based testing technologies to allow clients to deliver the evaluation tests online in a secure,
accurate and easy-to-manage manner. HR Select can be administered at ATA authorized test centers or via our customized online platform.
Our current HR Select clients principally include large domestic and foreign-invested companies in highly skill-intensive industries
such as insurance and banking. By the end of the fiscal year ended March 31, 2011, the four largest Chinese state-owned banks have all
become customers of our computer-based testing services that incorporate our HR Select solution. We expect to market HR Select to the
large and growing small- and medium-enterprise market in China where recruitment resources are limited and where the consequences of
poor hiring decisions are greater. Pricing starts at a volume-limited annual subscription, with additional fees charged depending on the
volume, specific test titles utilized and whether ATA authorized test centers are used.
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To complement our HR Select offerings, we signed an exclusive ten-year partnership agreement with Saville Consulting, a global
human resources assessment firm whose products are available in over 80 countries, in August 2011 to deliver Saville’s unique and
proprietary psychometric measurement instruments and specialized aptitude tests through our testing platform. Saville’s psychometric
assessment has enhanced our HR Select product portfolio and moved us one step closer to our goal of being a premium provider of
international, brand name test content.
Career-Oriented Educational Services
Our career-oriented educational services include single course programs, degree major course programs and pre-occupational training
programs focusing on preparing students with skills for particular job titles and to pass IT and other vocational certification tests. Each single
course program we offer is typically centered on a specific type of computer software application or other technology that requires significant
training and practice to master and for which certification is offered. Our degree major course programs are designed to help graduates
prepare for particular types of jobs and career paths. These programs are essentially combinations of multiple single course programs
designed to help students acquire a cluster of skill sets. In general, the entire degree major course program can be completed within two to
three years and comprises all courses necessary for the student’s college major. Our pre-occupational training programs provide students
with a simulated internship environment replicating what these students would experience in an actual internship and that are designed to
prepare students for actual job positions. A typical pre-occupational training program will last for two to three months.
Data Storage and Security
One of the most important aspects of our computer-based testing services is ensuring the integrity and security of the test-taking
process. To accomplish this, we use multiple technologies and methods to ensure the security of test content, test results and other sensitive
data used or obtained in relation to our services.
We have developed and implemented the following technologies and measures to protect security throughout all stages of test
development and delivery:
Preparation and Storage of Test Items
To reduce the risks associated with potential unauthorized disclosure or misuse of test questions by ATA personnel during the
process of creating test item banks, we divide test item authoring and management tasks among multiple persons and limit each person’s
access to the test item content through the use of access permissions. Each test item author is only responsible for creating a limited amount
of test item content and is permitted access only to that content for which that person is responsible. As a result, no one has full access to the
contents beyond his or her scope of work. Test item bank managers receive limited permissions and are not given access to view the content
of individual test items. Moreover, our test item authoring and test item bank management tools record and track all access and modifications
to test items or the test item pool to detect any breaches to the security protocols. Once the test item banks are created, the content is encrypted
and stored on our secure central servers or the client’s servers. Our servers are located in a central machine room operated by one of the most
well-established server hosting service providers in China. These servers are protected by firewalls and stored using NetApp TM equipment,
which permits real-time back-up. We encrypt all test item banks using our self-developed encryption algorithm, which prevent decryption or
reverse engineering through the use of electronic fingerprinting, anti-tracking and trapping technologies.
Creation of Test Forms and Transmission of Test Materials to the Test Site
Our software applications automatically compile individual test forms from the test item bank according to the test blueprint and pre-
arranged parameters. During this process, no access or viewing of the content of individual test items is permitted and all steps in the process
are digitally recorded. The encrypted test forms are delivered to the test site’s server either on hard disc or through a secure network,
generally one day before the day of the test. The relevant information on each test taker is separately transferred in encrypted format to the
test site via the Internet. A hardware dongle containing an encrypted time stamp is used to ensure that the test begins and ends on time. A
hardware dongle is a hardware device that must be inserted into the USB port of the test site’s central computer to decrypt and operate the
test content. We design our own hardware dongles, which incorporate ATA-owned integrated circuit technology, and outsource its
production to multiple factories in China. A decryption algorithm used along with the hardware dongle to complete decryption of test
materials and commence the test.
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Conduct of the Test
We train all test center personnel on protocols and supervision techniques to be used during test time. Test center administrators
confirm test takers’ identities through photographs, fingerprints and other biometric data. We also issue to each test taker upon registration a
password that must be inputted on the test day to start the test. Once the test session has begun, software installed as part of each test tracks
all actions and operations taken during the test and records them on the test site central server in real time. The testing software prevents test
takers from accessing any network during test time. When a test taker opens up a question, it is decrypted and displayed. To protect against
cheating, we have invested in surveillance equipment and the order in which test answer choices appear is randomly generated with each
answer choice encoded as a unique number and letter chain. Immediately upon the test taker’s completion of each test item, the recorded data
is re-encoded and re-encrypted.
Transmission, Reading and Storage of Test Results
In most instances, tests are scored on the test site server immediately following conclusion of the test and subsequently uploaded to
our central servers. All transferred data is encrypted and data code integrity is verified using MD5 and Hash technologies. Following
scoring, we store all test content and results on our firewall-protected central servers.
Intellectual Property
Intellectual property protections, including copyrights, trademarks, patents, and trade secrets are important to our success. We rely on
copyright, trademark and patent law, trade secret protection and confidentiality agreements with our employees, clients, business partners and
others to protect our intellectual property rights. All of our senior management and engineering employees are required to sign agreements
acknowledging that all inventions, trade secrets, works of authorship, innovations and other processes generated by them that relate to our
business are our property, and to assign to us any ownership rights in those works. Despite our efforts, it may be possible for third parties to
obtain and use our intellectual property without authorization.
We have registered 132 software copyrights relevant to our product and service offerings with the Copyright Protection Center of
China.
As of March 31, 2013, we have also registered 207 domain names relating to our web sites, including www.ata.net.cn, the primary
URL for our web site, with the Internet Corporation for Assigned Names and Numbers and the China Internet Network Information Center,
a domain name registration service provider in China.
We have also sought patent protection relating to our testing technology. On February 22, 2013, we submitted two applications with
China’s State Intellectual Property Office seeking dual invention patent protection and utility model protection for our testing transmission
technology. We expect to obtain approval within approximately 18 months for the invention patent and within approximately six months for
the utility model patent from the date of the application. Once approved, we are entitled to a protection period of 20 years for the invention
patent and 10 years for the utility model patent starting from the date of application. In addition, our testing technologies also enjoy protection
in China as trade secrets under China’s Anti-Unfair Competition Law.
Clients
The quality and flexibility of our product and service offerings has attracted a broad base of clients. Our clients principally include
Chinese governmental agencies, professional associations, well-known IT vendors and Chinese educational institutions as well as individual
test preparation services consumers. The SAC, CBA and CICPA accounted for 23.0%, 16.5% and 14.8%, respectively, of our total net
revenues for the fiscal year ended March 31, 2013. No other client accounted for more than 10% of our total net revenues for the fiscal year
ended March 31, 2013.
As of March 31, 2013, we had 512 contracts with test sponsors for our computer-based testing services. For the fiscal year ended
March 31, 2013, our five largest computer-based testing services clients based on revenue were:
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· the SAC, which has been designated by the China Securities Regulatory Commission as the sole administrator of securities industry
qualification tests in China;
· the CBA, which has been designated by the China Banking Regulatory Commission as the sole administrator of banking industry
qualification tests in China;
· the CICPA, which has been designated by Ministry of Finance of the People’s Republic of China as the sole administrator of CPA
qualification tests in China;
· the Professional Skills Qualification Center of the PRC Ministry of Human Resources and Social Security; and
· Agricultural Bank of China.
These five clients represented an aggregate of 65.0% of our total net revenues for the fiscal year ended March 31, 2013.
Sales and Business Development
Our sales and business development department, primarily composed of members of our senior management and professional sales
team, is responsible for identifying and developing new markets and client opportunities for our product and service offerings. For our
computer-based testing services, we target key governmental agencies, professional associations, enterprises and other potential clients to
help them develop standardized certification, qualification or assessment policies. Once we have identified a potential client, we generally
submit an initial proposal outlining the services we can provide based on our analysis of their test-related needs. We may develop and
conduct trial tests tailored to the client’s needs based on the terms of a memorandum of understanding signed with the client. We generally
enter into a final contract with the client only after successful completion of the trial tests. During this process, we also actively seek
opportunities to cross-sell and up-sell our services, including test preparation services and ancillary testing services to the client. The
following diagram illustrates the key stages in our testing services business development process.
Marketing
To generate demand and market awareness, we engage in a variety of marketing activities to promote our product and service
offerings. We host and invite potential clients, such as key governmental agencies and governing bodies, to industry conferences on topics
such as the development of computer-based testing technologies. We also attend conferences and trade shows to demonstrate and promote
our technologies and product and service offerings. We conduct marketing for our career-oriented educational services through promotional
activities in cooperation with local governmental departments and educational institutions and through our local sales agents. Our on-campus
marketing activities include promoting the IT vendors’ certification tests together with our course programs and other career-oriented
educational services, while linking both to our “ATA” brand name, through prominently placed marketing materials like posters and other
advertising means. We promote wider recognition of our “ATA” brand by placing our logo prominently outside ATA authorized test centers
and in test and course program materials. We are also developing joint marketing efforts with certain independent operators of our ATA
authorized test centers.
Competition
In the computer-based testing services market, we compete primarily on the basis of technology, price, management experience and
established infrastructure. We believe that our overall testing services and technologies, along with our nationwide test center network,
provide us with a competitive advantage. We believe that we are currently the market leader in computer-based testing services in China due
to the combination of our experience in and familiarity with the China computer-based testing services market, our advanced technology, our
large nationwide network of test centers, our established relationships with key test sponsors and governmental agencies and our competitive
cost levels.
We believe that we have the largest test center network of any commercial computer-based testing service provider in China. We had
2,804 authorized test centers in China, including centers in every province in China, as of March 31, 2013. To our knowledge, based on
interactions with clients and others in the market, there are no other commercial computer-based testing service providers in China with a test
center network as large as ours. Our vast network of test centers allows our clients to administer large-scale nationwide computer-based tests
in a consistent, secure and cost-effective manner. During the fiscal year ended March 31, 2013, approximately 9.3 million tests were
delivered using our computer-based testing technologies and services, and our capacity for test delivery, which can be easily expanded if
necessary, is already more than 1,000,000 tests per day.
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For our HR Select employee assessment solution, while there are other companies providing services to corporate human resources
departments, we are differentiated by our comprehensive service and focus on offering more professional testing services with proprietary
testing technologies.
While we anticipate new market entrants and increased efforts by existing international players to expand their presence in China, we
believe that relatively high entry barriers, such as the time and costs associated with establishing a large-scale test center network, will make it
difficult for new entrants or international competitors to quickly gain market share from us in China. We believe that potential domestic
entrants lack the technology and commercial relationships that we possess. International competitors will likely face challenges in
establishing effective relationships with key Chinese government and industry test sponsors or local educational institutions.
Seasonality
We have experienced seasonality and expect in the future to continue to experience seasonality in net revenues and accounts receivable
related to our test delivery services, with the quarters ending June 30 and December 31 typically having higher net revenues from testing
services and the quarters ending September 30 and March 31 typically having lower net revenues from testing services. This is primarily
because the tests from which we derive substantial revenues are mostly delivered in the quarters ending June 30 and December 31.
Regulation
This section sets forth a summary of the most significant laws, regulations, policies and requirements that affect our business activities
in China, the industries in which we operate, and our shareholders’ right to receive dividends and other distributions from us.
Regulation of the Software Industry
In China, holders of computer software copyrights enjoy protection under the Copyright Law of the People’s Republic of China, or
the Copyright Law. Under the Copyright Law, China’s State Council and the State Copyright Administration have also promulgated various
regulations relating to the protection of software copyrights in China. Under these regulations, computer software that is independently
developed and exists in a physical form will be protected, and software copyright owners may license or transfer their software copyrights to
others. Registration of software copyrights and exclusive licensing and transfer contracts with the Copyright Protection Center of China
(previously, the State Copyright Administration) or its local branches are encouraged. Such registration is not mandatory under Chinese law,
but can enhance the protections available to the registering parties. For example, the registration certificate serves an evidentiary function
enabling the registering parties to prove they have protectable rights. We have registered 132 software copyrights with the Copyright
Protection Center of China.
China’s Ministry of Industry and Information Technology (and its predecessors), or MIIT, has promulgated regulations to regulate
the production, sale, import or export of software products in China. Under these regulations, all domestically produced software products to
be operated or sold in China must be duly registered and filed with the provincial branches of MIIT. We have complied with the registration
and filing requirements necessary to sell our software products in China. These registrations generally remain in effect for five years and are
subject to renewal.
Regulation of Vocational Education
Chinese laws and regulations impose restrictions on foreign investment in educational institutions in China. However, Chinese laws
and regulations do not impose restrictions on foreign investment in companies providing course and test content or related products and
services to educational institutions. In addition, the Chinese government has issued a series of circulars and regulations promoting the
development of vocational education, including “The Decision to Enhance the Promotion of the Reform and Development of Vocational
Education” and “The Decision to Enhance the Development of Vocational Education” published by the State Council on September 24, 2002
and October 28, 2005, respectively. These circulars and regulations require all levels of governments in China to intensify their support for
vocational education and to gradually increase the financial resources that local and provincial governments allocate to vocational education.
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Restrictions on Telecommunications Industry
The telecommunications industry, including computer information and internet access services, is highly regulated by the Chinese
government. Regulations issued or implemented by the State Council, MIIT and other relevant government authorities cover virtually every
aspect of telecommunications network operations, including entry into the telecommunications industry, the scope of permissible business
activities, interconnection and transmission line arrangements, tariff policy and foreign investment.
Since March 1998, the National People’s Congress of the PRC has directed MIIT to assume responsibility for, among other things:
· formulating and enforcing telecommunications industry policy, standards and regulations;
· granting licenses to provide telecommunications and Internet services;
· formulating tariff and service charge policies for telecommunications and Internet services;
· supervising the operations of telecommunications and Internet service providers; and
· maintaining fair and orderly market competition among operators.
In addition to the regulations promulgated by the Chinese central government, some local governments have also promulgated local
rules applicable to Internet companies operating within their respective jurisdictions.
Foreign Ownership Restrictions on Internet Content Provision Businesses
In September 2000, the State Council promulgated the Telecommunications Regulations. The Telecommunications Regulations
categorize all telecommunications businesses in China as either infrastructure telecommunications businesses or value-added
telecommunications businesses. In February 2003, MIIT amended the original classification of telecommunications business with Internet
content provision services being classified as value-added telecommunications businesses. The Telecommunications Regulations also set
forth extensive guidelines with respect to different aspects of telecommunications operations in China.
In December 2001, in order to comply with China’s commitments with respect to its entry into the World Trade Organization, the
State Council promulgated the Administrative Rules on Foreign-Invested Telecommunications Enterprises, which was amended in
September 2008. The Administrative Rules on Foreign-Invested Telecommunications Enterprises set forth detailed requirements with respect
to capitalization, investor qualifications and application procedures in connection with the establishment of a foreign invested
to capitalization, investor qualifications and application procedures in connection with the establishment of a foreign invested
telecommunications enterprise. Pursuant to the Administrative Rules on Foreign-Invested Telecommunications Enterprises, the ultimate
capital contribution ratio of the foreign investor or investors in a foreign-funded telecommunications enterprise that provides value-added
telecommunications services shall not exceed 50%. In addition, pursuant to the Foreign Investment Industrial Guidance Catalogue, the
permitted foreign investment ratio of value-added telecommunications services is no more than 50%.
However, for a foreign investor to acquire any equity interest in a value-added telecommunication business in China, it must satisfy a
number of stringent performance and operational experience requirements, including demonstrating a track record and experience in
operating value-added telecommunication business overseas. Moreover, foreign investors that meet these requirements must obtain approvals
from MIIT and the Ministry of Commerce or their authorized local counterparts, which retain considerable discretion in granting approvals.
On July 26, 2006, MIIT publicly released the Notice on Strengthening the Administration of Foreign Investment in Operating Value-
added Telecom Business, dated July 13, 2006, or the MIIT Notice, which reiterates certain provisions under the 2002 Administrative
Rules on Foreign-Invested Telecommunications Enterprises. According to the MIIT Notice, if any foreign investor intends to invest in a
Chinese telecommunications business, a foreign-invested telecommunications enterprise shall be established and such enterprise shall apply
for the relevant telecommunications business licenses. Under the MIIT Notice, domestic telecommunications enterprises are prohibited from
renting, transferring or selling a telecommunications license to foreign investors in any form.
As a result of current Chinese laws and regulations that impose substantial restrictions on foreign investment in the Internet
businesses in China, we conduct our online test preparation business in China through a series of contractual arrangements entered into
among us, ATA Learning, and our newly formed affiliated PRC entity, ATA Online (Beijing) Education Technology Limited, or ATA
Online, which is a domestic Chinese company incorporated in the PRC and owned by Kevin Xiaofeng Ma, our chairman and chief executive
officer, and Walter Lin Wang, our director, both of whom are PRC citizens. See Item 4.C. “Organizational Structure.” ATA Online has
obtained the licenses and approvals that are required to operate the online test preparation business.
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Our contractual arrangements with ATA Online include a technical support agreement and a strategic consulting service agreement. In
addition, ATA Learning has entered into an equity pledge agreement with each of the shareholders of ATA Online pursuant to which each of
the shareholders has pledged all of his or her interest in ATA Online to ATA Learning as security for the performance of ATA Online’s
obligations under the technical support agreement and the strategic consulting service agreement. Under PRC law, a pledge of equity interest
can only be valid after such pledge is registered with the relevant local branch of the State Administration of Industry and Commerce. Only
such registration secures our interest in the equity as collateral. The equity pledges under the equity pledge agreement were registered with
the relevant local authority, Haidian Branch of Beijing Administration for Industry and Commerce, on April 25, 2012. Pursuant to a call
option and cooperation agreement with ATA Online and its shareholders, ATA BVI or any third party designated by ATA BVI has the right
to acquire, in whole or in part, the respective equity interests in ATA Online of its shareholders or ATA Online’s assets when permitted by
applicable PRC laws and regulations. Our contractual arrangements also include powers of attorney with each of the shareholders of ATA
Online, pursuant to which they each have assigned their rights as ATA Online’s shareholders, including but not limited to voting rights and
rights to appoint directors and executive management of ATA Online, to ATA Learning. However, we do not have any direct ownership
interests or direct voting rights in ATA Online.
In the opinion of Jincheng Tongda & Neal Law Firm, our PRC legal counsel:
· the ownership structures of ATA Online and our wholly owned subsidiaries in China are in compliance with existing published
Chinese laws and regulations;
· our contractual arrangements among our wholly owned subsidiaries in China and ATA Online and its shareholders, are valid and
binding, will not result in any material violation of published Chinese laws or regulations currently in effect, and are enforceable in
accordance with their terms and conditions; and
· the business operations of our company, all of our Chinese subsidiaries and ATA Online, as described in this annual report, are in
compliance with existing published Chinese laws and regulations in all material aspects.
However, there are substantial uncertainties regarding the interpretation and application of current or future Chinese laws and
regulations, including the laws and regulations governing the enforcement and performance of our contractual arrangements in the event of
imposition of statutory liens, bankruptcy and criminal proceedings. Accordingly, we cannot assure you that the Chinese regulatory
authorities will not ultimately take a contrary view. If the Chinese government finds that the agreements that establish the structure of our
operations in China do not comply with Chinese government restrictions on foreign investment in our industry, we could be subject to severe
penalties.
Internet Content Provider Licensure Requirements
The provision of online test preparation services and content on Internet web sites is subject to Chinese laws and regulations relating
to the telecommunications industry and the Internet, and regulated by various government authorities, including MIIT and the State
Administration of Industry and Commerce, or SAIC. The principal regulations governing the telecommunications industry and the Internet
include:
· The Telecommunications Regulations (2000);
· The Administrative Measures for Telecommunications Business Operating Licenses (2001); and
· The Internet Information Services Administrative Measures (2000).
Under these regulations, Internet content provision services are classified as value-added telecommunications businesses, and a
commercial operator must obtain a Telecommunications and Information Services Operating License, or ICP license, from the appropriate
telecommunications authority in order to carry out commercial Internet content provision operations in China. In addition, the regulations also
provide that operators involved in Internet content provision that operate in sensitive and strategic sectors, including news, publishing,
education, health care, medicine and medical devices, must obtain additional approvals from the relevant authorities in charge of those
sectors.
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Certain local governments have promulgated local rules applicable to Internet companies operating within their respective
jurisdictions. In Beijing, the Beijing Administration of Industry and Commerce has promulgated a number of Internet-related rules. On
October 31, 2004, a rule was enacted requiring owners of commercial web sites located within Beijing to file their commercial web sites with
the Beijing Administration of Industry and Commerce.
ATA Online holds an ICP license issued by the Beijing Telecommunications Administration Bureau, a local branch of the MIIT,
which allows ATA Online to provide Internet content distribution services. This license is essential to the operation of ATA Online’s online
test preparation services business.
The MIIT Notice requires that a value-added telecommunications business operator (or its shareholders) should own any domain
names and trademarks used by it to engage in the value-added telecommunications business, and have premises and facilities appropriate for
such business. To comply with the MIIT Notice, we have transferred to ATA Online the domain names owned by our subsidiaries that are
used principally in connection with our online business activities.
Regulation of Internet Content
The Chinese government has promulgated measures relating to Internet content through a number of ministries and agencies,
including the MIIT, the Ministry of Culture and the State Press and Publications Administration. These measures specifically prohibit
Internet activities that result in the publication of any content that is found to, among other things, propagate obscenity, gambling or violence,
instigate crimes, undermine public morality or the cultural traditions of China, or compromise State security or secrets. If an ICP license
holder violates these measures, the Chinese government may revoke its ICP license and shut down its web sites.
On December 29, 2011, the MIIT promulgated Certain Rules on Regulating the Order of the Internet Information Service Market
(“Internet Market Order Rules”), which became effective on March 15, 2012. The Internet Market Order Rules aim to regulate the order of
the Internet information service market, protect the legitimate rights and interests of Internet information service providers and users, and
promote the healthy development of the Internet industry. Pursuant to the Internet Market Order Rules, an Internet information service
provider shall offer services under the principles of equality, voluntariness, fairness and integrity, and shall not commit acts infringing the
legitimate rights and interests of other service providers such as maliciously interfering in services offered by other Internet information
service providers at user terminals, or maliciously interfering in the downloading, installation, operation and upgrading of software and other
products related to Internet information services, or refusing, postponing or ceasing to provide users with Internet information services or
products without any proper reason. An Internet information service provider may be subject to administrative penalties, including warnings
and fines and other legal liabilities, for violations of the Internet Market Order Rules. On December 28, 2012, the Standing Committee of
Congress of the PRC issued the Decision on Strengthen Internet Information Protection, reiterating that an Internet information service
provider shall explicitly specify the purpose, method, and scope of collecting user’s individual information and shall obtain user’s consent
prior to such collection. An Internet service provider is also prohibited from sending unsolicited commercial information to users. Non-
compliance of these provisions may result in civil, administrative or criminal penalties.
Regulation of Online and Distance Education
Pursuant to the Administrative Regulations on Educational Web sites and Online and Distance Education Schools issued by the
Ministry of Education in 2000, educational web sites and online education schools may provide education services in relation to higher
education, elementary education, pre-school education, teaching education, occupational education, adult education, other education and
public educational information services. “Educational web sites” refers to organizations providing education or education-related information
services to web site visitors by means of a database or online education platform connected via the Internet or an educational television
station through an Internet service provider, or ISP. “Online education schools” refer to education web sites providing academic education
services or training services with the issuance of various certificates.
Setting up educational web sites and online education schools is subject to approval from relevant education authorities, depending on
the specific types of education provided. Any educational web site and online education school shall, upon receipt of approval, indicate on its
web site such approval information as well as the approval date and file number.
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According to the Administrative License Law promulgated by the National People’s Congress on August 27, 2003 and effective as of
July 1, 2004, only laws promulgated by the National People’s Congress and regulations and decisions promulgated by the State Council may
set down administrative license requirements. On June 29, 2004, the State Council promulgated the Decision on Setting Down
Administrative Licenses for the Administrative Examination and Approval Items Really Necessary to be Retained, in which the
administrative license for “online education schools” was retained, while the administrative license for “educational web sites” was not
retained. ATA Online is not required to obtain a license as an online education school because ATA Online does not intend to offer through
its web site academic education services or training services that result in the issuance of a degree or other certification.
Regulation of Broadcasting Audio-Visual Programs through the Internet or Other Information Network
The State Administration of Radio, Film and Television, or SARFT, promulgated the Rules for Administration of Broadcasting of
Audio-Visual Programs through the Internet and Other Information Networks, or the Broadcasting Rules, in 2004, which became effective
on October 11, 2004. The Broadcasting Rules apply to the activities of broadcasting, integrating, transmitting and downloading of audio-
visual programs with computers, televisions or mobile phones as the main terminals and through various types of information networks.
Pursuant to the Broadcasting Rules, a Permit for Broadcasting Audio-Visual Programs via 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
relating to cultural matters that prohibits private investments in businesses relating to the dissemination of audio-visual programs through
information networks. On December 20, 2007, SARFT and MIIT jointly promulgated the Administrative Provisions on Internet Audio-
Visual Program Service, or the Audio-Visual Service Provisions, which became effective on January 31, 2008. Pursuant to the Audio-
Visual Service Provisions, a Permit for Disseminating Audio-Visual Programs via Information Network issued by the competent radio, film
and television authority, or completion of the relevant filing formalities with such authority, is required to engage in the Internet audio-visual
program service. One of the criteria that any entity applying to engage in the Internet audio-visual program service must meet is that such
entity should be a wholly state-owned entity or state-controlled entity, which should have the legal status of legal person, and there is no
record indicating that such entity has violated laws or regulations within three years prior to its application. According to the clarification by
SARFT and MIIT in their Answers to Questions of Press regarding the Administrative Provisions on Internet Audio-Visual Program
Service, entities that have been incorporated to engage in the Internet audio-visual program service in compliance with the applicable laws or
regulations prior to the promulgation of the Audio-Visual Service Provisions and have no record of violating laws or regulations can re-
register and continue their businesses. As these regulations are relatively new, there are significant uncertainties relating to their interpretation
and implementation, including the definition of “audio-visual programs” as specified in these regulations. We cannot assure you that ATA
Online will be able to obtain a Permit for Broadcasting Audio-Visual Programs via Information Network if it is determined that one is
required to operate the online test preparation business.
Regulation of Information Security
Internet content in China is also regulated and restricted by the PRC government to protect State security. The National People’s
Congress, China’s national legislative body, has enacted a law that may subject to criminal punishment in China any effort to: (1) gain
improper entry into a computer or system of strategic importance; (2) disseminate politically disruptive information; (3) leak State secrets;
(4) spread false commercial information; or (5) infringe intellectual property rights.
The Ministry of Public Security has promulgated measures that prohibit use of the Internet in ways that, among other things, result in
a leakage of State secrets or a spread of socially destabilizing content. The Ministry of Public Security has supervision and inspection rights
in this regard, and we may be subject to the jurisdiction of the local security bureaus. If an ICP license holder violates these measures, the
PRC government may revoke its ICP license and shut down its web sites.
Regulation of Domain Names and Web Site Names
PRC law requires owners of Internet domain names to register their domain names with qualified domain name registration agencies
approved by MIIT and obtain a registration certificate from such registration agencies. A registered domain name owner has an exclusive use
right over its domain name. Unregistered domain names may not receive proper legal protections and may be misappropriated by
unauthorized third parties. As of March 31, 2013, we have registered 207 domain names relating to our web sites, including www.ata.net.cn,
the primary URL for our web site, with the Internet Corporation for Assigned Names and Numbers and the China Internet Network
Information Center, a domain name registration service provider in China.
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PRC law requires entities operating commercial web sites to register their web site names with SAIC or its local offices and obtain a
commercial web site name registration certificate. If any entity operates a commercial web site without obtaining such certificate, it may be
charged a fine or suffer other penalties by the SAIC or its local offices. Our web sites used in connection with our testing and education
services are considered non-commercial web sites as we do not provide products and services through those web sites, and therefore the
names of those web sites are not required to be registered with SAIC. ATA Online has registered the web site name used in connection with
the online test preparation business with Beijing municipal SAIC.
Regulation of Privacy Protection
PRC law does not prohibit Internet content providers from collecting and analyzing personal information from their users. PRC law
prohibits Internet content providers from disclosing to third parties any information transmitted by users through their networks unless
otherwise permitted by law. If an Internet content provider violates these regulations, MIIT or its local offices may impose penalties and the
Internet content provider may be liable for damages caused to its users.
Internet content provider may be liable for damages caused to its users.
Regulation of Foreign Exchange
China’s government imposes restrictions on the convertibility of the Renminbi and on the collection and use of foreign currency by
Chinese entities. Under current regulations, the Renminbi is convertible for current account transactions, which include dividend
distributions, interest payments, and the import and export of goods and services. Conversion of Renminbi into foreign currency and foreign
currency into Renminbi for capital account transactions, such as direct investment, portfolio investment and loans, however, is still generally
subject to the prior approval of the PRC State Administration of Foreign Exchange, or SAFE.
Under current Chinese regulations, foreign-invested enterprises such as our Chinese subsidiaries are required to apply to SAFE for a
Foreign Exchange Registration Certificate for Foreign-Invested Enterprise. With such a foreign exchange registration certificate (which is
subject to review and renewal by SAFE on an annual basis), a foreign-invested enterprise may open foreign exchange bank accounts at
banks authorized to conduct foreign exchange business by SAFE and may buy, sell and remit foreign exchange through such banks, subject
to documentation and approval requirements. Foreign-invested enterprises are required to open and maintain separate foreign exchange
accounts for capital account transactions and current account transactions. In addition, there are restrictions on the amount of foreign currency
that foreign-invested enterprises may retain in such accounts.
Further, SAFE promulgated a circular (known as Circular 142) in August 2008 with respect to the administration of conversion of
foreign exchange capital contributions of a foreign invested enterprise. The circular clarifies that Renminbi converted from foreign exchange
capital contributions can only be used for the activities within the approved business scope of such foreign invested enterprise and cannot be
used for domestic equity investments unless otherwise permitted. In addition, SAFE strengthened its oversight of the flow and use of the
registered capital of a foreign-invested enterprise converted from foreign currencies and settled in Renminbi. The use of such Renminbi
capital may not be changed without SAFE approval, and it may not in any case be used to repay Renminbi loans if the proceeds of such
loans have not been used for purposes within the foreign-invested enterprise’s approved business scope. Violations of Circular 142 may
result in severe penalties, including substantial fines as set forth in the PRC Foreign Exchange Administrative Regulations.
According to Article 26 of the Regulations on the Foreign Exchange System of the People’s Republic of China, if the Company’s
PRC subsidiaries liquidate, the Renminbi distributable to its foreign shareholders after the liquidation and payment of relevant taxes can be
freely converted into foreign currency and remitted abroad. Therefore, there are no legal impediments to remitting the proceeds from a
liquidation of our PRC subsidiaries outside of China to investors who are not PRC nationals.
Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions
In October 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-Raising and Return
Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which became effective as
of November 1, 2005. Notice 75 states that Chinese residents must register with the relevant local SAFE branch in connection with their
establishment or control of an offshore entity established for the purpose of overseas equity financing involving a round-trip investment
whereby the offshore entity acquires or controls onshore assets or equity interests held by the Chinese residents. Notice 75 applies to our
shareholders who are Chinese residents and also applies to our offshore acquisitions.
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To further clarify and simplify the implementation of Notice 75, SAFE has issued various rules, including Circular 19, which was
issued on May 20, 2011 and took effect on July 1, 2011. Circular 19 established more specific and stringent supervision on the registration
process required by Notice 75. For example, Circular19 imposes obligations on onshore subsidiaries of an offshore entity to make true and
accurate statements to the local SAFE authorities concerning any shareholder or beneficial owner of the offshore entity who is a PRC citizen
or resident. Untrue statements by the onshore subsidiaries may lead to potential liability for the subsidiaries. Under these foreign exchange
regulations, PRC residents who make, or have previously made direct or indirect, investments in special purpose vehicles or SPVs prior to
the implementation of these foreign exchange regulations will be required to register those investments. In addition, any PRC resident who is
a direct or indirect shareholder of an SPV is required to update the previously filed registration with the local branch of SAFE, with respect
to that SPV, to reflect any material change not involving its round-trip investment, capital variation, such as an increase or decrease in capital,
a transfer or swap of shares, a merger, division, long-term equity or debt investment or creation of any security interest. Moreover, the PRC
subsidiaries of that SPV are required to urge the PRC resident shareholders to update their registration with the local branch of SAFE when
such updates are required under applicable foreign exchange regulations. If any PRC shareholder fails to make the required registration or
update the previously filed registration, the PRC subsidiaries of that SPV may be prohibited from distributing their profits and the proceeds
from any reduction in capital, share transfer or liquidation to their SPV parent and the SPV may also be prohibited from injecting additional
capital into its PRC subsidiaries. Moreover, failure to comply with the various foreign exchange registration requirements described above
could result in liability under PRC laws for evasion of applicable foreign exchange restrictions, even though here is no explicit deadline for
such registration.
Two of our significant shareholders, Kevin Xiaofeng Ma and Walter Lin Wang, have completed their registrations with SAFE, and
we have urged our other Chinese resident shareholders to register under Notice 75 and they are preparing for such application. However, we
cannot assure you that the application will be accepted by SAFE.
Failure by such shareholders to comply with Notice 75 could subject us to fines or legal sanctions, restrict our overseas or cross-
border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which
could adversely affect our business and prospects.
Regulation of Overseas Listings
On August 8, 2006, six PRC regulatory agencies, including the Chinese Securities Regulatory Commission, or CSRC, promulgated
the Provisions Regarding Mergers and Acquisitions of Domestic Enterprise by Foreign Investors, or the M&A Rule, which became
effective on September 8, 2006 without retroactive effect. The M&A Rule, among other things, requires that an offshore company controlled
by PRC companies or individuals that has acquired a PRC domestic company for the purpose of listing the PRC domestic company’s equity
interest on an overseas stock exchange must obtain the approval of the CSRC prior to the listing and trading of such offshore company’s
securities on an overseas stock exchange. On September 21, 2006, the CSRC, pursuant to the M&A Rule, published on its official web site
procedures specifying documents and materials required to be submitted to it by offshore companies seeking CSRC approval of their
overseas listings.
We believe CSRC approval was not required for our initial public offering in February 2008 because the CSRC approval required
under the M&A Rule only applies to an offshore company that has acquired a domestic PRC company for the purpose of listing the domestic
PRC company’s equity interest on an overseas stock exchange, while (i) we obtained our equity interest in each of our PRC subsidiaries by
means of direct investment other than by acquisition of the equity or assets of a PRC domestic company and (ii) our contractual arrangements
with ATA Online do not constitute the acquisition of ATA Online. See Item 3.D. “Key Information — Risk Factors — Risks Relating to
Regulation of Our Business — If the China Securities Regulatory Commission, or CSRC, or another PRC regulatory agency determines that
CSRC approval was required in connection with our initial public offering, we may become subject to penalties.”
C. Organizational Structure
Corporate Structure and Arrangements with Our Affiliated PRC Entity
The following diagram illustrates our corporate structure. Except for ATA BVI, which is incorporated in the British Virgin Islands,
all of our subsidiaries and our affiliated PRC entity are incorporated in the PRC. For a detailed description of the Company’s significant
subsidiaries, see Item 4.A “History and Development of the Company.”
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To comply with PRC laws and regulations restricting foreign ownership in distributors of Internet content, our online test preparation
business in China is conducted through a series of contractual arrangements entered into among ATA BVI, ATA Learning and ATA Online
(Beijing) Education Technology Limited, or ATA Online, a PRC entity incorporated in the PRC and owned by Kevin Xiaofeng Ma, our co-
founder, chairman and chief executive officer and Walter Lin Wang, our co-founder and director, in the percentages described in the diagram
above. ATA Online holds the license required to operate the online portion of our test preparation and training solutions business. We do not
have any direct ownership interest or direct shareholding rights in ATA Online. For a detailed description of these contractual arrangements,
see Item 7.B. “Major Shareholders and Related Party Transactions — Related Party Transactions.” As a result of these contractual
arrangements, under U.S. GAAP, we are considered the primary beneficiary of ATA Online. Accordingly, we consolidate ATA Online’s
results in our consolidated financial statements.
Our subsidiaries or ATA Online enter into commercial contracts with third party customers and clients based upon a judgment we
make as to which entity is the appropriate entity for the provision of the type of service being offered. We primarily sell our testing services
and the non-online portion of our test preparation and training solutions business through ATA Testing, our education services through
ATA Learning and our online test preparation services through ATA Online.
For risks associated with our contractual arrangements with ATA Online and its shareholders, see Item 3.D. “Key Information —
Risk Factors — Risks Relating to Regulation of Our Business — Substantial uncertainties and restrictions exist with respect to the
application and implementation of Chinese laws and regulations relating to Internet content distribution. If the Chinese government finds that
the structure for our online test preparation services and other services we provide through the Internet do not comply with Chinese laws and
regulations, we could be subject to penalties and may not be able to continue those businesses.” and “— Our contractual arrangements with
ATA Online and its shareholders do not provide us with ownership interest in ATA Online. If ATA Online or its shareholders fail to
ATA Online and its shareholders do not provide us with ownership interest in ATA Online. If ATA Online or its shareholders fail to
perform their respective obligations under these contractual arrangements, we may have to legally enforce such arrangements and our
business, financial condition and results of operations may be materially and adversely affected if these arrangements cannot be enforced.”
D. Property, Plant and Equipment
Our principal executive offices are located in approximately 3,232 square meters of office space used by us at Tower E, 6 Gongyuan
West Street, Jian Guo Men Nei, Beijing 100005, China, among which 2,170 square meters of office space are owned by us and 1,062
square meters of office space are leased by us. We also occupy approximately 3,101 square meters of total leased office space in our
subsidiaries and branches located in Shanghai, Chengdu and Guangdong. We believe that our existing facilities are adequate for our current
requirements and that additional space can be obtained on commercially reasonable terms to meet our future requirements.
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ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating Results
Overview
Our Business
We believe that we are the leading provider of computer-based testing services in China, based on test delivery capacity and
geographic coverage. We offer comprehensive services for the creation and delivery of computer-based tests utilizing our nation-wide test
delivery platform, proprietary testing technologies and extensive experience providing testing services in China. Our total net revenues
increased from RMB303.9 million in the fiscal year ended March 31, 2011 to RMB352.1 million in the fiscal year ended March 31, 2012
and RMB366.7 million ($59.0 million) in the fiscal year ended March 31, 2013. We had net income of RMB19.8 million in the fiscal year
ended March 31, 2011, RMB55.8 million in the fiscal year ended March 31, 2012 and RMB23.2 million ($3.7 million) in the fiscal year
ended March 31, 2013.
We started our business in 1999 focusing on providing computer-based testing services to test sponsors. Our testing services
revenues have grown primarily as a result of increases in the number of testing services clients and the number of test takers who take tests
created and delivered using our testing technologies. Revenues from testing services accounted for 80.0%, 82.6% and 91.6% of our total net
revenues in the fiscal years ended March 31, 2011, 2012 and 2013, respectively. We expect our testing services revenues to continue to be
the largest source of our total net revenues. In March 2009, we launched HR Select, our self-developed online system that utilizes our
proprietary software and a large inventory of test titles to assist companies in streamlining and optimizing their employee selection and
assessment processes. HR Select offers tools for filtering and categorizing employee candidates, testing candidates and analyzing the test
results. Since March 2009, we have been the exclusive agent for delivering the Test of English for International Communication, or TOEIC,
in China. Revenues from HR Select and distribution and administration of TOEIC exams are included in testing services revenues. The
following graph shows the growth in the number of tests delivered using our testing technologies for the twelve months ended March 31,
2009, 2010, 2011, 2012 and 2013.
Number of Exams Delivered
(1)
(1)
Includes Microsoft royalty tests overseas, tests delivered through our test delivery platform and tests using our Dynamic Simulation
Technology. Also includes free tests delivered for business development purposes. The number of tests delivered excluding the free
Technology. Also includes free tests delivered for business development purposes. The number of tests delivered excluding the free
tests in the fiscal years ended March 31, 2009, 2010, 2011, 2012 and 2013 was 5,063,379, 5,760,147, 6,907,158, 8,026,639 and
8,744,859 respectively.
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We also offer targeted test preparation and training solutions for certain professional licensure and certification tests in the securities
industries. ATA Online has launched online test preparation and training Internet web sites in coordination with the SAC to help candidates
across China fulfill their continuing educational requirement after passing their professional licensure and certification tests, which are
delivered through our test delivery platform. Revenues from our test preparation and training solutions accounted for 5.1%, 7.7% and 3.1%
of our total revenue in the fiscal years ended March 31, 2011, 2012 and 2013, respectively.
We operate our business and generate our net revenues primarily through our wholly owned subsidiaries in China, ATA Testing and
ATA Learning. Due to PRC laws and regulations restricting foreign ownership in distributors of Internet content, we operate our online
businesses, including our test preparation and training business and the online portion of our HR Select employee assessment solution
program, and provide our computer-based testing services for the National Security Guard exam and China Customs exam through ATA
Online, which we effectively control and enjoy the economic benefits through a series of contractual arrangements entered into among ATA
BVI, ATA Learning, ATA Online and ATA Online’s shareholders. We do not have any direct ownership interest or direct shareholding
rights in ATA Online. ATA Online primarily holds assets related to the delivery of our online test preparation and training services, such as
the Internet provider license, accounts receivable, prepaid expenses, and equipment. ATA Online had total assets of RMB28.3 million ($4.6
million) as of March 31, 2013. ATA Online generated net revenues of RMB25.0 million ($4.0 million) and a gross loss of RMB0.1 million
($0.0 million) for the fiscal year ended March 31, 2013. Its total operating expenses were RMB12.5 million ($2.0 million) for the fiscal year
ended March 31, 2013. In addition, ATA Online had approximately RMB13.2 million ($2.1 million) in net cash used in operating activities,
RMB1.1 million ($0.2 million) in net cash used in investing activities and RMB nil in net cash used in financing activities for the fiscal year
ended March 31, 2013.
As a result of these contractual arrangements, under U.S. GAAP, we are considered the primary beneficiary of ATA Online.
Accordingly, we consolidate ATA Online’s results in our consolidated financial statements. However, these contractual arrangements may
not be as effective as direct equity ownership in providing us with control over ATA Online.
We believe, based on the legal opinion obtained from our PRC legal counsel, the above contractual arrangements are legally binding
and enforceable and do not violate current PRC laws and regulations. However, there are uncertainties regarding the interpretation and
application of existing and future PRC laws and regulations. Accordingly, we cannot be assured that PRC regulatory authorities will not
ultimately take a contrary view to its opinion. If our current ownership structure and the contractual arrangements are found to be in violation
of any existing or future PRC laws and regulations, the PRC government could:
· revoke our business and operating licenses;
· levy fines on us;
· confiscate any of our income that they deem to be obtained through illegal operations;
· shut down a portion or all of our servers or block a portion or all of our web site;
· discontinue or restrict our operations in the PRC;
· impose conditions or requirements with which we may not be able to comply;
· require us to restructure our corporate and contractual structure; and
· take other regulatory or enforcement actions that could be harmful to our business.
If the imposition of any of these government actions, or any inability to enforce the contractual arrangements in the event ATA Online
or its shareholders breached their obligations under the contractual arrangements, causes us to lose the ability to direct the activities of ATA
Online or receive substantially all the economic benefits and residual returns from ATA Online and we are not able to restructure our
ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of ATA Online
in our consolidated financial statements. In such a case, our total assets, total liability, equity, net sales, net income and cash flows would be
materially less than the reported amount in our consolidated financial statements.
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Factors Affecting Our Results of Operations
The key factors affecting our results of operations are:
· growth in China’s professional services sector resulting in increasing demand for qualified and certified talent in China and in the
finance industry in particular;
· overall economic growth and rising income levels in China contributing to increased spending on education, testing and test
preparation;
· government and industry initiatives to standardize and license professionals in industries such as securities, futures, banking, law and
accounting;
· growth in the use of computer-based tests and performance-based tests and willingness of test sponsors to outsource test content
development and delivery for sophisticated computer-based tests as well as online test preparation and training programs;
· the increasing importance of identifying qualified talent contributing to increasing demand for testing and certification programs that
can confirm the qualifications of the applicant or job seeker; and
· our ability to continue to introduce new services and the market success of our recently introduced services, including our HR Select
service launched in March 2009, distribution and administration of TOEIC exams in China beginning in March 2009, and distribution
and administration of computer-based CBYLE exam beginning in March 2013.
Although we anticipate the above factors will continue to increase demand for our products and services in China, a slowing or
reversal of any of the above factors could cause our revenue growth to slow or stop, or to not grow as fast as we might expect.
In addition, our results of operations have been, and may continue to be, significantly affected by the following factors:
· share-based compensation;
· the impact of PRC tax policies, including certain preferential tax rates and tax holidays;
· sales and marketing efforts for our newer services, including our HR Select service and TOEIC business; and
· the relative proportion of our net revenues derived from higher-gross margin and lower-gross margin service offerings.
Net Revenues
We derive revenues from sale of computer-based testing services, test preparation and training solutions, and other products and
services. Our net revenues are presented net of PRC business taxes. The following table sets forth a breakdown of our total net revenues for
the periods.
For the fiscal year ended March 31,
2011
2012
RMB
% of net
revenues
% of net
RMB
revenues
(in thousands, except or percentages)
RMB
2013
US$
% of net
revenues
Net Revenues
Testing services
Test preparation and
training solutions
Other
Total net revenues
243,103
15,427
45,374
303,904
80.0%
290,881
82.6%
335,791
54,066
91.6%
5.1%
14.9%
100.0%
26,996
34,208
352,085
7.7%
9.7%
100.0%
11,343
19,541
366,675
1,826
3,146
59,038
3.1%
5.3%
100.0%
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Testing Services
We derive testing services revenues primarily from fees charged to test sponsors, including governmental agencies and other sponsors
of licensure and certification tests, for our test delivery services. We also offer testing services to private enterprises as part of our HR Select
employee assessment solution and we are the exclusive distributor and test administrator of TOEIC exams in China.
We offer our clients a comprehensive set of services for the compilation, delivery and analysis of computer-based tests using our E-
testing platform, as well as logistical services such as test registration and fee collection. We generate revenues from our test delivery services
through fees charged to test sponsors based on the total number of test takers taking a requested test. Our clients typically pay us within two
to six months after delivery of the test. We recognize revenue for test delivery services upon completion of the relevant test.
We have experienced seasonality and expect in the future to continue to experience seasonality in net revenues and accounts receivable
related to our test delivery services, with the quarters ending June 30 and December 31 typically having higher net revenues from testing
services and the quarters ending September 30 and March 31 typically having lower net revenues from testing services. This is primarily
because the tests from which we derive substantial revenues are mostly delivered in the quarters ending June 30 and December 31.
because the tests from which we derive substantial revenues are mostly delivered in the quarters ending June 30 and December 31.
Significant Factors Affecting Testing Services
The most significant factor directly affecting our revenues from fees charged for our testing services are the number of test takers. The
number of test takers for a test is driven by our ability to secure contracts with test sponsors for the creation and delivery of computer-based
test titles popular with test takers. The volume of tests we offer is determined by the willingness of test sponsors to use our services. Growth
in the number of enterprises adopting our HR Select service and the prevalence of the TOEIC exam in China also impact our testing services
revenues. Our revenues from fees charged for our testing services are also affected by the price we can charge per test, which generally
remains fairly stable once we are engaged by a test sponsor to help deliver a particular test.
Demand and pricing for a test is affected by whether a certain profession, career or job position for which the certification, licensure
or qualification test is being given is considered desirable by potential test takers. Some industries may experience fluctuations in the number
of people attempting to become qualified to participate in the industry, which will depend on the overall health of the relevant industry,
changes in average salary levels in the relevant industry, the popularity of certain types of careers and employers, governmental policies that
impact the relevant industry, or other factors. For example, we believe our net revenues from tests delivered for the SAC have been
negatively affected by the downturn in the PRC stock market in recent years, which has reduced demand for qualified securities
professionals.
In addition, obtaining contracts from test sponsors for new test titles and for upgrade of existing test titles often requires considerable
time and resources. Many of our clients administer tests to a large number of people on a regular basis, and maintaining consistency and
stability from year to year in the test delivery format is important to them. The decision process involved in adopting a new type of test or a
new test delivery format can be difficult and complex. These factors often result in significant delays in our ability to secure contracts, and
make it difficult to predict our revenues from fees from test sponsors in any given year. On the other hand, for test sponsors that administer
many tests on a regular basis, our ability to secure an initial contract and to effectively meet their test delivery requirements under the contract
can help us obtain future test title contracts from that test sponsor. This enables us to increase and diversify our revenues and to hinder
competitors from obtaining contracts with that test sponsor.
Test Preparation and Training Solutions
We derive test preparation and training solutions revenues from the provision of online test preparation and training services.
ATA Online provides online test preparation and training for professional licensure and certification tests delivered through our
testing platform for the SAC and China Futures Association. Revenues from online test preparation and training services are generated by
selling online training to end users directly or through distributors on a consignment basis. The online training entitles the end users access to
online test preparation and training services during a specified service period, which normally ranges between 90 to 180 days from the
activation. Revenue of online membership is recognized on a straight-line basis ratably over the service period commencing at the point of
time the online training is activated. If the online training sold to the end users are not activated before the expiration date, related online
service revenue is recognized on the expiration date. In November 2011, we entered into a new contract with SAC to deliver online training
platform development and maintenance service. Fees from online training platform development and maintenance service are recognized,
when collectability is reasonably assured, on a straight-line basis over the contractual period.
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Significant Factors Affecting Test Preparation and Training Solutions
A number of factors affect our revenues from test preparation and training solutions. Demand for test preparation and training
solutions for a particular test depends on the relative level of importance or difficulty of the test, with greater demand for test preparation and
training solutions for more important and more difficult tests. Therefore, our ability to secure test delivery services contracts for more
important and more difficult tests may affect our test preparation and training solutions business. As we generally offer test preparation and
training solutions for tests that are delivered through our test delivery platform, our ability to grow our test preparation and training solutions
business is also affected by the willingness of our test sponsor clients to permit us to provide test preparation and training solutions for their
tests. Some test sponsor clients may not permit us to provide test preparation and training solutions in relation to tests for which we provide
test delivery and other services due to a perceived conflict of interest. In addition, because we generally do not develop the learning content
used in our test preparation and training solutions, our ability to license test preparation learning content and materials from the relevant test
sponsor or third party content provider is critical to the expansion of the number of tests for which we offer test preparation and training
solutions.
Since December 2011, the SAC has been in the process of assessing the feasibility to run its online training program internally rather
than outsourcing its operation to us. In place of our previous contract under which we operated the online training program on behalf of the
SAC, we entered into a contract through March 2013 under which we provided technical and services support during the assessment period.
We received RMB7.7 million ($1.3 million) in revenues from test preparation services to the SAC in the fiscal year ended March 31, 2013
compared to RMB21.1 million in the fiscal year ended March 31, 2012. We are currently providing data transfer services to the SAC, upon
the completion of which we will earn revenue of RMB1.0 million. We do not expect any further revenue from providing test preparation
services to the SAC subsequent to our completion of these data transfer services.
Other Revenues
We derive other revenues from test-based educational services, test content creation services, issuance of certificates delivered to
passing candidates, licensing fees paid to us by operators of our ATA authorized test centers, and other fees and services.
passing candidates, licensing fees paid to us by operators of our ATA authorized test centers, and other fees and services.
Test-based educational services. Our career-oriented educational services include single course programs, degree major course
programs and pre-occupational training programs focusing on preparing students to pass IT and other vocational certification tests. These
course programs package the testing and certification component of our testing services with licensed content and incorporate our advanced
performance-based testing technologies to encourage hands-on real-world interactive learning experiences. We receive fees for these
programs from educational institutions and generally charge a pre-agreed fee per student over the service period. For our single course
programs, we recognize revenue on a straight-line basis over the service period or the contractual period, whichever is longer. For our degree
major course programs, revenues from the final year of the degree major course program are recognized over a ten-month period (generally
September through June) while revenues from the first through the next-to-last years of the program are recognized over a 12-month period
(generally September through August). We recognize revenue from licensing our pre-occupational training programs over the service
delivery period on a straight-line basis.
Test content creation services. Our test content creation services include the installation of our technology on client testing platforms,
the conversion of paper-based test items into computer-based tests items, and other related services. We generate revenues from our test
content creation services through service fees charged to governmental agencies, such as China Customs, IT vendors and other sponsors of
licensure, certification and qualification tests. We recognize revenue from our test content creation services upon the acceptance of the
services by the client.
Certificate delivery. Many of our testing services clients, including well-known test sponsors, charge passing candidates a separate fee
to receive a certificate for a test passed. We deliver these certificates to these candidates upon request. We charge a per-certificate price for the
certificates and recognize revenue from certificate issuances upon delivery of the certificate.
Licensing fees from ATA authorized test centers. We have established our nationwide network of ATA authorized test centers by
contracting with qualified independent operators that act as ATA authorized test centers for us. Under our contracts with test center
operators, we license our ATA name and ATA E-testing platform technology and provide ongoing technical support, upgrades and training
during the contract period in exchange for license fees. We receive license fees from our test center operators in the form of either a single
initial license fee or a combination of initial license fee and annual continuing license fees.
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Test administration software products. We offer our test administration software products to our clients. We deliver these software
products, which are developed by us with all underlying intellectual property owned by us, to clients upon requests. We charge a per-
software copy price for the software and recognize revenue upon delivery of the software.
Other fees and services. From time to time and as requested by our clients, we may provide teacher training services, IT consulting
and system integration services, commission charges and other testing-related services to our clients. We recognize revenue upon completion
of the services, which usually occurs within a short period of time. We may also receive payments for additional copies of training materials
and test peripherals, for which we recognize revenue upon receiving cash.
Cost of Revenues
Our cost of revenues consists primarily of test monitoring costs, payroll compensation, royalty fees, cost of inventories sold, technical
support and other related costs, all of which are directly attributable to the provision of our testing services, test preparation and training
solutions and our other services. The following table shows our cost of revenues and gross profit for the periods indicated:
2011
RMB
%
Net Revenues
Cost of Revenues
Gross Profit
303,904
149,216
154,688
100.0%
49.1%
50.9%
Test Monitoring Costs
For the fiscal year ended March 31,
2012
RMB
%
RMB
(in thousands, except for percentages)
352,085
158,818
193,267
100.0%
45.1%
54.9%
366,675
188,832
177,843
2013
US$
59,038
30,404
28,634
%
100.0%
51.5%
48.5%
Test monitoring costs consist of fees paid to test centers, including a fixed fee per test taker, which varies for different tests, for hire of
test proctors, rental of testing facilities and a fee for the peripheral items used for the provision of our testing services, such as USB flash
drives used for security control keys, computer cameras used during testing for communication and identification, compact discs used to
store and deliver our testing software, and signage used to identify and brand our ATA authorized test centers.
Payroll Compensation
Payroll compensation consists of base salary and related welfare benefits paid to staff in our services implementation and customer
support departments.
Royalty Fees
Royalty fees primarily consist of fees paid to IT vendors for the use of their proprietary content in our course programs and our
computer-based tests, fees paid to ETS for the rights to be the exclusive country master distributor in mainland China for TOEIC, and license
computer-based tests, fees paid to ETS for the rights to be the exclusive country master distributor in mainland China for TOEIC, and license
fees paid to Saville Consulting for its psychometric assessment tests used in our HR Select service.
For fees paid to IT vendors, we pay substantially all of these royalty fees under an enrollment model, whereby royalty fees are
determined based on the number of students who enroll in the course.
Cost of Inventory
Cost of inventory is comprised of cost of the printed learning material and test paper that are pre-printed by third parties and that we
record as inventory and the cost of inventory write-down due to obsolescence. In the case of learning material, when a school contracts with
us for degree major and single course programs, we deliver the related compact discs and textbooks and other course materials prior to the
start of the course programs. These learning materials will be recognized as costs upon delivery. In the case of test paper, cost is recognized
when the test papers are used in delivering the paper-based exam. Cost of inventory is recognized on a first-in-first-out basis.
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Factors Affecting Gross Margin
Our gross margin is primarily affected by changes in gross margins from our testing services, which in turn are significantly affected
by our revenue per test and test related costs, including the fees we pay for test monitoring to test centers.
Operating Expenses
Our operating expenses consist of general and administrative expenses, sales and marketing expenses, research and development
expenses, and provision for doubtful accounts.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and benefits, travel, administration and share-based
compensation expenses for our administrative, management and finance personnel, as well as other expenses including professional fees,
office expenses and rental costs.
Sales and Marketing Expenses
Our sales and marketing expenses consist primarily of salaries and benefits, travel, and share-based compensation expenses for our
sales and marketing personnel, as well as other expenses including sales agency fees, conference hosting expenses, advertising and
promotional expenses, entertainment expenses and other sales and marketing expenses.
Research and Development Expenses
Our research and development expenses consist primarily of costs of equipment used in our research and development activities,
salaries and benefits for our research and development personnel, cost of outsourcing services and other costs relating to the design,
development, testing and enhancement of our products and services.
Provision for Doubtful Accounts
The provision for doubtful accounts represents our best estimate of the amount of probable credit losses resulting from our customers
or non-customer business partners’ inability to make required payments. We consider age of doubtful receivable, historical collection
experience, and business partners’ individual facts.
Taxation
Cayman Islands & British Virgin Islands
Under the current laws of the Cayman Islands and the British Virgin Islands, the Company, and ATA BVI are not subject to income
tax. In addition, upon any payments of dividends by the Company or ATA BVI, no Cayman Islands or British Virgin Islands withholding
tax is imposed.
People’s Republic of China
Our subsidiaries and our variable interest entity, or VIE, operating in the PRC are subject to PRC taxes as described below:
Enterprise income tax. Effective from January 1, 2008, the New EIT Law imposes a tax rate of 25% on all enterprises, including
foreign-invested enterprises, and terminates many of the tax exemptions, reductions and preferential treatments available under previous tax
laws and regulations. Under the New EIT Law, qualified “high-and-new technology enterprises eligible for key support from the State”
(“HNTE”) are entitled to a preferential tax rate of 15% and subject to an annual review during the valid period of their HNTE certificates. In
December 2008, ATA Testing was recognized as a HNTE and obtained a HNTE certificate, which entitled ATA Testing to a preferential tax
rate of 15% for calendar years from 2008 to 2010. ATA Testing successfully renewed its HNTE certificate for another three years starting
from 2011, and therefore it is entitled to a preferential tax rate of 15% retroactively from January 1, 2011 to December 31, 2013. In
from 2011, and therefore it is entitled to a preferential tax rate of 15% retroactively from January 1, 2011 to December 31, 2013. In
December 2009, each of ATA Learning, ATA Online and Beijing JDX received approval from the tax authority that it qualified as an HNTE
for three years, entitling them to a preferential income tax rate of 15% for calendar years 2009 to 2011. In July, May and July of 2012, ATA
Learning, ATA Online and Beijing JDX successfully renewed their HNTE certificates, respectively, for another three years from 2012 and
therefore are entitled to a preferential tax rate of 15% for calendar years 2012 to 2014. In the event ATA Testing, ATA Learning, ATA
Online and Beijing JDX are unable to renew their HNTE certificates, they will be subject to the standard statutory enterprise income tax rate
of 25%. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Regulation of Our Business—The discontinuation of any of the
preferential tax treatments currently enjoyed by our subsidiaries in the PRC could materially increase our tax obligations.”
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In addition, under the New EIT Law, an enterprise established under the laws of a foreign country or region whose “de facto
management body” is located within the PRC territory is considered a resident enterprise and will generally be subject to the enterprise
income tax at the rate of 25% on its global income. According to the Implementation Rules to the New EIT Law, “de facto management
body” refers to a managing body that exercises, in substance, overall management and control over the production and business, personnel,
accounting and assets of an enterprise. We have preliminarily determined that our overseas entities are not PRC resident enterprises for PRC
income tax purposes. However, if we and our overseas entity were considered PRC resident enterprises, we would be subject to the
enterprise income tax at the rate of 25% on our global income. See “Item 3. Key Information—D. Risk Factors—Risks Relating to
Regulation of Our Business—Under the New EIT Law, we may be classified as a “resident enterprise” of China. Such classification will
likely result in unfavorable tax consequences to us and U.S. holders of our ADSs or ordinary shares,” and “Item 10. Additional Information
— E. Taxation — People’s Republic of China Taxation.”
In addition, the New EIT Law revokes the exemption of withholding tax on dividends paid by a PRC enterprise to its foreign
investors under the old tax law and its Implementation Rules provide that a withholding tax of 10% (or other applicable withholding tax rates
based on tax treaties between the PRC and other jurisdictions) will generally be applicable to dividends payable to foreign investors. To the
extent we and our overseas entity are not considered as PRC resident enterprises, the dividends that our PRC subsidiary pay to us will be
subject to this withholding tax. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Regulation of Our Business—Under the
New EIT Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences
to us and U.S. holders of our ADSs or ordinary shares.” The undistributed earnings generated before January 1, 2008 shall be exempt from
withholding tax when such earnings are distributed to the foreign investor in the year 2008 or thereafter. As of March 31, 2013, we have not
provided for income taxes on accumulated earnings of RMB142.5 million ($22.9 million) generated by our PRC consolidated entities since
January 1, 2008 as we plan to indefinitely reinvest these earnings in the PRC.
Under applicable Chinese tax laws, foreign-invested enterprises and domestic Chinese companies may carry forward tax losses up to
five years. In view of cumulated losses noted by certain of our PRC subsidiaries and affiliated entity, as of March 31, 2013, we provided full
valuation allowance for their deferred income tax assets after consideration of the schedule reversal of existing deferred income tax liabilities.
Value-added tax, or VAT, refunds. Pursuant to Notice on Printing and Distribution of Several Policies to Further Stimulate the
Development of Software and Integrated Circuit Industries promulgated by the State Council on January 28, 2011, Beijing JDX is currently
entitled to a VAT refund for the portion of VAT paid in excess of the effective VAT burden of 3% after it pays its VAT at the statutory rate
of 17% for sales of certain software products.
Business tax and VAT pilot program. ATA Testing, ATA Learning, ATA Online and Beijing JDX were subject to business tax at a
rate of 5% for their gross revenues generated from service and license fees. However, this business tax was replaced by VAT starting from
September 1, 2012 for these four entities when a pilot program of VAT in lieu of business tax was rolled out in certain provinces and cities
in the PRC including Beijing, at a rate of 6% for such revenues. In addition, pursuant to a circular on the VAT pilot program, ATA Testing
is currently exempted from VAT for certain services it provided to customers outside of China until December 31, 2013.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates
and assumptions that affect the reported amounts of our assets and liabilities, disclosure of contingent assets and liabilities on the date of each
set of consolidated financial statements and the reported amounts of revenues and expenses during each 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 to be reasonable under the circumstances. Since the use of estimates is an integral component of
the financial reporting process, actual results could differ from those estimates as a result of changes in our estimates or changes in the facts
or circumstances underlying our estimates and assumptions.
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An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters
that are highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or
changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial
statements. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies
discussed below to be critical to an understanding of our consolidated financial statements as their application places the most significant
demands on our management’s judgment. When reviewing our consolidated financial statements, you should take into account:
· our critical accounting policies discussed below;
· the related judgments made by us and other uncertainties affecting the application of these policies;
· the sensitivity of our reported results to changes in prevailing facts and circumstances and our related estimates and assumptions; and
· the risks and uncertainties described under Item 3.D. “Key Information — Risk Factors.”
See note 2 to our audited consolidated financial statements for additional information regarding our significant accounting policies.
Basis of Consolidation
Our consolidated financial statements included elsewhere in this annual report include the financial statements of ATA Inc., its
subsidiaries and VIE. All significant transactions and balances among ATA Inc., its subsidiaries and VIE have been eliminated upon
consolidation.
ATA Inc. and its subsidiaries have no legal ownership interest in ATA Online. The legal registered capital interests of ATA Online
are held by Mr. Kevin Xiaofeng Ma, the Company’s co-founder, chairman and chief executive officer and Mr. Walter Lin Wang, the
Company’s co-founder and director, both of whom are also the beneficial owners of the ATA Inc. Through a series of contractual
agreements, including loan agreements, a call option and cooperation agreement, an equity pledge agreement, a technical support agreement, a
strategic consulting service agreement and powers of attorney (collectively, the “VIE Agreements”) which were entered among ATA BVI,
ATA Learning, ATA Online and ATA Online’s shareholders, we have a controlling financial interest in ATA Online because we have (i)
the power to direct activities of ATA Online that most significantly impact the economic performance of ATA Online; and (ii) the obligation
to absorb the expected losses and the right to receive expected residual return of ATA Online that could potentially be significant to ATA
Online.
Accordingly, the financial statements of ATA Online are consolidated in our consolidated financial statements. All of the equity (net
assets) and net income or losses of ATA Online are attributed to us; therefore, non-controlling interest in ATA Online is not presented in our
consolidated financial statements.
Bad Debt Allowance
We perform ongoing credit evaluations of our customers’ financial conditions and generally do not require collateral on accounts
receivable.
The activity in the allowance for doubtful accounts for accounts receivable for the years ended March 31, 2011, 2012 and 2013 is as
follows:
For the fiscal year ended March 31,
2012
RMB
27,938,198
2,350,990
(189,183)
30,100,005
2013
RMB
30,100,005
9,140,062
(4,234,998)
35,005,069
US$
4,846,397
1,471,640
(681,876)
5,636,161
2011
RMB
29,934,512
2,235,627
(4,231,941)
27,938,198
51
Beginning allowance for doubtful accounts
Additions charged to bad debt expense
Write-off of accounts receivable
Ending allowance for doubtful accounts
Table of Contents
Income Taxes
We assess the likelihood that our net deferred income tax assets will be realized. To the extent that we believe that it is more likely than
not that some portion or the entire amount of deferred income tax assets will not be realized, we establish a valuation allowance.
In assessing the realizability of deferred income tax assets, we consider whether it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible or tax loss carried forward are utilized. We
consider the scheduled reversal of deferred income tax liability, projected future taxable income and tax planning strategies in making this
assessment.
As of March 31, 2013, we believe it is more likely than not that we will realize the deferred income tax assets, net of the valuation
allowance of RMB0.9 million ($0.1 million). The amount of the deferred income tax assets considered realizable as of March 31, 2013 could
be reduced in the near term if estimates of future taxable income are reduced.
For each of the year ended March 31, 2011, 2012 and 2013, we had no unrecognized tax benefits relating to uncertain tax positions.
Also, we do not expect that the amount of unrecognized tax benefits will significantly increase within the next twelve months.
According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is
According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is
due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special
circumstances where the underpayment of taxes is more than RMB100,000. In the case of transfer pricing issues, the statute of limitations is
ten years. There is no statute of limitations in the case of tax evasion. The income tax return of each of the Company’s PRC consolidated
entities is subject to examination by the relevant tax authorities for the calendar tax years beginning in 2008.
Share-based payment
The Group measures the cost of employee share options or similar equity instruments based on the grant date fair value of the award
and recognizes that cost over the period during which an employee is required to provide services in exchange for the award, which generally
is the vesting period. When no future services are required to be performed by the employee in exchange for an award of equity instruments,
and if such award does not contain a performance or market condition, the cost of the award is expensed on the grant date. When there is a
modification of the terms and conditions of an award of equity instruments, the Company measures the pre-modification and post-
modification fair value of the equity instruments as of the modification date and recognizes the incremental value as compensation cost over
the remaining service period.
When there is a change in the grantee status from an employee to a non-employee, if grantee retains the awards on a change in status
and continues to provide substantive services to the Group, the change in status results in a new measurement date for the unvested awards
with compensation costs measured as if the awards were newly issued to the grantee on the date of the change in status. If grantee retains the
awards on a change in status and is not required to provide substantive services to the grantor subsequent to that change in status, the change
in status is, in substance, an acceleration of the vesting of the arrangement.
Results of Operations
The following table sets forth a summary, for the periods indicated, of our consolidated results of operations and each item expressed
as a percentage of our total net revenues. Our historical results presented below are not necessarily indicative of the results that may be
expected for any future period.
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Net revenues:
Testing services
Test preparation and training
solutions
Other
Total net revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Provision for doubtful
accounts
Total operating expenses
Income from operations
Interest income
Foreign currency exchange
gains, net
Earnings before income tax
Income tax expense
Net income
Basic earnings per common share
Diluted earnings per common share
243,103
15,427
45,374
303,904
149,216
154,688
22,756
54,382
54,422
2,236
133,796
20,892
1,036
1,138
23,066
3,312
19,754
2011
2012
For the fiscal year ended March 31,
RMB
% of net
revenues
% of net
revenues
(In thousands, except for percentages and per share data)
RMB
RMB
2013
US$
% of net
revenues
80.0%
290,881
82.6%
335,791
54,066
91.6%
5.1%
14.9%
26,996
34,208
100.0% 352,085
49.1%
158,818
50.9% 193,267
7.7%
9.7%
11,343
19,541
100.0% 366,675
45.1%
188,832
54.9% 177,843
1,826
3,146
59,038
30,404
28,634
3,517
7,953
11,343
1,472
24,285
4,349
503
12
4,865
1,128
3,737
3.1%
5.3%
100.0%
51.5%
48.5%
6.0%
13.5%
19.2%
2.5%
41.2%
7.3%
0.9%
0.0%
8.2%
1.9%
6.3%
5.2%
13.2%
17.5%
21,846
49,394
70,449
0.7%
9,140
36.6% 150,830
27,013
18.3%
3,122
0.6%
1.0%
19.9%
4.1%
15.8%
77
30,213
7,005
23,208
For the fiscal year ended March 31,
2012
RMB
1.22
1.19
2013
RMB
US$
0.50
0.50
0.08
0.08
7.5%
17.9%
17.9%
18,402
46,345
61,683
0.7%
2,351
44.0% 128,781
64,486
6.9%
2,061
0.3%
0.4%
7.6%
1.1%
6.5%
3,633
70,180
14,339
55,841
2011
RMB
53
0.44
0.44
Table of Contents
Fiscal Year Ended March 31, 2013 Compared to Fiscal Year Ended March 31, 2012
Net Revenues
Our total net revenues increased by RMB14.6 million, or 4.1%, to RMB366.7 million ($59.0 million) in the fiscal year ended
March 31, 2013 from RMB352.1 million in the fiscal year ended March 31, 2012, as a result of increases in net revenues from our testing
services.
Testing services. Testing services net revenues increased by RMB44.9 million, or 15.4% to RMB335.8 million ($54.1 million) in the
fiscal year ended March 31, 2013 from RMB290.9 million in the fiscal year ended March 31, 2012, primarily due to the addition of exams
for the CICPA and an increase in the volume of exams for the CBA. Our testing services for exams for the CICPA generated RMB54.3
million ($8.7 million) of net revenues in the fiscal year ended March 31, 2013. Our net revenues from testing services provided to the CBA
increased from RMB35.0 million in the fiscal year ended March 31, 2012 to RMB60.6 million ($9.8 million) in the fiscal year ended
March 31, 2013. However, our net revenues from testing services provided to the SAC and the China Futures Association (“CFA”)
decreased by RMB33.8 million ($5.4 million) and RMB3.3 million ($0.5 million), respectively, in the fiscal year ended March 31, 2013 due
to a year-over-year decrease in exam volumes attributable to reduced demand for qualified securities professionals due to a downturn in the
financial industry in China related to the poor performance of the PRC stock market. The total number of billable tests delivered increased to
8,744,859 in the fiscal year ended March 31, 2013 from 8,026,639 in the fiscal year ended March 31, 2012. Our net revenues from TOEIC
and HR Select remained steady at RMB88.4 million ($14.2 million) in the fiscal year ended March 31, 2013 as compared to RMB88.0
million in the fiscal year ended March 31, 2012.
Test preparation and training solutions. Our revenues from test preparation and training solutions decreased by RMB15.7 million, or
58.0%, to RMB11.3 million ($1.8 million) in the fiscal year ended March 31, 2013 from RMB27.0 million in the fiscal year ended
March 31, 2012, primarily as a result of a 63.2% reduction in revenues from online training courses for the SAC due to a change in our
contract with SAC under which revenue was recognized from a per training hour basis prior to December 2011 to a fixed annual fee from
December 2011 and a 77.5% reduction in revenues from online services for the CFA attributable to reduced demand for qualified securities
professionals in China.
Other revenues. Other revenues decreased by RMB14.7 million, or 42.9%, to RMB19.5 million ($3.1 million) in the fiscal year
ended March 31, 2013 from RMB34.2 million in the fiscal year ended March 31, 2012, primarily due to a 46.3% decrease to RMB6.8
million ($1.1 million) for test-based education services and a 89.9% decrease to RMB1.1 million ($0.2 million) in certificate delivery as we
continue to make a gradual exit from these businesses.
Gross Profit
Our gross profit decreased by RMB15.5 million to RMB177.8 million ($28.6 million) in the fiscal year ended March 31, 2013 from
RMB193.3 million in the fiscal year ended March 31, 2012. Our gross margin decreased to 48.5% in the fiscal year ended March 31,
2013 from 54.9% in the fiscal year ended March 31, 2012. The decrease in our gross margin was primarily due to a year-over-year decrease
in SAC exam volumes, which resulted in lower contributions as percentage of revenue, the decrease in revenues from online test preparation
and training services for the SAC, and implementation expenses to ensure smooth delivery of exams for the CICPA.
Operating Expenses
Our operating expenses increased by RMB22.0 million, or 17.1%, to RMB150.8 million ($24.3 million) in the fiscal year ended
March 31, 2013 from RMB128.8 million in the fiscal year ended March 31, 2012, due to increased spending in the general and
administrative matters, research and development and sales and marketing.
General and administrative expenses. Our general and administrative expenses increased by RMB8.7 million, or 14.2%, to RMB70.4
million ($11.3 million) in the fiscal year ended March 31, 2013 from RMB61.7 million in the fiscal year ended March 31, 2012, primarily
due to expenses relating to our efforts to streamline operations, including RMB5.5 million relating to headcount reduction.
Sales and marketing expenses. Our sales and marketing expenses increased by RMB3.1 million, or 6.6%, to RMB49.4 million ($8.0
million) in the fiscal year ended March 31, 2013 from RMB46.3 million in the fiscal year ended March 31, 2012. Sales and marketing
expenses as a percentage of our total net revenues increased to 13.5% in the fiscal year ended March 31, 2013 from 13.2% in the fiscal year
ended March 31, 2012. This increase was primarily related to a RMB5.3 million increase in salary and welfare expenditures as a result of our
continued efforts to grow our HR Select and TOEIC testing services, which was offset by a decrease of RMB2.9 million in travel and
meeting expenditures driven by a localization of our sales force.
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Research and development expenses. Our research and development expenses increased by RMB3.4 million, or 18.7%, to RMB21.8
million ($3.5 million) in the fiscal year ended March 31, 2013 from RMB18.4 million in the fiscal year ended March 31, 2012, mainly due to
an increase in salary and welfare expenditures for research and development staff.
Provision for doubtful accounts. Bad debt expenses increased by RMB6.7 million, or 288.8%, to RMB9.1 million ($1.5 million) in
the fiscal year ended March 31, 2013 from RMB2.4 million in the fiscal year ended March 31, 2012, primarily due to an increase of
RMB5.5 million ($0.9 million) provision made for the PRC Ministry of Human Resources and Social Security test and a RMB2.1 million
RMB5.5 million ($0.9 million) provision made for the PRC Ministry of Human Resources and Social Security test and a RMB2.1 million
($0.3 million) provision made for receivables from the CBA.
Interest Income
Our interest income increased to RMB3.1 million ($0.5 million) in the fiscal year ended March 31, 2013 from RMB2.1 million in the
fiscal year ended March 31, 2012, primarily due to an increase in interest rates for our current deposits in PRC banks.
Foreign Currency Exchange Gains, Net
We recorded a net foreign currency exchange gain of RMB0.1 million ($0.0 million) in the fiscal year ended March 31, 2013,
compared with a net gain of RMB3.6 million in the fiscal year ended March 31, 2012. Our net foreign currency exchange gain in each of
these fiscal years primarily reflected the effects of appreciation of the Renminbi against the U.S. dollar in relation to the remeasurement of our
RMB denominated bank deposits held by ATA Inc., whose functional currency is in the U.S. dollar.
Income Tax Expense
We had income tax expense of RMB7.0 million ($1.1 million) in the fiscal year ended March 31, 2013, compared to RMB14.3
million in the fiscal year ended March 31, 2012. The decrease in our income tax expense was primarily due to our lower operating income.
Net Income
As a result of the above factors, our net income decreased to RMB23.2 million ($3.7 million) in the fiscal year ended March 31, 2013
from net income of RMB55.8 million in the fiscal year ended March 31, 2012.
Our basic earnings per common share and diluted earnings per common share decreased to RMB0.50 ($0.08) and RMB0.50 ($0.08)
in the fiscal year ended March 31, 2013 from RMB1.22 and RMB1.19 in the fiscal year ended March 31, 2012.
Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011
Net Revenues
Our total net revenues increased by RMB48.2 million, or 15.9%, to RMB352.1 million in the fiscal year ended March 31, 2012 from
RMB303.9 million in the fiscal year ended March 31, 2011, as a result of increases in net revenues from our testing services and test
preparation and training solutions segments.
Testing services. Testing services net revenues increased by RMB47.8 million, or 19.7% to RMB290.9 million in the fiscal year
ended March 31, 2012 from RMB243.1 million in the fiscal year ended March 31, 2011, primarily due to an increase in the volume and price
of exams for the SAC, the addition of the China Customs exam, and a 61.3% increase in revenues from the HR Select and TOEIC business
lines. The total number of billable tests delivered increased to 8,026,639 in the fiscal year ended March 31, 2012 from 6,907,158 in the fiscal
year ended March 31, 2011. Our net revenues from testing services provided to the SAC grew to RMB110.3 million in the fiscal year ended
March 31, 2012 from RMB103.5 million in the fiscal year ended March 31, 2011. Our net revenues from TOEIC and HR Select grew to
RMB88.0 million in the fiscal year ended March 31, 2012 from RMB54.5 million in the fiscal year ended March 31, 2011.
Test preparation and training solutions. Our revenues from test preparation and training solutions increased by RMB11.6 million, or
75.0%, to RMB27.0 million in the fiscal year ended March 31, 2012 from RMB15.4 million in the fiscal year ended March 31, 2011,
primarily as a result of higher revenues in the online training courses for the SAC.
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Other revenues. Other revenues decreased by RMB11.2 million, or 24.6%, to RMB34.2 million in the fiscal year ended March 31,
2012 from RMB45.4 million in the fiscal year ended March 31, 2011, primarily due to a 51.0% decrease to RMB12.6 million for test-based
education services as we continue to make a gradual exit from this business.
Gross Profit
Our gross profit rose by RMB38.6 million to RMB193.3 million in the fiscal year ended March 31, 2012 from RMB154.7 million in
the fiscal year ended March 31, 2011. Our gross margin increased to 54.9% in the fiscal year ended March 31, 2012 from 50.9% in the fiscal
year ended March 31, 2011. The increase in our gross margin was primarily due to the significant growth in revenues from online test
preparation and training services and the unit price increase for SAC exams.
Operating Expenses
Our operating expenses decreased by RMB5.0 million, or 3.7%, to RMB128.8 million in the fiscal year ended March 31, 2012 from
RMB133.8 million in the fiscal year ended March 31, 2011, primarily due to decreased spending in research and development and sales and
marketing.
General and administrative expenses. Our general and administrative expenses increased by RMB7.3 million, or 13.3%, to RMB61.7
million in the fiscal year ended March 31, 2012 from RMB54.4 million in the fiscal year ended March 31, 2011 primarily due to an increase
million in the fiscal year ended March 31, 2012 from RMB54.4 million in the fiscal year ended March 31, 2011 primarily due to an increase
of RMB7.9 million in share-based compensation.
Sales and marketing expenses. Our sales and marketing expenses decreased by RMB8.0 million, or 14.8%, to RMB46.3 million in
the fiscal year ended March 31, 2012 from RMB54.4 million in the fiscal year ended March 31, 2011. Sales and marketing expenses as a
percentage of our total net revenues decreased to 13.2% in the fiscal year ended March 31, 2012 from 17.9% in the fiscal year ended
March 31, 2011. This decrease was primarily related to a RMB6.6 million decrease in marketing expenditures and a RMB1.5 million
decrease in salaries and compensation. However, we expect that our sales and marketing expenses will increase in the near term as we
believe it is a worthwhile investment of our current profits for the future.
Research and development expenses. Our research and development expenses decreased to RMB18.4 million in the fiscal year ended
March 31, 2012 from RMB22.8 million in the fiscal year ended March 31, 2011.
Provision for doubtful accounts. Bad debt expenses increased slightly by RMB0.1 million, or 5.2%, to RMB2.4 million in the fiscal
year ended March 31, 2012 from RMB2.2 million in the fiscal year ended March 31, 2011.
Interest Income
Our interest income increased to RMB2.1 million in the fiscal year ended March 31, 2012 from RMB1.0 million in the fiscal year
ended March 31, 2011. Our interest income was higher in the fiscal year ended March 31, 2012 because of higher interest rates.
Foreign Currency Exchange Gains, Net
We recorded a net foreign currency exchange gain of RMB3.6 million in the fiscal year ended March 31, 2012, compared with a net
gain of RMB1.1 million in the fiscal year ended March 31, 2011, primarily due to the increase of the effects of appreciation of Renminbi
against the U.S. dollar in relation to the remeasurement of our RMB denominated bank deposits held by ATA Inc., whose functional
currency is the U.S. dollar.
Income Tax Expense
Our income tax expense increased to RMB14.3 million in the fiscal year ended March 31, 2012 from RMB3.3 million in the fiscal
year ended March 31, 2011 primarily due to higher operating income generated by ATA Testing and ATA Online.
Net Income
As a result of the above factors, our net income increased to RMB55.8 million in the fiscal year ended March 31, 2012 from a net
income of RMB19.8 million in the fiscal year ended March 31, 2011.
Our basic earnings per common share and diluted earnings per common share increased to RMB1.22 and RMB1.19 in the fiscal year
ended March 31, 2012 from RMB0.44 and RMB0.44 in the fiscal year ended March 31, 2011.
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B. Liquidity and Capital Resources
We have financed our working capital and capital expenditure requirements primarily through cash provided by operating activities
and the proceeds from our 2008 initial public offering.
As of March 31, 2013, we had RMB290.0 million ($46.7 million) in cash. Our cash was primarily deposited with reputable banks in
China and Hong Kong. We intend to finance our future additional working capital and capital expenditure needs principally from cash
provided by operating activities.
We believe that our current cash and expected future cash flows from operating activities, particularly from testing services and test
preparation and training solutions, is sufficient to meet our present working capital requirements. Our current expansion plans do not require
significant capital commitments. We do not expect our short-term and long-term cash requirements to be materially different. Nevertheless,
we may require additional sources of liquidity in the event of changes in business conditions or other future developments. Factors affecting
our sources of liquidity include our sales performance and changes in working capital. Any changes in the significant factors affecting our
revenues from testing services, test-based educational services and test preparation and training solutions may cause material fluctuations in
our cash generated from operations. See “— Net Revenues” for a description of these significant factors. Changes in working capital,
including any significant shortening or lengthening of our accounts receivable cycle or client prepayment cycles, may also cause fluctuations
in our cash generated from operations. If our sources of liquidity are insufficient to satisfy our cash requirements, we may seek to sell
additional equity or debt securities to meet our cash needs. The sale of convertible debt securities or additional equity securities could result in
dilution to our shareholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and
financial covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms
acceptable to us, if at all.
The following table summarizes our net cash flows with respect to operating activities, investing activities and financing activities in
the fiscal years ended March 31, 2011, 2012 and 2013:
For the fiscal year ended March 31,
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Operating Activities
2011
RMB
2012
RMB
2013
RMB
US$
62,098
(3,875)
—
(4,039)
54,184
213,874
268,058
(In thousands)
59,353
(5,347)
(61,967)
(2,929)
(10,890)
268,058
257,168
67,778
(7,967)
(26,574)
(375)
32,862
257,168
290,030
10,913
(1,283)
(4,279)
(60)
5,291
41,407
46,698
Net cash provided by operating activities was RMB67.8 million ($10.9 million) in the fiscal year ended March 31, 2013, mainly
attributable to cash collection from revenues of RMB372.1 million, partially offset by cash paid for test monitoring costs and royalty fees of
RMB141.1 million and cash paid for payroll and other operating expenses of RMB163.2 million.
Net cash provided by operating activities was RMB59.4 million in the fiscal year ended March 31, 2012, mainly attributable to cash
collection from revenues of RMB322.6 million, partially offset by cash paid for test monitoring costs and royalty fees of RMB102.7 million,
cash paid for payroll and other operating expenses of RMB143.5 million, and cash paid for income taxes of RMB17.0 million.
Net cash provided by operating activities was RMB62.1 million in the fiscal year ended March 31, 2011, mainly attributable to
RMB329.9 million cash collection from revenues, partially offset by test monitoring costs and royalty fees of RMB 101.5 million, cash paid
for payroll and other operating expenses of RMB159.6 million and cash paid for income taxes of RMB 6.7 million.
Investing Activities
Net cash used in investing activities in the fiscal year ended March 31, 2013 of RMB8.0 million ($1.3 million) was primarily
attributable to capital expenditures for the construction of the Chengdu test center and purchase of IT infrastructure and security equipment
for a data center in Beijing.
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Net cash used in investing activities in the fiscal year ended March 31, 2012 of RMB5.3 million was primarily attributable to capital
expenditures for the purchase of computers and electronic equipment.
Net cash used in investing activities in the fiscal year ended March 31, 2011 of RMB3.9 million was primarily attributable to capital
expenditures for the purchase of computers and electronic equipment.
Financing Activities
Net cash used in financing activities in the fiscal years ended March 31, 2012 and 2013 was primarily attributable to payment of
dividends. On August 7, 2012, the Company announced that its Board of Directors declared a special cash dividend of $0.087 per common
share, or $0.174 per ADS. The total amount of cash distributed in the dividend was $4.0 million, which was paid from cash held by ATA
Inc. The dividend was paid to all shareholders of record as of the close of business on August 20, 2012. On June 1, 2011, the Company
announced that its Board of Directors declared a special cash dividend of $0.215 per common share, or $0.43 per ADS. The total amount of
cash distributed in the dividend was $9.8 million, which was paid from the cash held by ATA Inc. The dividend was paid to all shareholders
of record as of the close of business on June 30, 2011. For a discussion of the limitations on the ability of our operating subsidiaries to pay
dividends to us, see Item 8.A, “Financial Information — Dividend Policy.”
Capital Expenditures
The following table sets forth our historical capital expenditures for the periods indicated. Actual future capital expenditures may
differ from the amounts indicated below.
Total capital expenditures
For the fiscal year ended March 31,
2011
RMB
2012
RMB
2013
RMB
US$
3,875
(In thousands)
5,368
7,967
1,283
Historically, our capital expenditures have been made primarily for the purchase of office space, software, computer equipment and
servers.
Foreign Currency Exchange
ATA Inc. and ATA BVI’s functional currency is the U.S. dollar. As of March 31, 2013, we had RMB290.0 million ($46.7 million)
in cash, including RMB16.7 million ($2.7 million) RMB-denominated bank deposits in Hong Kong held by ATA Inc. The functional
currency of our PRC subsidiaries and variable interest entity is Renminbi. The non-Renminbi portion of our revenues primarily consists of
currency of our PRC subsidiaries and variable interest entity is Renminbi. The non-Renminbi portion of our revenues primarily consists of
U.S. dollar-denominated licensing fees and royalty payments, while the non-Renminbi portion of our expenditures primarily consists of
professional fees and royalty payments, either denominated in U.S. dollars or Hong Kong dollars. Fluctuations in exchange rates, primarily
those involving the U.S. dollar against the Renminbi, may affect our costs and operating margins and our reported operating results. Under
the current foreign exchange system in China, our operations in China may not be able to hedge effectively against currency risk, including
any possible future Renminbi devaluation. See Item 3.D. “Key Information — Risk Factors — Risks Relating to the People’s Republic of
China — Fluctuations in exchange rates could result in foreign currency exchange losses.”
Recent Accounting Pronouncements
In June 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-05, Presentation of Comprehensive Income (“ASU
2011-05”), which amended accounting guidance related to presentation of comprehensive income. The standards update is intended to help
financial statement users better understand the causes of an entity’s change in financial position and results of operation. The amendment
eliminates the option to present components of other comprehensive income as part of the statement of changes in equity. The amendment
requires that all non-owner changes in equity be presented either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. The guidance also requires that reclassification adjustments for items that are reclassified from other
comprehensive income to net income be presented on the face of the financial statement where the components of net income and other
comprehensive income are presented. In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to
the Presentation of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-
12”), which defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated
other comprehensive income. ASU 2011-05 and ASU 2011-12 are effective for reporting periods beginning after December 15, 2011. The
Company adopted the new guidance on April 1, 2012.
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In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income (“ASU 2013-02”). The standard requires that companies present either in a single note or parenthetically on the face of the financial
statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its
source (e.g., the release due to cash flow hedges from interest rate contracts) and the income statement line items affected by the
reclassification (e.g., interest income or interest expense). If a component is not required to be reclassified to net income in its entirety (e.g.,
the net periodic pension cost), companies would instead cross reference to the related footnote for additional information (e.g., the pension
footnote). ASU 2013-02 is effective for interim and annual reporting periods beginning after December 15, 2012. The Company will adopt
the provisions of the new guidance on April 1, 2013. The adoption will not have a material impact on its consolidated financial statements or
related disclosures.
C. Research and Development, Patents and Licenses, Etc.
Research and development is important to our continued success. Our research and development initiatives are designed to improve
our existing testing technologies and to develop new and innovative technologies. We conduct our research and development activities
primarily in-house but may also from time to time outsource certain research and development activities. We have an experienced team of
engineers with expertise in the fields of computing, software, system design, and test design and conversion. Our research and development
team consisted 103 people as of March 31, 2013. We will continue to look selectively for experienced software engineers and other
technology talent to further increase our technological capabilities. While we focus on development of technologies that can be
commercialized and integrated into our service offerings in the short term, we also invest in the research and development of testing
technologies for the medium and long term in preparation for the next generation and cutting-edge products and services. In addition, we are
developing upgrades of our key technologies, including our Dynamic Simulation technology, our ETX platform, our HR Select interface and
our MTS platform. Our total expenses for research and development were RMB22.8 million, RMB18.4 million and RMB21.8 million ($3.5
million) in the fiscal years ended March 31, 2011, 2012 and 2013, respectively.
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or
events for the period from April 1, 2010 to March 31, 2013 that are reasonably likely to have a material adverse effect on our 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 do not currently have, and do not expect in the future to have, any off-balance sheet arrangements or commitments. In our
ongoing business, we do not plan to enter into transactions involving, or otherwise form relationships with, unconsolidated entities or
financial partnerships established for the purpose of facilitating off-balance sheet arrangements or commitments.
F. Tabular Disclosure of Contractual Obligations
Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations as of fiscal year ended March 31, 2013:
Payment Due
Operating Lease Obligations
10,193
5,860
4,333
—
—
Total
Within 1 Year
1-3 Years
(In thousands of RMB)
3-5 Years
More than 5 Years
Our operating lease obligations have comprised of our office lease obligations for our offices in China. These office leases expire at
different times over the period from the date of this annual report through February 2016, and will become subject to renewal. We will
evaluate the need to renew each office lease on a case-by-case basis prior to its expiration.
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Indebtedness
We currently do not have any outstanding debt, debt securities, contingent liabilities, mortgages, or liens.
G. Safe Harbor
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. See
“Introduction—Forward-Looking Statements.”
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth certain information relating to our directors and executive officers as of the date of this annual report.
The business address of each of our directors and executive officers is 8th Floor, Tower E, 6 Gongyuan West Street, Jian Guo Men Nei,
Beijing 100005, China.
Name
Kevin Xiaofeng Ma
Benson Tsang
Walter Lin Wang
Andrew Yan
Hope Ni
Alec Tsui
Jianmin Ding
Alex Tong
Shuqiu Zhao
Amy Tung
Age
49
48
51
55
41
64
47
50
41
41
Position
Chairman of the Board of Directors, Chief Executive Officer
Chief Financial Officer, Principal Financial and Accounting Officer
Director
Director
Director
Director
Senior Vice President
Vice President of Business Development and Investor Relations
Vice President
Vice President
Kevin Xiaofeng Ma is co-founder, chairman of the board and chief executive officer of our company. Prior to co-founding our company,
Mr. Ma co-founded Dynamic Technology Corporation and served as its chief executive officer from 1996 to 1998. From 1990 to 1996,
Mr. Ma served as a general manager in the Hainan High-Tech Industry International Cooperation Center. Previously, Mr. Ma gained
experience as a vice president at the Beijing MDI High-Tech Center, as a director of Beijing Zhongjia Integrated Intelligent System
Engineering, and as a reporter for China Radio International. Mr. Ma is a member of the board of directors of a number of private enterprises
with operations in China, which do not compete with our business. Mr. Ma graduated from Nanjing University with a bachelor’s degree in
economics.
Benson Tsang became our chief financial officer and financial and principal accounting officer in March 2010. Mr. Tsang has more than 21
years of experience in accounting, financial management, and the capital markets. He has held senior financial and management positions in
multinational corporations and international accounting firms, and has financial and accounting experience with companies listed on the New
York Stock Exchange, The Stock Exchange of Hong Kong, and the Singapore Exchange. Mr. Tsang served as Chief Financial Officer of
WuXiPharmatech (Cayman) Inc. (NYSE: WX) from July 2006 to February 2009. Prior to that, Mr. Tsang held senior financial and
management positions in private and public companies, including PCCW Ltd. and Global Tech Holdings Ltd. He served with
PricewaterhouseCoopers and Deloitte Touche Tohmatsu from 1988 to 1996, and between March 2009 and March 2010, Mr. Tsang
provided consulting services through his own firm, the Benita Consulting Company. Mr. Tsang is a member of the Canadian Institute of
Chartered Accountants and the Hong Kong Institute of Certified Public Accountants. He received a bachelor’s degree in commerce and an
MBA degree from McMaster University in Canada.
Walter Lin Wang is a co-founder and director of our company. Prior to co-founding our company, Mr. Wang practiced independent IT
consulting. Mr. Wang also worked as an engineer at the PRC Ministry of Railways. Mr. Wang holds a bachelor’s degree in computer
science from Southwest Jiaotong University and a master’s degree in computer science from University of Central Florida. He resigned as
our president in December 2012 and will continue to work as a consultant to us assisting primarily with the HR Select and TOEIC business.
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Andrew Yan is a Director of our company, and is an independent director pursuant to Nasdaq Stock Market Rule 5605(a)(2). He is the
founding managing partner of SAIF Partners IV, III and SB Asia Investment Fund II L.P., and president and executive managing director of
Softbank Asia Infrastructure Fund. Before joining Softbank Asia Infrastructure Fund in 2001, Mr. Yan was a managing director and the
head of the Hong Kong office of Emerging Markets Partnership from 1994 to 2001. From 1989 to 1994, he worked in the World Bank, the
Hudson Institute and US Sprint Co. as an economist, research fellow and director for Asia, respectively, in Washington, DC. From 1982 to
1984, he was the chief engineer at the Jianghuai Airplane Corp. Mr. Yan was a recipient of China’s National “Thousand Talents Program” in
2012 and a member of its Selection Committee. He is a founding director of China Venture and Private Equity Association and a director of
Peking University Endowment Investment Committee. He was voted by the China Venture Capital Association as “The Venture Investor of
the Year” in both 2004 and 2007. He was also selected as one of the “Fifty Finest Private Equity Investors in the World” by the Private
Equity International in 2007; “No. 1 Venture Capitalist of the Year” by Forbes (China) in 2008 and 2009. He was named the “Venture
Capital Professional of the Year” by Asia Venture Capital Journal in 2009. He is currently an independent non-executive director of China
Petroleum & Chemical Corporation, Mengniu Dairy Company Limited, China Resources Land Limited and Fosun International Limited and
a non-executive director of Guodian Technology & Environment Group Corporation Limited, Digital China Holdings Limited, MOBI
Development Co., Ltd., eSun Holdings Limited and China Huiyuan Juice Group Limited. He is also an independent director of Giant
Interactive Group Inc. and director of Acorn International Inc., and Eternal Asia Supply Chain Co., Ltd. (all 12 companies are listed in the
Hong Kong Stock Exchange, NYSE, NASDAQ, London, Shanghai or Shenzhen Stock Exchanges). He also holds directorship in several
SAIF portfolio companies. Mr. Yan received a master’s degree from Princeton University as well as a bachelor’s degree in engineering from
the Nanjing Aeronautic Institute in the PRC.
Hope Ni has been an independent director of ATA, Inc.. Ms. Ni is currently the chairman of Inspire Capital. She currently also serves on the
boards of KongZhong Corporation (NASDAQ: KONG), JA Solar Holdings Co (NASDAQ: JASO), ATA, Inc. and Digital China
Holdings Ltd. (Stock code: 00861.HK). From 2004 to 2007, Ms. Ni was the chief financial officer and director of COGO Group Inc.
(NASDAQ: COGO), during which, COGO Group increased market capitalization approximately seven times. In 2008, Ms. Ni served as
the vice chairman of COGO Group Inc. Prior to that, Ms. Ni spent six years as a practicing attorney at Skadden, Arps, Slate,
Meagher &Flom LLP in New York and Hong Kong. Earlier in her career, Ms. Ni worked at Merrill Lynch’s investment banking division in
New York. Ms. Ni received her J.D. degree from University of Pennsylvania Law School and her B.S. degree in applied economics and
business management from Cornell University.
Alec Tsui is an independent director on our board. Mr. Tsui is currently an independent non-executive director of a number of companies
listed in Hong Kong, Shanghai, Philippines and in on the Nasdaq Global Market, including, China Chengtong Development Group Limited.,
COSCO International Holdings Limited, China Power International Development Limited, Pacific Online Limited, China Oilfield Services
Limited, Summit Ascent Holdings Limited, Melco Crown Entertainment Limited and Melco Crown (Philippines) Resorts Corporation. He
was the chairman of the Hong Kong Securities Institute from 2001 to 2004. He was an advisor and a council member of the Shenzhen Stock
Exchange from 2001 to 2002. He joined the Hong Kong Stock Exchange in 1994 as an executive director of the finance and operations
services division and became its chief executive in 1997. Prior to that Mr. Tsui served at the Securities and Futures Commission of Hong
Kong from 1989 to 1993. Mr. Tsui graduated from the University of Tennessee with a B.S. degree and a master’s degree in industrial
engineering. He completed a program for senior managers in government at the John F. Kennedy School of Government of Harvard
University.
Jianmin Ding is our senior vice president in charge of marketing and business development. Mr. Ding has been with ATA since 2001. Prior
to joining us, Mr. Ding was the chairman and CEO of Shanghai Linping Property Ltd. Mr. Ding graduated from Nanjing University with a
bachelor’s degree in economics.
Alex Tong is our vice president in charge of business development and investor relations. Prior to joining us in September 2005, Mr. Tong
worked as a general manager for the Asia Pacific region at the Royal Institution of Charted Surveyors from 2003 to 2005. Prior to that,
Mr. Tong worked for Thomson Prometric in the position of executive director from 1999 to 2003 and as the managing director at Pearson
NCS Hong Kong Ltd. from 1997 to 1999. Mr. Tong graduated from University of Nottingham with a bachelor’s degree in education and a
master’s degree of philosophy in education and from the Chinese University of Hong Kong with an executive MBA.
Shuqiu Zhao is our vice president in charge of marketing and business development of our company. Mr. Zhao also oversees our test
delivery services and has been with ATA since 2000. Prior to joining us, Mr. Zhao worked as the general manager of the computer
education center of the Shanghai Pudong New Area. Mr. Zhao graduated from Harbin Institute of Technology with a bachelor’s degree in
technology.
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Amy Tung is a vice president in our company. Prior to joining us in August 2006, she worked as controller in Bayer Healthcare Limited from
2005 to 2006, as senior financial analyst in BEA Systems (Hong Kong) Limited from 2004 to 2005 and as finance manager in Bureau
Veritas Consumer Products Services (Hong Kong) Limited from 2002 to 2004. Ms. Tung graduated from the Chinese University of Hong
Kong with a master’s degree in business administration and Columbia University with a master’s degree in financial engineering. Ms. Tung
is also a member of the Association of Chartered Certified Accountants and the Institute of Chartered Secretaries and Administrators.
B. Compensation
For the fiscal year ended March 31, 2013, we and our subsidiaries paid aggregate cash compensation of approximately RMB7.6
million ($1.2 million) to our directors and executive officers as a group, and no restricted share was granted to directors and selected
executive officers. We do not pay or set aside any amounts for pension, retirement or other benefits for our officers and directors.
Share Incentives
We adopted a share incentive plan, or the 2005 Plan, in April 2005. We adopted our 2008 Employee Share Incentive Plan, or the 2008
Plan, in January 2008. Our share incentive plans are intended to promote our success and to increase shareholder value by providing an
additional means to attract, motivate, retain and reward selected directors, officers, employees and other eligible persons. An aggregate of
3,310,300 common shares are reserved for issuance under the 2005 Plan. Subject to any amendment of our 2008 Plan by our directors, the
maximum aggregate number of common shares that may be issued pursuant to all awards under the 2008 Plan is 336,307 shares, plus,
unless the board of directors determines a lesser amount, an annual increase on January 1 of each calendar year beginning in 2009 equal to
the lesser of (x) one percent (1%) of the number of shares issued and outstanding on December 31 of the immediately preceding calendar
year, and (y) 336,307 shares. As of March 31, 2013, 2,017,842 shares were authorized for issuance under the 2008 Plan.
We have granted share options and restricted shares under the 2005 Plan and 2008 Plan to selected directors, officers, employees and
individual consultants and advisors. As of June 26, 2013, we have granted a total of 2,747,342 share options that are outstanding under such
plans, of which 2,684,842 have vested. The contractual term of these options is ten years. As of June 26, 2013, we have also granted
885,000 restricted shares that are unvested and outstanding and 826,366 restricted shares that have vested.
Options and restricted shares granted under our share incentive plans generally do not vest unless the grantee remains under our
employment or in service with us on the given vesting date.
Generally, if the grantee’s employment or service with us is terminated for cause, all such grantee’s options under our share incentive
plans, vested and unvested, immediately terminate and become unexercisable. On the other hand, if the grantee’s employment or service with
us is terminated for any reason other than for cause, all such grantee’s vested options terminate and become unexercisable ninety days
following the grantee’s last day of employment or service with us. In circumstances where there is a death or total disability of the grantee,
generally all unvested options immediately terminate and become unexercisable while vested options terminate and become unexercisable
twelve months after the last date of employment or service with us.
Our board of directors may amend, alter, suspend, or terminate our share incentive plans at any time, provided, however, that our
board of directors must first seek the approval of the participants of our share incentive plans if such amendment, alteration, suspension or
termination would adversely affect the rights of participants under any option granted prior to that date. Without further action by our board
of directors, the 2005 Plan will terminate in 2015 and the 2008 Plan will terminate in 2018.
The table below sets forth the share option and restricted share grants made to our current directors and executive officers pursuant to
our share incentive plans:
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Share options
Name
Andrew Yan
Hope Ni
Alec Tsui
Benson Tsang
Jianmin Ding
Alex Tong
Shuqiu Zhao
Amy Tung
Restricted shares
Name
Kevin Xiaofeng Ma
Walter Lin Wang
Andrew Yan
Jianmin Ding
Shuqiu Zhao
Shuqiu Zhao
Amy Tung
Benson Tsang
Hope Ni
Alec Tsui
Number of Common
Shares to be Issued
Upon Exercise of
Options
Exercise Price per
Common Share
330,400
50,000
50,000
300,000
303,800
100,000
23,000
8,000
50,000
$
$
$
$
$
$
$
$
$
2.263
4.75
4.75
2.115
2.263
3.60
2.263
3.60
3.60
Date of Grant
April 12, 2005
January 28, 2008
January 28, 2008
March 29, 2010
April 12, 2005
December 16, 2005
April 12, 2005
October 1, 2007
December 27, 2006
Vesting Start Date
May 1, 2005
January 28, 2008
January 28, 2008
March 29, 2010
May 1, 2005
January 1, 2006
May 1, 2005
July 1, 2007
October 31, 2006
Date of Expiration
April 11, 2015
January 27, 2018
January 27, 2018
March 28, 2020
April 11, 2015
December 15, 2015
April 11, 2015
September 30, 2017
December 26, 2016
Restricted Shares
Date of Grant
Vesting Start Date
200,000 May 30, 2011
200,000 May 30, 2011
100,000 May 30, 2011
160,000 May 30, 2011
100,000 May 30, 2011
30,000
30,000
60,000
60,000
60,000
February 12, 2009
February 16, 2012
February 16, 2012
February 16, 2012
February 16, 2012
June 1, 2011
June 1, 2011
June 1, 2011
June 1, 2011
June 1, 2011
February 12, 2009
February 17, 2012
February 17, 2012
February 17, 2012
February 17, 2012
C. Board Practices
Duties of Directors
Duties of Directors
Under Cayman Islands Law, our directors have a statutory duty of loyalty to act honestly in good faith 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 amended and restated
memorandum and articles of association. A shareholder has 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:
· convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;
· issuing authorized but unissued shares;
· declaring dividends and distributions;
· exercising the borrowing powers of our company and mortgaging the property of our company;
· approving the transfer of shares of our company, including the registering of such shares in our share register; and
· exercising any other powers conferred by the shareholders’ meetings or under our amended and restated memorandum and articles of
association.
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Terms of Directors
63
We have a board of five directors divided into class A, class B and class C directors. As of the date of this annual report, the class A
directors are Kevin Xiaofeng Ma and Walter Lin Wang, the class B director is Andrew Yan, and the class C directors are Hope Ni and Alec
Tsui. Each class of directors will stand for election every year at our annual general meeting of shareholders on a rotating basis. Our class B
director was re-elected at our 2012 annual general meeting, and our class C directors will stand for re-election at our 2013 annual general
meeting. Our chief executive officer, which currently is Kevin Xiaofeng Ma, shall not, while holding office, be subject to retirement or be
taken into account in determining the number of directors to retire in any year. Neither we nor our subsidiaries have any directors’ service
contracts providing for benefits upon termination of employment.
Board Practices
Our board of directors has established an audit committee, a compensation committee and a nominations committee.
Audit Committee
Our audit committee consists of Hope Ni and Alec Tsui. Hope Ni is the chairman of our audit committee. Our board of directors has
determined that Hope Ni and Alec Tsui are “independent directors” within the meaning of Nasdaq Stock Market Rule 5605(a)(2) and meet
the criteria for independence set forth in Rule 10A-3(b) of the Exchange Act. Hope Ni meets the criteria of an audit committee financial
expert as set forth under the applicable rules of the SEC. The third seat on our audit committee is vacant in reliance on Nasdaq Stock Market
Rule 5615(a)(3), which permits a foreign private issuer like us to follow “home country practices” in relation to the composition of its audit
committee. In this regard we have elected to adopt the practices of our home country, the Cayman Islands, which does not require us to have
a three member audit committee or to fill all three seats on the audit committee at this time.
Our audit committee is responsible for, among other things:
· appointing the independent auditor;
· pre-approving all auditing and non-auditing services permitted to be performed by the independent auditor;
· annually reviewing the independent auditor’s report describing the auditing firm’s internal quality-control procedures, any material
issues raised by the most recent internal quality-control review, or peer review, of the independent auditor and all relationships
between the independent auditor and our company;
· setting clear hiring policies for employees and former employees of the independent auditor;
· reviewing with the independent auditor any audit problems or difficulties and management’s responses;
· reviewing and approving all related party transactions on an ongoing basis;
· reviewing and discussing the annual audited financial statements with management and the independent auditor;
· reviewing and discussing with management and the independent auditor major issues regarding accounting principles and financial
statement presentations;
· reviewing reports prepared by management or the independent auditor relating to significant financial reporting issues and judgments;
· discussing earnings press releases with management, as well as financial information and earnings guidance provided to analysts and
rating agencies;
· reviewing with management and the independent auditor the effect of regulatory and accounting initiatives, as well as off-balance
sheet structures, on our financial statements;
· discussing policies with respect to risk assessment and risk management with management, internal auditors and the independent
auditor;
· timely reviewing reports from the independent auditor regarding all critical accounting policies and practices to be used by our
company, all alternative treatments of financial information within U.S. GAAP that have been discussed with management and all
other material written communications between the independent auditor and management;
· establishing procedures for the receipt, retention and treatment of complaints received from our employees regarding accounting,
internal accounting controls, or auditing matters, and the confidential, anonymous submission by our employees of concerns regarding
questionable accounting or auditing matters;
· annually reviewing and reassessing the adequacy of our audit committee charter;
· such other matters that are specifically delegated to our audit committee by our board of directors from time to time;
· meeting separately, periodically, with management, internal auditors and the independent auditor; and
· reporting regularly to the full board of directors.
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Compensation Committee
Our compensation committee consists of Andrew Yan, Hope Ni and Alec Tsui. Andrew Yan is the chairman of our compensation
committee. Our board of directors has determined that all of our compensation committee members are “independent directors” within the
meaning of Nasdaq Stock Market Rule 5605(a)(2).
Our compensation committee is responsible for:
· reviewing and approving our overall compensation policies;
· reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating our
chief executive officer’s performance in light of those goals and objectives, reporting the results of such evaluation to the board of
directors, and determining our chief executive officer’s compensation level based on this evaluation;
· determining the compensation level of our other executive officers;
· making recommendations to the board of directors with respect to our incentive-compensation plan and equity-based compensation
plans;
· administering our equity-based compensation plans in accordance with the terms thereof; and
· such other matters that are specifically delegated to the compensation committee by our board of directors from time to time.
Nominations Committee
Our nominations committee consists of Kevin Xiaofeng Ma, Andrew Yan and Alec Tsui. Kevin Xiaofeng Ma is the chairman of the
nominations committee. Although Nasdaq Stock Market Rules generally require all members of the nominations committee of a listed
company to be “independent directors” within the meaning of Nasdaq Stock Market Rule 5605(a)(2), Nasdaq Stock Market
Rule 5615(a)(3) permits a foreign private issuer like us to follow “home country practices” in relation to composition of its nominations
committee. In this regard, we have elected to adopt the practices of our home country, the Cayman Islands, which does not require that any of
the members of a company’s nominations committee be independent directors.
Our nominations committee is responsible for, among other things:
· seeking and evaluating qualified individuals to become new directors as needed;
· reviewing and making recommendations to the board of directors regarding the independence and suitability of each board member
for continued service; and
· evaluating the nature, structure and composition of other board committees.
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Corporate Governance
Our board of directors has adopted a code of ethics, which is applicable to our senior executive and financial officers. In addition, our
board of directors has adopted a code of conduct, which is applicable to all of our directors, officers, employees and advisors. Our code of
ethics and our code of conduct are publicly available on our web site, http://www.ata.net.cn. In addition, our board of directors has adopted a
set of corporate governance guidelines. The guidelines reflect certain guiding principles with respect to our board’s structure, procedures and
committees. The guidelines are not intended to change or interpret any law, or our amended and restated memorandum and articles of
association.
Interested Transactions
A director may vote with respect to any contract or transaction in which he or she is interested, provided that the nature of the interest
of any director in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote in that matter.
D. Employees
We had 488, 541 and 500 employees as of March 31, 2011, 2012 and 2013, respectively. As of March 31, 2013, we had 134
employees in sales and marketing, 103 in research and development, 182 in client service and support and 81 in general and administrative
functions.
In April 2005, we adopted a share incentive plan, or the 2005 Plan. In January 2008, we adopted our 2008 Employee Share Incentive
Plan, or the 2008 Plan. We use our share incentive plans as an additional means to further attract, motivate, retain and reward selected
directors, officers, employees and third-party consultants and advisors. For more information, see Item 6.B. “Directors, Senior Management
and Employees — Share Incentives — Share Option Plan.” We believe these initiatives have contributed to our ability to attract and retain
talent.
As required by Chinese laws and regulations, we participate in various employee benefit plans that are organized by municipal and
provincial governments, including housing, pension, medical and unemployment benefit plans. We make monthly payments to these plans in
respect of each employee based on the employee’s compensation. We believe that we maintain a good working relationship with our
employees and we have not experienced any significant labor disputes. Our employees have not entered into any collective bargaining
agreements.
According to our contracts with our employees, our employees are generally prohibited from engaging in any activities that compete
with our business during the period of their employment and for two years after termination of their employment with us. Furthermore, all
employees are prohibited, for a period of two years following termination, from soliciting other employees to leave us and, for a period of
five years following termination, from soliciting our existing clients. However, we may have difficulty enforcing these non-competition and
non-solicitation terms in China because the Chinese legal system, especially with respect to the enforcement of such terms, is still developing.
E. Share Ownership
The following table sets forth information with respect to the beneficial ownership, within the meaning of Section 13(d)(3) of the
Exchange Act, of our common shares as of June 26, 2013 by:
· each person known to us to own beneficially more than 5% of our common shares, and
· each of our directors and executive officers
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(3)
Directors and Executive Officers:
Kevin Xiaofeng Ma
Jianmin Ding
Andrew Yan
Walter Lin Wang
Benson Tsang
Shuqiu Zhao
Hope Ni
Alec Tsui
Alex Tong
Amy Tung
Common shares beneficially owned
Number
Number
(2)
(1)
5,644,988
463,800
*
*
*
*
*
*
*
*
12.2%
1.0%
*
*
*
*
*
*
*
*
Amy Tung
Directors and Executive Officers Combined
Principal Shareholders:
SB Asia Investment Fund II L.P.
HSBC International Trustee Limited
(3)
Able Knight Development Limited
Lijun Mai
Government of Singapore Investment Corporation Pte Ltd
(6)
(4)
(5)
*
7,770,188
15,147,208
13,682,740
5,444,988
4,845,000
3,050,076
*
16.8%
32.8%
29.6%
11.8%
10.5%
6.6%
(7)
* Beneficially owns less than 1% of our common shares.
(1)
The number of common shares beneficially owned by each of the listed persons includes common shares that such person has the
right to acquire within 60 days after June 26, 2013.
(2)
Percentage of beneficial ownership for each of the persons listed above is determined by dividing (i) the number of common shares
beneficially owned by such person by (ii) the total number of common shares outstanding, plus the number of common shares such
person has the right to acquire within 60 days after June 26, 2013. The total number of our common shares outstanding as of
June 26, 2013 is 46,169,410.
(3)
Includes i) 200,000 common shares held by Kevin Xiaofeng Ma and (ii) 4,998,988 common shares and 223,000 American
Depositary Shares (representing 446,000 common shares) held by Able Knight Development Limited, which is a British Virgin
Islands company ultimately wholly owned by HSBC International Trustee Limited as trustee of an irrevocable trust constituted under
the laws of the Cayman Islands with Kevin Xiaofeng Ma as the settlor and certain family members of Kevin Xiaofeng Ma as the
beneficiaries. Kevin Xiaofeng Ma is the sole director of Able Knight Development Limited. The business address of Able Knight
Development Limited is Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands.
(4)
Based on Schedule 13D filed jointly by SB Asia Investment Fund II L.P., SAIF II GP L.P., SAIF Partners II L.P. and SAIF II GP
Capital Ltd. on April 26, 2013. Includes 12,707,436 common shares and 1,219,886 ADSs, representing 2,439,772 common shares
held by SB Asia Investment Fund II L.P., a Cayman Islands limited partnership. SAIF II GP Capital Ltd. is the sole general partner
of SAIF Partners II L.P., which is the sole general partner of SAIF II GP L.P., which is in turn the sole general partner of SB Asia
Investment Fund II L.P., which is the record owner of the common shares.
(5)
Based on a Schedule 13G filed by HSBC International Trustee Limited on January 22, 2013. Includes 7,935,924 common shares
and 2,873,408 American Depositary Shares (representing 5,746,816 common shares) beneficially held by HSBC International
Trustee Limited solely in its capacity as trustee of various trusts. The registered address of HSBC International Trustee Limited is 21
Collyer Quay, #09-01 HSBC Building, Singapore 049320.
(6)
Based on a Schedule 13G filed jointly by Lijun Mai, Mutual Step Holdings Limited, Magnificent Trio Company Limited, Wealth
Trust, Art Kind Technology Limited, New Knight Holdings Limited, Sunrise Trust, Art Grace Development Limited, Unique Icon
Limited and Value Trust on February 17, 2009. Includes 1,645,000 common shares held by Mutual Step Holdings Limited,
1,600,000 common shares held by Art Kind Technology Limited and 1,600,000 common shares held by Art Grace Development
Limited. Each of Mutual Step Holdings Limited, Art Kind Technology Limited and Art Grace Development Limited is a British
Virgin Islands company ultimately wholly owned by HSBC International Trustee Limited as trustee of an irrevocable trust
constituted under the laws of Cayman Islands with Lijun Mai or certain family members of Lijun Mai as the settler and beneficiaries.
Lijun Mai is the sole director of Mutual Step Holdings Limited. The business address of each of Mutual Step Holdings Limited, Art
Kind Technology Limited and Art Grace Development Limited is Portcullis TrustNet Chambers, P.O. Box 3444, Road Town,
Tortola, British Virgin Islands.
(7)
Based on a Schedule 13G filed by the Government of Singapore Investment Corporation Pte Ltd on February 6, 2013. According to
the Schedule 13G, the Government of Singapore Investment Corporation Pte Ltd shares power to vote and power to dispose of
2,260,534 common shares and the Monetary Authority of Singapore shares the power to vote and the power to dispose of 789,542
common shares.
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None of our shareholders have different voting rights from other shareholders. To our knowledge, we are not owned or controlled,
directly or indirectly, by another corporation, by any foreign government or by any other natural or legal persons, severally or jointly. None
of our shareholders has different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date,
result in a change of control of our company. See Item 6.B. “Compensation — Share Incentives” for information on options granted to our
current directors and executive officers. To our knowledge, as of June 26, 2013, none of our common shares were held by holders of record
in the United States. However, 24,691,050 common shares were registered in the name of a nominee of Citibank, N.A., the depositary of our
ADSs. It is likely that a large number of beneficial owners of our ADSs reside in the United Sates.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Please refer to Item 6.E, “Directors, Senior Management and Employees — Share Ownership.”
B. Related Party Transactions
Agreements among ATA BVI, ATA Learning and ATA Online
Due to PRC regulatory restrictions on foreign ownership of Internet content businesses in China, we operate the online portion of our
test preparation and training solutions business through ATA Online (Beijing) Education Technology Limited, or ATA Online, which is a
domestic Chinese company incorporated in the PRC in September 2006 and owned by Kevin Xiaofeng Ma, our co-founder, chairman and
chief executive officer and Walter Lin Wang, our co-founder and director, both of whom are PRC citizens. ATA BVI and ATA Learning
(Beijing) Inc., or ATA Learning, one of our wholly owned subsidiaries, have entered into a series of contractual arrangements with ATA
Online, including an exclusive technical support agreement, a strategic consulting service agreement and a call option and cooperation
agreement. These contractual arrangements also include an equity pledge agreement entered into with each of the shareholders of ATA
Online. As a result of these contractual arrangements, under U.S. GAAP, we are considered the primary beneficiary of ATA Online.
Accordingly, we consolidate ATA Online’s results in our consolidated financial statements. See “Item 4.C. “Information on the Company —
Organizational Structure — Corporate Structure and Arrangements with Our Affiliated PRC Entity.”
The following is a summary of the material provisions of these agreements. For more complete information you should read these
agreements in their entirety. Directions on how to obtain copies of these agreements are provided in this annual report under Item 10.H.
“Additional Information — Documents on Display.”
Technical support agreement, dated October 27, 2006. Under this agreement, ATA Learning provides ATA Online with exclusive
technical support services for the maintenance of ATA Online’s servers, networks and other equipment, software and systems. In return,
ATA Online pays a quarterly service fee to ATA Learning. The service fee is mutually agreed by both parties, and is determined based on
certain objective criteria such as the actual services required by ATA Online and the actual labor costs, as determined by the number of days
and personnel involved, incurred by ATA Learning for providing the services during the relevant period. In addition, ATA Online
reimburses ATA Learning for out of pocket costs ATA Learning incurs in connection with providing the services. The term of this
agreement is ten years, automatically renewable for successive one year terms unless ATA Learning notifies ATA Online of its intention not
to renew 30 days before the relevant term expires. ATA Online may not terminate this agreement during its term.
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Strategic consulting service agreement, dated October 27, 2006. Under this agreement, ATA Learning provides ATA Online with
strategic consulting and related services for ATA Online’s business, including (1) valuation of new products; (2) industry investigation and
survey; (3) marketing and promotion strategies; and (4) other services related to ATA Online’s online test preparation services business. The
fees for these services must be confirmed by ATA Learning and will be calculated monthly but paid quarterly based on actual time spent
providing the services. In addition, ATA Learning has the right to adjust the fees payable by ATA Online in accordance with its
performance. The term of this agreement is 20 years, automatically renewable for successive one year terms unless ATA Learning notifies
ATA Online of its intention not to renew 30 days before the relevant term expires. If either party fails to comply with this agreement, it shall
indemnify all losses incurred by the other party.
Each party may terminate this agreement if the other party fails to perform its obligations under this agreement or the representations,
warranties or covenants of the other party are materially inaccurate or misleading.
Equity pledge agreement, dated October 27, 2006, as amended and restated on February 12, 2007, and as amended on July 7, 2009.
To secure the payment obligations of ATA Online under the exclusive technical support agreement and the strategic consulting service
agreement described above and provide additional covenants, ATA Online’s shareholders have pledged to ATA Learning their entire equity
ownership interests in ATA Online. Upon the occurrence of certain events of default specified in this agreement, ATA Learning may bring a
suit against ATA Online in a local PRC court to confirm the debt amount and enforce the pledge by foreclosing on the pledged equity
interest. Upon foreclosure, the pledged assets would be sold off by the court in a public auction and the proceeds used to satisfy ATA
Online’s outstanding liabilities under the equity pledge agreement. ATA Learning or its designee can also take part in the auction to bid for
the pledged assets itself. As we would not obtain the actual shares of ATA Online upon enforcement of the pledges, the purpose of the
equity pledges is not to obtain the equity interest of ATA Online in case of breach of the exclusive technical support agreement and the
strategic consulting service agreement, but instead to act as collateral for ATA Online’s performance under those agreements. Under the
equity pledge agreement, the pledgor may not transfer the pledged equity interest without the pledgee’s prior written consent.
Under PRC law, a pledge of equity interest can only be valid after such pledge is registered with the relevant local branch of the State
Administration of Industry and Commerce. Only such registration secures our interest in the equity as collateral. The equity pledges under
the equity pledge agreement were registered with the relevant local authority, Haidian Branch of Beijing Administration for Industry and
Commerce, on April 25, 2012. The equity pledge was registered in an amount of RMB32.0 million, with the amounts secured by
Mr. Xiaofeng Ma’s and Mr. Lin Wang’s equity pledges equaling RMB28.8 million and RMB3.2 million, respectively.
The term of the pledge agreement is the same as the term of the strategic consulting service agreement. The equity pledge agreement
will also be binding upon successors of the pledgor and transferees of the pledged equity interest. This agreement may be terminated upon
the completion of ATA Online’s contractual liabilities under the exclusive technical support agreement and the strategic consulting service
agreement as described above. In February 2007, at the direction of the company, Jianguo Wang transferred all of his equity interest in ATA
Online to Walter Lin Wang, and the October 2006 agreement was amended and restated to take this transfer into account. In July 2009, the
agreement was further amended to incorporate the new investments in the registered capital of ATA Online made by the shareholders of
ATA Online as subject to the pledges.
Loans to the Shareholders of ATA Online, dated October 27, 2006, as amended on February 12, 2007 and on July 7, 2009. ATA
Loans to the Shareholders of ATA Online, dated October 27, 2006, as amended on February 12, 2007 and on July 7, 2009. ATA
BVI entered into loan agreements with each of Kevin Xiaofeng Ma, Walter Lin Wang and Jianguo Wang, the shareholders of ATA Online
to extend each of Kevin Xiaofeng Ma, Walter Lin Wang and Jianguo Wang an interest free loan in the amount of RMB0.9 million,
RMB50,000 and RMB50,000, respectively, for the sole purpose of investing in ATA Online as ATA Online’s registered capital. The initial
term of these loans in each case is ten years, which may be extended upon the parties’ agreement. Kevin Xiaofeng Ma, Walter Lin Wang and
Jianguo Wang can only repay the loans by transferring all of their interest in ATA Online to ATA BVI or to a third party designated by
ATA BVI. When Kevin Xiaofeng Ma, Walter Lin Wang and Jianguo Wang transfer their interest in ATA Online to ATA BVI or its
designee, if the actual transfer price is higher than the principal amount of the loans, the amount exceeding the principal amount of the loans
will be deemed as interest accrued on such loans and repaid by Kevin Xiaofeng Ma, Walter Lin Wang and Jianguo Wang to ATA BVI.
ATA BVI also has the right to, but has no obligation to, purchase, or designate a third party to purchase, all or part of their interest in ATA
Online at a price equal to the amount of the loans. In February 2007, Jianguo Wang repaid the loan by transferring all of his interest in ATA
Online to Walter Lin Wang. As a result, ATA BVI terminated the loan agreement with Jianguo Wang and amended the agreement with
Walter Lin Wang to increase the principal of the loan to RMB0.1 million. In July 2009, each of the loan agreements with Kevin Xiaofeng Ma
and Walter Lin Wang was further amended by an addendum that ATA BVI would extend an additional loan to each of Kevin Xiaofeng Ma
and Walter Lin Wang in the amount of RMB8.1 million and RMB0.9 million, respectively, for the sole purpose of increasing the registered
capital of ATA Online.
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Call option and cooperation agreement, dated October 27, 2006, as amended and restated on February 12, 2007, and as
amended on July 7, 2009. Through the call option and cooperation agreement entered into between ATA BVI and ATA Online and its
shareholders, ATA BVI or any third party designated by ATA BVI has the right to acquire, in whole or in part, the respective equity
interests in ATA Online of its shareholders or ATA Online’s assets when permitted by applicable Chinese laws and regulations. The
proceeds from the exercise of the call option will be applied to repay the loans under the loan agreement described above. Further, without
ATA BVI’s prior written consent, ATA Online and its shareholders are prohibited from selling, assigning, mortgaging or otherwise
disposing, or creating any encumbrance on, any of ATA Online’s assets or operation or any legal or beneficial interests with respect to its
revenues, entering into any transaction which may materially affect ATA Online’s assets, liability, operations, equity or other legal rights, or
distributing any dividend to its shareholders. This agreement has an indefinite term and can only be terminated with the unanimous consent
of all parties, except that ATA BVI may terminate this agreement with 30 days prior notice to the other parties. In February 2007, Jianguo
Wang transferred all of his equity interest in ATA Online to Walter Lin Wang, and the October 2006 agreement was amended and restated to
take this transfer into account. In July 2009, the agreement was further amended to incorporate the new investments in the registered capital
of ATA Online made by the shareholders of ATA Online as subject to the call option.
Power of Attorney, dated March 27, 2013 and April 3, 2013. Under these agreements, Walter Lin Wang and Kevin Xiaofeng Ma,
each irrevocably and exclusively appoints and constitutes ATA Learning or its designee as his attorney-in-fact to exercise on his behalf any
and all rights that he has as the shareholder of ATA Online. The power of attorney for Kevin Xiaofeng Ma and Walter Lin Wang will remain
in force as long as the call option and cooperation agreement and the equity pledge agreement are valid.
Shareholders Agreement
In connection with the Shareholders Agreement that we entered into with the shareholders of our Cayman Islands holding company
in November 2006, our preferred shareholders are entitled to certain registration rights, including demand registration rights, piggyback
registration rights, and Form F-3 or Form S-3 registration rights. Prior to the expiration of these registration rights on March 31, 2013, we
entered into a Registration Rights Extension Agreement with SB Asia Investment Fund II L.P. on March 5, 2013, extending its prior
registration rights until March 31, 2017.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated statements and other financial information.
Our consolidated financial statements are included at the end of this annual report.
Legal Proceedings
We are not currently involved in any litigation, arbitration or administrative proceedings that could have a material adverse effect on
our financial condition or results of operations. From time to time, we may be subject to various claims and legal actions arising in the
ordinary course of business.
Dividend Policy
On August 7, 2012, the Company announced that its Board of Directors declared a special cash dividend of $0.087 per common
share, or $0.174 per ADS. The total amount of cash distributed in the dividend was $4.0 million, which was paid from the cash held by
ATA Inc. The dividend was paid to all shareholders of record as of the close of business on August 20, 2012.
On June 1, 2011, the Company announced that its Board of Directors has declared a special cash dividend of $0.215 per common
On June 1, 2011, the Company announced that its Board of Directors has declared a special cash dividend of $0.215 per common
share, or US$0.43 per ADS. The total amount of cash distributed in the dividend was $9.8 million, which will be paid from the cash held by
ATA Inc. The dividend was paid to all shareholders of record as of the close of business on June 30, 2011.
Any future determination to pay dividends will be made at the discretion of our board of directors and will be based upon our future
operations and earnings, capital requirements and surplus, general financial condition, shareholders’ interests, contractual restrictions and
other factors our board of directors may deem relevant.
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Holders of our ADSs will be entitled to receive dividends, if any, subject to the terms of the deposit agreement, to the same extent
as the holders of our common shares. Cash dividends will be paid to the depositary in U.S. dollars, which will distribute them to the holders
of ADSs according to the terms of the deposit agreement. Other distributions, if any, will be paid by the depositary to the holders of ADSs
in any means it deems legal, fair and practical.
Under China’s New EIT Law and its Implementation Rules, both of which became effective on January 1, 2008, dividends from
our PRC subsidiaries to us may be subject to a 10% withholding tax if such dividends are derived from profits generated after January 1,
2008. If we are deemed to be a PRC resident enterprise, the withholding tax may be exempted, but we will be subject to a 25% tax on our
worldwide income, and our non-PRC enterprise investors may be subject to PRC income tax withholding at a rate of 10%. See “Item 3. Key
Information — D. Risk Factors — Risks Relating to Regulation of Our Business — Under the New EIT Law, we may be classified as a
‘resident enterprise’ of China. Such classification will likely result in unfavorable tax consequences to us and U.S. holders of our ADSs or
ordinary shares,” and “Item 10. Additional Information — E. Taxation — People’s Republic of China Taxation.”
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited
financial statements included in this report.
ITEM 9. THE OFFER AND LISTING
A. Offering and Listing Details.
Price Range of Our ADSs
Our ADSs are listed for trading on the Nasdaq Global Market under the symbol “ATAI.” The following table sets forth the
monthly high and low trading prices of our ADSs on the Nasdaq Global Market for the periods indicated:
High
Low
Yearly Highs and Lows:
Fiscal year ended March 31, 2010
Fiscal year ended March 31, 2011
Fiscal year ended March 31, 2012
Fiscal year ended March 31, 2013
Quarterly Highs and Lows:
Quarter ended June 30, 2011
Quarter ended September 30, 2011
Quarter ended December 31, 2011
Quarter ended March 31, 2012
Quarter ended June 30, 2012
Quarter ended September 30, 2012
Quarter ended December 31, 2012
Quarter ended March 31, 2013
Monthly Highs and Lows:
December 2012
January 2013
February 2013
March 2013
April 2013
May 2013
June 2013 (through June 25, 2013)
Table of Contents
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12.20
8.65
13.09
7.45
13.09
11.81
10.30
7.60
7.45
5.45
6.97
6.08
6.97
6.08
5.71
4.10
4.11
4.55
4.50
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2.92
2.72
5.49
3.18
6.80
8.00
7.31
5.49
3.18
3.65
3.72
3.90
3.72
5.45
4.03
3.90
3.95
3.96
4.15
71
On June 25, 2013, the closing sale price of our ADSs as reported on the Nasdaq Global Market was US$4.21 per ADS.
On June 25, 2013, the closing sale price of our ADSs as reported on the Nasdaq Global Market was US$4.21 per ADS.
B. Plan of Distribution
Not applicable.
C. Markets
See Item 9.A above.
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 incorporate by reference into this annual report the description of our third amended and restated memorandum and articles of
association contained in “Description of Share Capital” of our F-1 registration statement (File No. 333-148512) originally filed with the
Securities and Exchange Commission on January 8, 2008, as amended.
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,” Item 5, “Operating and Financial Review and Prospects,” Item 7, “Major Shareholders and Related Party
Transactions” or elsewhere in this annual report on Form 20-F.
D. Exchange Controls
Regulation of Foreign Exchange
China’s government imposes restrictions on the convertibility of the Renminbi and on the collection and use of foreign currency by
Chinese entities. Under current regulations, the Renminbi is convertible for current account transactions, which include dividend
distributions, interest payments, and the import and export of goods and services. Conversion of Renminbi into foreign currency and foreign
currency into Renminbi for capital account transactions, such as direct investment, portfolio investment and loans, however, is still generally
subject to the prior approval of the PRC State Administration of Foreign Exchange, or SAFE.
Under current Chinese regulations, Foreign-Invested Enterprises such as our Chinese subsidiaries are required to apply to SAFE for a
Foreign Exchange Registration Certificate for Foreign-Invested Enterprise. With such a foreign exchange registration certificate (which is
subject to review and renewal by SAFE on an annual basis), a foreign-invested enterprise may open foreign exchange bank accounts at
banks authorized to conduct foreign exchange business by SAFE and may buy, sell and remit foreign exchange through such banks, subject
to documentation and approval requirements. Foreign-invested enterprises are required to open and maintain separate foreign exchange
accounts for capital account transactions and current account transactions. In addition, there are restrictions on the amount of foreign currency
that foreign-invested enterprises may retain in such accounts.
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The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s
political and economic conditions and China’s foreign exchange policies. The People’s Bank of China regularly intervenes in the foreign
exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals.
Dividend Distributions
We have adopted a holding company structure, and our holding companies may rely on dividends and other distributions on equity
paid by our current and future Chinese subsidiaries for their cash requirements, including the funds necessary to service any debt we may
incur or financing we may need for operations other than through our Chinese subsidiaries. Chinese legal restrictions permit payments of
incur or financing we may need for operations other than through our Chinese subsidiaries. Chinese legal restrictions permit payments of
dividends by our Chinese subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with Chinese
accounting standards and regulations. Our Chinese subsidiaries are also required under Chinese laws and regulations to allocate at least 10%
of their after-tax profits determined in accordance with PRC GAAP to statutory reserves until such reserves reach 50% of the company’s
registered capital. Allocations to these statutory reserves and funds can only be used for specific purposes and are not transferable to us in
the form of loans, advances or cash dividends. As of March 31, 2013, our Chinese subsidiaries allocated RMB14.9 million ($2.4 million) to
the general reserve fund, which is restricted for distribution to the Company. Any limitations on the ability of our Chinese subsidiaries to
transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our
business, pay dividends and otherwise fund and conduct our business.
E. Taxation
The following is a general summary of the material Cayman Islands, U.S. federal and People’s Republic of China income tax
consequences relevant to an investment in our ADSs and common shares. The discussion is not intended to be, nor should it be construed
as, legal or tax advice to any particular prospective purchaser or current holders of our ADSs. The discussion is based on laws and relevant
interpretations thereof in effect as of the date of this annual report, all of which are subject to change or different interpretations, possibly
with retroactive effect. The discussion does not address United States state or local tax laws, or tax laws of jurisdictions other than the
Cayman Islands and the United States. You should consult your own tax advisors with respect to the consequences of acquisition,
ownership and disposition of our ADSs and common shares.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciations and
there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of ADSs or common
shares. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which
may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is
payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman
Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the
Cayman Islands.
Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from
the Governor-in-Cabinet:
· that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciations shall
apply to the Company or its operations; and
· that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on the shares, debentures or other
obligations of the Company.
The undertaking for us is for a period of twenty years from October 3, 2006.
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People’s Republic of China Taxation
In 2007 China passed a new Enterprise Income Tax Law, or the New EIT Law, and its Implementing Rules, both of which became
effective on January 1, 2008. The New EIT Law created a new “resident enterprise” classification, which, if applied to us, would impose a
10% withholding tax on our non-PRC enterprise shareholders and potentially 20% to our non-PRC individual shareholders on dividends we
pay to them if such dividends are derived from profits generated after January 1, 2008 and with respect to gains derived by our non-PRC
shareholders from disposition of our shares or ADSs, if such dividends or gains are determined to have been derived from sources within
China. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Regulation of Our Business — Under the New EIT Law, we
may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and U.S.
holders of our ADSs or ordinary shares.”
If we are not deemed as a resident enterprise, then dividends payable to our non-PRC shareholders and gains from disposition of
our shares of ADSs by our non-PRC shareholders will not be subject to PRC withholding income tax.
United States Federal Income Taxation
This discussion describes the material U.S. federal income tax consequences to U.S. Holders (as defined below) of the purchase,
ownership and disposition of our ADSs or ordinary shares. This discussion does not address any aspect of U.S. federal gift or estate tax, or
the state, local or non-U.S. tax consequences of an investment in our ADSs and ordinary shares. This discussion applies to you only if you
beneficially own our ADSs or ordinary shares as capital assets for U.S. federal income tax purposes. This discussion does not apply to U.S.
Holders who are members of a class of holders subject to special rules, such as:
· dealers in securities or currencies;
· traders in securities that elect to use a mark-to-market method of accounting for securities holdings;
· banks or certain financial institutions;
· insurance companies;
· tax-exempt organizations;
· partnerships or other entities treated as partnerships or other pass-through entities for U.S. federal income tax purposes or persons
holding ADSs or ordinary shares through any such entities;
· regulated investments companies or real estate investment trusts;
· persons that hold ADSs or ordinary shares as part of a hedge, straddle, constructive sale, conversion transaction or other integrated
investment;
· persons whose functional currency for tax purposes is not the U.S. dollar;
· persons liable for alternative minimum tax; or
· persons who actually or constructively own 10% or more of the total combined voting power of all classes of our shares (including
ADSs and ordinary shares) entitled to vote.
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, which we refer to in this discussion as the Code,
its legislative history, existing and proposed regulations promulgated thereunder, published rulings and court decisions, all as of the date
hereof. These laws are subject to change, possibly on a retroactive basis. In addition, this discussion relies on our assumptions regarding the
value of our ADSs and ordinary shares and the nature of our business over time. Finally, this discussion is based in part upon the
representation of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed
in accordance with its terms.
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Prospective purchasers are urged to consult their own tax advisor concerning the particular U.S. federal income tax
consequences to them of the purchase, ownership and disposition of our ADSs and ordinary shares, as well as the consequences
to them arising under the laws of any other taxing jurisdiction.
For purposes of the U.S. federal income tax discussion below, you are a “U.S. Holder” if you beneficially own ADSs or ordinary
shares as capital assets within the meaning of Section 1221 of the Code and are:
· a citizen or resident of the United States for U.S. federal income tax purposes;
· a corporation, or other entity taxable as a corporation, that was created or organized in or under the laws of the United States or any
state thereof or the District of Columbia;
· an estate the income of which is subject to U.S. federal income tax regardless of its source; or
· a trust if (a) a court within the United States is able to exercise primary supervision over its administration and one or more U.S.
persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect to be treated as a
U.S. person.
For U.S. federal income tax purposes, income earned through a U.S. or non-U.S. partnership or other flow-through entity is
attributed to its owners. Accordingly, if a partnership or other flow-through entity holds ADSs or ordinary shares, the tax treatment of the
holder will depend on the status of the partner or other owner and the activities of the partnership or other flow-through entity.
The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the
issuer of the security underlying the ADS may be taking actions that are inconsistent with the claiming of foreign tax credits for U.S. holders
of ADSs. Such actions would also be inconsistent with the claiming of the reduced rate of tax, as described below, applicable to dividends
received by certain non-corporate holders. Accordingly, the availability of the reduced tax rate for dividends received by certain non-
corporate holders could be affected by actions taken by intermediaries in the chain of ownership between the holder of an ADS and our
company.
Dividends on ADSs or Ordinary Shares
Subject to the “Passive Foreign Investment Company” discussion below, if we make distributions and you are a U.S. Holder, the
gross amount of any distributions with respect to your ADSs or ordinary shares (including the amount of any taxes withheld therefrom) will
be includible in your gross income on the day you actually or constructively receive such income as dividend income if the distributions are
made from our current or accumulated earnings and profits, calculated according to U.S. federal income tax principles. With respect to non-
corporate U.S. holders, certain dividends received from a qualified foreign corporation may be subject to a reduced capital gains rate of
taxation. A non-U.S. corporation (other than passive foreign investment corporation) is treated as a qualified foreign corporation with respect
taxation. A non-U.S. corporation (other than passive foreign investment corporation) is treated as a qualified foreign corporation with respect
to dividends from that corporation on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in
the United States. U.S. Treasury Department guidance indicates that our ADSs, which are listed on the Nasdaq Global Market, but not our
ordinary shares, will be readily tradable on an established securities market in the United States. You should consult your own tax advisor as
to the rate of tax that will apply to you with respect to dividend distributions, if any, that you receive from us.
Subject to the “Passive Foreign Investment Company” discussion below, to the extent, if any, that the amount of any distribution by
us on ADSs or ordinary shares exceeds our current and accumulated earnings and profits as determined under U.S. federal income tax
principles, it will be treated first as a tax-free return of the U.S. Holder’s adjusted tax basis in the ADSs or ordinary shares and thereafter as
capital gain. However, we do not intend to calculate our earnings and profits according to U.S. federal income tax principles. Accordingly,
distributions on our ADSs or ordinary shares, if any, will generally be reported to you as dividend distributions for U.S. tax purposes.
Corporations will not be entitled to claim a dividends-received deduction with respect to distributions made by us. Dividends may constitute
foreign source passive income for purposes of the U.S. foreign tax credit rules. You should consult your own tax advisors as to your ability,
and the various limitations on your ability, to claim foreign tax credits in connection with the receipt of dividends.
Sales and Other Dispositions of ADSs or Ordinary Shares
Subject to the “Passive Foreign Investment Company” discussion below, when you sell or otherwise dispose of ADSs or ordinary
shares, you will recognize capital gain or loss in an amount equal to the difference between the amount realized on the sale or other
disposition and your adjusted tax basis in the ADSs or ordinary shares. Any such gain or losses that you recognize will be treated as U.S.
source income for foreign tax credit purposes. Your adjusted tax basis will equal the amount you paid for the ADSs or ordinary shares. Any
gain or loss you recognize will be long-term capital gain or loss if your holding period in our ADSs or ordinary shares is more than one year
at the time of disposition. If you are a non-corporate U.S. Holder, including an individual, any such long-term capital gain will be taxed at
preferential rates. Your ability to deduct capital losses will be subject to various limitations.
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Passive Foreign Investment Company
We believe that we were not a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our taxable
year ended March 31, 2013, and we do not expect to be a PFIC in any future taxable year. However, PFIC status is tested each year and
depends on the composition of our assets and income and the value of our assets from time to time. Since we currently hold, and expect to
continue to hold, a substantial amount of cash and other passive assets and, since the value of our assets is to be determined in large part by
reference to the market prices of our ADSs and ordinary shares, which is likely to fluctuate over time, there can be no assurance that we will
not be a PFIC for any taxable year.
We will be classified as a PFIC in any taxable year if either: (a) the average quarterly value of our gross assets that produce passive
income or are held for the production of passive income is at least 50% of the average quarterly value of our total gross assets or (b) 75% or
more of our gross income for the taxable year is passive income (such as certain dividends, interest or royalties). For purposes of the first
test: (a) any cash and cash invested in short-term, interest bearing, debt instruments, or bank deposits that are readily convertible into cash
will count as producing passive income or held for the production of passive income, and (b) the total value of our assets is calculated based
on our market capitalization.
We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other
corporation in which we own, directly or indirectly, at least 25% (by value) of the stock.
If we were a PFIC for any taxable year during which you held ADSs or ordinary shares, certain adverse U.S. federal income tax
rules would apply. You would be subject to additional taxes and interest charges on certain “excess distributions” we make and on any gain
realized on the disposition or deemed disposition of your ADSs or ordinary shares, regardless of whether we continue to be a PFIC in the
year in which you receive an “excess distribution” or dispose of or are deemed to dispose of your ADSs or ordinary shares. Distributions in
respect of your ADSs or ordinary shares during a taxable year would constitute “excess distributions” if, in the aggregate, they exceed 125%
of the average amount of distributions with respect to your ADSs or ordinary shares over the three preceding taxable years or, if shorter, the
portion of your holding period before such taxable year.
To compute the tax on “excess distributions” or any gain, (a) the “excess distribution” or the gain would be allocated ratably to each
day in your holding period, (b) the amount allocated to the current year and any tax year prior to the first taxable year in which we were a
PFIC would be taxed as ordinary income in the current year, (c) the amount allocated to other taxable years would be taxable at the highest
applicable marginal rate in effect for that year, and the interest charge generally applicable to underpayments of tax will be imposed on the
resulting tax attributable to each such year. In addition, if we were a PFIC, no distribution that you receive from us would qualify for taxation
at the preferential rate discussed in the “—Dividends on ADSs or Ordinary Shares” section above.
Under certain attribution rules, if we are a PFIC, you will be deemed to own your proportionate share of lower-tier PFICs, and will
be subject to U.S. federal income tax on (a) a distribution on the shares of a lower-tier PFIC and (b) a disposition of shares of a lower-tier
PFIC, both as if you directly held the shares of such lower-tier PFIC.
Each U.S. Holder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require and
may be required to file Internal Revenue Service Form 8621 regarding distributions received on the ADSs or ordinary shares and any gain
realized on the disposition of the ADSs or ordinary shares. You should consult with your own tax advisor regarding reporting requirements
with regard to your ADSs and ordinary shares.
If we were a PFIC in any year, you would generally be able to avoid the “excess distribution” rules described above by making a
timely so-called “mark-to-market” election with respect to your ADSs provided our ADSs are “marketable.” Our ADSs will be “marketable”
as long as they remain regularly traded on a national securities exchange, such as the Nasdaq Global Market. If you made this election in a
timely fashion, you would recognize as ordinary income or ordinary loss the difference between the fair market value of the ADSs as of the
close of your taxable year over your adjusted basis in such ADSs. Any ordinary income resulting from this election would be taxed at
ordinary income rates and would not be eligible for the reduced rate of tax applicable to qualified dividend income. Any ordinary losses
would be limited to the extent of the net amount of previously included income as a result of the mark-to-market election, if any. Your basis
in the ADSs would be adjusted to reflect any such income or loss. You should consult your own tax advisor regarding potential advantages
and disadvantages to you of making a “mark-to-market” election with respect to your ADSs. The mark-to-market election will not be
available for any lower tier PFIC that is deemed owned pursuant to the attribution rules discussed above. We do not intend to provide you
with the information you would need to make or maintain a “Qualified Electing Fund” election and therefore, you will not be able to make or
maintain such an election with respect to your ADSs or ordinary shares.
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U.S. Information Reporting and Backup Withholding Rules
Dividend payments with respect to the ADSs or ordinary shares and the proceeds received on the sale or other disposition of ADSs
or ordinary shares may be subject to information reporting to the IRS and to backup. Backup withholding will not apply, however, if you
(a) are a corporation or come within certain other exempt categories and, when required, can demonstrate that fact or (b) provide a taxpayer
identification number, certify as to no loss of exemption from backup withholding and otherwise comply with the applicable backup
withholding rules. To establish your status as an exempt person, you will be required to provide certification on IRS Form W-9. Backup
withholding is not an additional tax. The amount of any backup withholding will generally be allowed as a refund or a credit against your
U.S. federal income tax liability, provided that you furnish the required information to the IRS. Certain individuals holding the ADSs or
ordinary shares other than in an account at a U.S. financial institution may be subject to additional information reporting requirements.
PROSPECTIVE PURCHASERS OF OUR ADSS AND ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX
ADVISOR REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY TAX CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF
OUR ADSS AND ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY
STATE, LOCAL OR NON-US JURISDICTION AND INCLUDING ESTATE, GIFT AND INHERITANCE LAWS.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts.
Not applicable.
H. Documents on Display
We previously filed with the Securities and Exchange Commission our registration statement on Form F-1 as amended.
We have filed this annual report on Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended. Statements made in this annual report as to the contents of any document referred to are not necessarily complete. With
respect to each such document filed as an exhibit to this annual report, reference is made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its entirety by such reference.
We are subject to the informational requirements of the Exchange Act and file reports and other information with the Securities and
Exchange Commission. Reports and other information which the Company filed with the Securities and Exchange Commission, including
this annual report on Form 20-F, may be inspected and copied at the public reference room of the Securities and Exchange Commission at
100 F Street, N.E. Washington D.C. 20549.
You can also obtain copies of this annual report on Form 20-F by mail from the Public Reference Section of the Securities and
Exchange Commission, 100 F Street, N.E., Washington D.C. 20549, at prescribed rates. Additionally, copies of this material may be
obtained from the Securities and Exchange Commission’s Internet site at http://www.sec.gov . The Commission’s telephone number is 1-
800-SEC-0330.
I. Subsidiaries Information
Not applicable.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to interest rate risk primarily relates to interest income generated by excess cash, which is mostly held in interest-
bearing bank deposits. We have not used derivative financial instruments in our investment portfolio. Interest-earning instruments carry a
degree of interest rate risk. We have not been exposed, nor do we anticipate being exposed, to material risks due to changes in market interest
rates. However, our future interest income may fall short of expectations due to changes in market interest rates.
Foreign Currency Risk
Because substantially all of our revenues and expenditures are denominated in Renminbi, fluctuations in the exchange rate between
the U.S. dollar and Renminbi will affect our balance sheet and earnings per share in U.S. dollars. In addition, appreciation or depreciation in
the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to
any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any
dividend we issue that 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.
The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s
political and economic conditions and China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old
policy of pegging the value of the Renminbi to the U.S. dollar. However, the People’s Bank of China regularly intervenes in the foreign
exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. Following the removal of the U.S. dollar peg, the
Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Since reaching a high against the U.S. dollar in
July 2008, however, the Renminbi has traded within a narrow range against the U.S. dollar. On June 19, 2010, the People’s Bank of China
announced the removal of the de facto peg. Following this announcement, the Renminbi has appreciated modestly, from 6.7968 Renminbi
per U.S. dollar on June 21, 2010 to 6.1328 Renminbi per U.S. dollar on June 21, 2013.
Very 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 in an effort 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 hedging transactions 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.
ATA Inc. and ATA BVI’s functional currency is the U.S. dollar, which resulted in our exposure to foreign currency exchange risk.
Primarily as a result of the appreciation of the Renminbi against the U.S. dollar, the translation of the net assets of ATA Inc. and ATA BVI
to Renminbi during consolidation resulted in translation loss of RMB0.4 million ($60,338) which we recognized as a component of
comprehensive loss as of March 31, 2013. If the Renminbi against U.S. dollar as of March 31, 2013 had further appreciated by 10% from
6.2689 to 5.6990 as of March 31, 2013, the translation loss would have increased by RMB3.0 million ($0.5 million). Further, we recognized
a net foreign currency exchange gain of RMB77,240 ($12,436) as a result of the remeasurement of the foreign currency denominated
monetary assets and liabilities. If the Renminbi against U.S. dollar as of March 31, 2013 had further appreciated by 10% from 6.2689 to
5.6990 as of March 31, 2013, the foreign currency exchange gain would have increased by RMB1.4 million ($0.2 million).
Inflation
China has generally not experienced significant inflation in recent years. According to China’s National Bureau of Statistics, the
change in China’s consumer price index was 3.3%, 5.4% and 2.6% in the years 2010, 2011 and 2012, respectively. In April 2013, the year-
over-year change in China’s consumer price index was 2.4%. Neither inflation nor deflation has had a material impact on our results of
operations to date, and we do not currently expect the recent inflation in China to have a significant effect on our operations.
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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.
D. American Depositary Shares
Fees Payable by ADS Holders
Citibank, N.A., the depositary of our ADR 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. Such fees are typically paid to
the depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf
of their clients) delivering the ADSs to the depositary for cancellation. The brokers in turn charge these transaction fees to their clients.
Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary service fee are charged by
the depositary to the holders of record of ADSs as of the applicable ADS record date. In the case of cash distributions, the depositary fees
are generally deducted from the cash being distributed. In the case of distributions other than cash (e.g., stock dividends, rights, etc.), the
depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the
name of the investor (whether certificated or in DRS), the depositary sends invoices to the applicable record date ADS holders. In the case of
ADSs held in brokerage and custodian accounts (via DTC), the depositary generally collects its fees through the settlement systems provided
by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC
accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the
fees paid to the depositary.
In the event of refusal to pay the depositary fees the depositary may, under the terms of the deposit agreement, refuse the requested
service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.
An ADS holder is required to pay the following service fees to the depositary:
Service
· Issuance of ADSs
· Cancellation of ADSs
Fees
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) issued
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) issued
· Distribution of cash dividends or other cash distributions
US$2.00 (or less) per 100 ADSs (or portion of 100 ADSs) issued
· Distribution of ADSs pursuant to stock dividends, free stock
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) issued
distributions or exercise of rights
· Distribution of securities other than ADSs or rights to purchase
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) issued
additional ADSs
· Depositary services
US$2.00 (or less) per 100 ADSs (or portion of 100 ADSs) issued
An ADS holder will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and
governmental charges such as:
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· taxes (including applicable interest and penalties) and other governmental charges;
· such registration fees as may from time to time be in effect for the registration of shares or other deposited securities on the share
register and applicable to transfers of shares or other deposited securities to or from the name of the custodian, the depositary or any
nominees upon the making of deposits and withdrawals, respectively;
· such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the deposit agreement to be at the
expense of the person depositing or withdrawing shares or holders and beneficial owners of ADSs;
· the expenses and charges incurred by the depositary in the conversion of foreign currency;
· such fees and expenses as are incurred by the depositary in connection with compliance with exchange control regulations and other
regulatory requirements applicable to shares, deposited Securities, ADSs and ADRs; and
· the fees and expenses incurred by the depositary, the custodian, or any nominee in connection with the servicing or delivery of
deposited securities. The fees and charges an ADS holder may be required to pay may vary over time and may be changed by us and
by the depositary bank. ADS holders will receive prior notice of such changes.
Fees and Other Payments Made by the Depositary to Us
As of March 31, 2012, we had received from our depositary a reimbursement of $0.8 million for professional expenses incurred in
connection with the advancement of our ADR and investor relations programs. We did not receive any direct reimbursement from our
depositary in the fiscal year ended March 31, 2013.
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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 rights of securities holders have not been materially modified.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, an evaluation has been carried out under the supervision and with the
participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the
Securities Exchange Act of 1934, as amended. Based on that evaluation, our chief executive officer and chief financial officer have concluded
that our disclosure controls and procedures are effective in ensuring that material information required to be disclosed in this annual report is
recorded, processed, summarized and reported to them for assessment, and required disclosure is made within the time period specified in the
rules and forms of the Securities and Exchange Commission.
Management’s Annual 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 Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended, 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 or 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, management assessed the effectiveness of our internal control over financial reporting as of March 31, 2013 using criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management concluded that the internal control over financial reporting was effective as of March 31, 2013
based on the criteria established in this Internal Control-Integrated Framework.
KPMG, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting
as of March 31, 2013, as stated in their report which is included below.
81
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
ATA Inc.:
We have audited ATA Inc.’s internal control over financial reporting as of March 31, 2013, based on criteria established in Internal Control
— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). ATA Inc.’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 ATA Inc.’s internal control over financial reporting based on our audit.
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, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audit also included 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 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 its inherent limitations, internal control over financial reporting 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 or procedures may deteriorate.
In our opinion, ATA Inc. maintained, in all material respects, effective internal control over financial reporting as of March 31, 2013, based
on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of ATA Inc. and subsidiaries as of March 31, 2013 and 2012, and the related consolidated statements of
comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended March 31, 2013, and our
report dated June 26, 2013 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG
Hong Kong, China
June 26, 2013
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this annual report
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our audit committee consists of Hope Ni and Alec Tsui. Hope Ni is the chairman of our audit committee. Our board of directors
has determined that Hope Ni and Alec Tsui are “independent directors” within the meaning of Nasdaq Stock Market Rule 5605(a)(2) and
meet the criteria for independence set forth in Rule 10A-3(b) of the Exchange Act. Hope Ni meets the criteria of an audit committee financial
expert as set forth under the applicable rules of the SEC.
82
Table of Contents
ITEM 16B. CODE OF ETHICS
Our board of directors has adopted a code of ethics that is applicable to our senior executive and financial officers. In addition, our
board of directors adopted a code of conduct that is applicable to all of our directors, officers and employees. Our code of ethics and our code
of conduct are publicly available on our web site, http://www.ata.net.cn .
ITEM 16C. PRINCIPAL ACCOUNTANT FEE AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services
rendered by KPMG, our principal accountant, for the periods indicated.
(1)
Audit fees
Audit-related fees
(2)
For the fiscal year ended March 31,
2013
RMB
4,353,195
1,841,279
2012
RMB
5,221,224
1,553,816
2013
US$
700,907
296,464
Audit-related fees
(3)
Tax fees
1,553,816
274,241
1,841,279
289,315
296,464
46,583
(1)
“Audit fees” means the aggregate fees billed or payable for professional services rendered by our principal accountant for the audit of
our consolidated financial statements.
(2)
“Audit-related fees” means the aggregate fees billed or payable for assurance and related services by our principal accountant that are
reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit
fees.” Services comprising the fees disclosed under the category of “Audit-related fees” in the fiscal years ended March 31, 2012 and
2013 involve principally the agreed-upon procedures in connection with our quarterly financial information.
(3)
“Tax fees” means the aggregate fees billed or payable for services rendered by our principal accountant for tax compliance and tax
advice.
The audit committee or our board of directors is to pre-approve all auditing services and permitted non-audit services to be performed
for us by our independent registered public accounting firm, including the fees and terms thereof (subject to the de minimums exceptions for
non-audit services described in Section 10A(i)(l)(B) of the Exchange Act which are approved by the audit committee or our board of
directors prior to the completion of the audit).
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Period
December 1 — December 31, 2012
March 1 — March 31, 2013
(a) Total
Number
of ADSs
Purchased
8,036
5,184
(b) Average
Price
Paid per ADS
(1)
$3.9477
(RMB24.5184)
$3.9989
(RMB24.8364)
(c) Total Number
of ADSs
Purchased as Part
of
Publicly
Announced Plan
(d) Maximum
Approximate Dollar
Value of ADSs that May
Yet
Be Purchased Under the
Plan
(1), (2)
8,036
13,220
$4,968,276
(RMB30,856,969 )
$4,947,546
(RMB30,728,219 )
(1)
(2)
All translations from U.S. dollar to Renminbi were made at a rate of RMB6.2108 to US$1.00, which was the noon buying rate in
effect as of March 29, 2013.
On November 1, 2012, we announced a share repurchase plan. Under the plan, we are approved to repurchase up to US$5.0 million
worth of our outstanding ADSs from time to time through March 31, 2013. On January 31, 2013, the Company’s board of director
reviewed and approved the continuation of the share repurchase program through May 31, 2013.
Other than shown in the table above, there were no other repurchases during the fiscal year ended March 31, 2013.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
As a foreign private issuer with shares listed on the Nasdaq Global Market we are subject to corporate governance requirements
imposed by Nasdaq. Under Nasdaq Stock Market Rule 5615(a)(3), a foreign private issuer such as us may follow its home-country
corporate governance practices in lieu of certain of the Nasdaq Stock Market Rules corporate governance requirements. We are committed to
a high standard of corporate governance. As such, we strive to comply with most of the Nasdaq corporate governance practices. However,
our current corporate governance practices differ from Nasdaq corporate governance requirements for U.S. companies in certain respects, as
summarized below:
83
Table of Contents
· Nasdaq Stock Market Rule 5605(c)(2) requires a Nasdaq-listed company to have an audit committee composed of at least three
independent members. In this regard we have elected to adopt the practices of our home country, the Cayman Islands, which does not
require us to have a three member audit committee or to fill all three seats on the audit committee at this time.
· Nasdaq Stock Market Rule 5605(e)(1) requires a Nasdaq-listed company to have a nominations committee composed solely of
independent directors to select or recommend for selection director nominees. In this regard we have elected to adopt the practices of
our home country, the Cayman Islands, which does not require that any of the members of a company’s nominations committee be
our home country, the Cayman Islands, which does not require that any of the members of a company’s nominations committee be
independent directors.
· Nasdaq Stock Market Rule 5635(c) requires a Nasdaq-listed company to obtain shareholder approval for the establishment of or
material amendments to equity compensation plans. As a foreign private issuer, however, we may adopt the practices of our home
country, the Cayman Island, which do not require shareholder approval for establishment or material amendments to equity
compensation plans. Neither the 2005 Plan nor the 2008 Plan require shareholder approval for material amendments to the plan or
awards granted under the plan, including without limitation increasing the number of share awards that may be issued under the plan
or the repricing of outstanding options.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
Table of Contents
ITEM 17. FINANCIAL STATEMENTS
Not Applicable.
ITEM 18. FINANCIAL STATEMENTS
84
PART III.
Our consolidated financial statements are included at the end of this annual report.
ITEM 19. EXHIBITS
Exhibit
Number
Index to Exhibits
Description
1.1
2.1
2.2
2.3
2.4
4.1
4.2
4.3
4.4
4.5
4.6
4.6.1
4.7
4.7.1
Third Amended and Restated Memorandum and Articles of Association of the Registrant.*
Form of Common Share Certificate.*
Form of Deposit Agreement between the Registrant and Citibank, N.A., as depositary.
(1)
Form of American depositary receipt evidencing American depositary shares (included in Exhibit 2.2).*
Registration Rights Extension Agreement, dated March 5, 2013, between the Registrant and SB Asia Investment Fund
II, L.P.
2005 Share Incentive Plan of ATA Testing Authority (Holdings) Limited.*
2008 Employee Share Incentive Plan of the Registrant and form of ISO Option Agreement and NQSO Option
Agreement.*
Form of Indemnification Agreement between the Registrant and its directors.*
Technical Support Agreement between ATA Online (Beijing) Education Technology Limited and ATA Learning
(Beijing) Inc., dated October 27, 2006.*
Strategic Consulting Service Agreement between ATA Online (Beijing) Education Technology Limited and ATA
Learning (Beijing) Inc., dated October 27, 2006.*
Loan Agreement between ATA Testing Authority (Holdings) Limited and Xiaofeng Ma, dated October 27, 2006,
which was amended on February 12, 2007.*
Amendment to Loan Agreement between ATA Testing Authority (Holdings) Limited and Xiaofeng Ma, dated July 7,
2009.**
Loan Agreement between ATA Testing Authority (Holdings) Limited and Lin Wang, dated October 27, 2006, which
was amended on February 12, 2007.*
Amendment to Loan Agreement between ATA Testing Authority (Holdings) Limited and Lin Wang, dated July 7,
2009.**
Table of Contents
85
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
8.1
11.1
12.1
12.2
13.1
13.2
23.1
23.2
23.3
Call Option and Cooperation Agreement among ATA Testing Authority (Holdings) Limited, Xiaofeng Ma, Lin Wang,
Jianguo Wang and ATA Online (Beijing) Education Technology Limited, dated October 27, 2006.*
Framework Agreement for Option Right Exercise among ATA Testing Authority (Holdings) Limited, Lin Wang,
Jianguo Wang, ATA Online (Beijing) Education Technology Limited and ATA Learning (Beijing) Inc., dated
February 12, 2007.*
Option Exercise Notice between ATA Testing Authority (Holdings) Limited and Jianguo Wang, dated February 12,
2007.*
Call Option and Cooperation Agreement among ATA Testing Authority (Holdings) Limited, Xiaofeng Ma, Lin Wang
and ATA Online (Beijing) Education Technology Limited, dated February 12, 2007.*
Equity Pledge Agreement among Xiaofeng Ma, Lin Wang and ATA Learning (Beijing) Inc., dated February 12, 2007.*
Extended Control Agreement among Xiaofeng Ma, Lin Wang, ATA Online (Beijing) Education Technology Limited,
ATA Learning (Beijing) Inc., and ATA Testing Authority (Holdings) Limited, amending the Technical Support
Agreement (Exhibit 4.5), the Strategic Consulting Service Agreement (Exhibit 4.6), the Call Option and Cooperation
Agreement (Exhibit 4.12), and the Equity Pledge Agreement (4.13), dated July 7, 2009. **
Power of Attorney by Xiaofeng Ma in favor of ATA Learning (Beijing) Inc., dated March 27, 2013.
Power of Attorney by Lin Wang in favor of ATA Learning (Beijing) Inc., dated April 3, 2013.
Service Agreement for 2013 Securities Practitioner Qualification Exams between ATA Testing Authority (Beijing)
Limited and Securities Association of China, dated January 15, 2013. †
List of Subsidiaries.***
Code of Conduct.*
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Consent of KPMG.
Consent of Jincheng Tongda & Neal Law Firm
Opinion of Jincheng Tongda & Neal Law Firm
101.INS******
XBRL Instance Document
101.SCH****** XBRL Taxonomy Extension Schema Document
101.CAL****** XBRL Taxonomy Extension Calculation Linkbase Document
86
Table of Contents
101.DEF****** XBRL Taxonomy Extension Definition Linkbase Document
101.LAB****** XBRL Taxonomy Extension Label Linkbase Document
101.PRE******
XBRL Taxonomy Extension Presentation Linkbase Document
*
**
***
****** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or
Previously filed with the Registrant’s registration statement on Form F-1 (File No. 333-148512), as amended.
Previously filed with the Registrant’s annual report on Form 20-F, filed with the SEC on September 15, 2009.
Previously filed with the Registrant’s annual report on Form 20-F, filed with the SEC on June 6, 2012.
****** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or
†
(1)
prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the
Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
Confidential treatment has been requested for portions of this exhibit. These confidential portions will be filed separately with the
SEC.
Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-148641) filed with the Securities and
Exchange Commission with respect to American depositary shares representing our common shares.
Table of Contents
87
SIGNATURE
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.
Date: June 26, 2013
Table of Contents
ATA INC.
/s/ Benson Tsang
Name: Benson Tsang
Title:
Chief Financial Officer
S-1
ATA Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-8 - F-40
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
ATA Inc.:
We have audited the accompanying consolidated balance sheets of ATA Inc. and subsidiaries as of March 31, 2013 and 2012, and the related
consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended
March 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ATA
Inc. and subsidiaries as of March 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the
Inc. and subsidiaries as of March 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 2013, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements as of and for the year ended March 31, 2013 have been translated into United States
dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial statements
expressed in Renminbi have been translated into dollars on the basis set forth in Note 2(d) of the notes to the consolidated financial
statements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ATA Inc.’s
internal control over financial reporting as of March 31, 2013, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 26, 2013 expressed
an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG
Hong Kong, China
June 26, 2013
Table of Contents
ASSETS
Current assets:
F-2
ATA INC.
Consolidated Balance Sheets
Note
(2)(v)
2012
RMB
March 31,
2013
RMB
2013
USD
Cash (including cash of VIE of RMB26,474,179 and
RMB12,118,865 as of March 31, 2012 and 2013,
respectively)
Accounts receivable, net (including accounts receivable, net of
VIE of RMB12,839,077 and RMB11,441,392 as of
March 31, 2012 and 2013, respectively)
Prepaid expenses and other current assets (including prepaid
expenses and other current assets of VIE of RMB1,260,738
and RMB3,395,536 as of March 31, 2012 and 2013,
respectively)
Total current assets
Property and equipment, net (including property and equipment,
net of VIE of RMB680,857 and RMB1,277,283 as of
March 31, 2012 and 2013, respectively)
Goodwill
Intangible assets, net
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accrued expenses and other payables (including accrued
expenses and other payables of VIE without recourse to ATA
Inc. of RMB4,785,359 and RMB5,058,492 as of March 31,
2012 and 2013, respectively)
Deferred revenues (including deferred revenues of VIE without
recourse to ATA Inc. of RMB854,095 and RMB493,284 as
of March 31, 2012 and 2013, respectively)
Total current liabilities
Deferred revenues
Deferred income tax liabilities
Total liabilities
Shareholders’ equity:
Common shares:
Par value USD 0.01, authorized: 500,000,000 shares
Issued: 45,962,376 and 46,000,312 shares as of March 31,
(3)
(4)
(5)
(6)
(2)(v)
(7)
(8)
(8)
(10)
257,167,696
290,029,715
46,697,642
81,844,571
51,114,718
8,229,973
16,057,117
355,069,384
13,625,663
354,770,096
2,193,867
57,121,482
59,890,306
23,422,850
17,597,266
4,740,321
460,720,127
61,310,690
23,422,850
15,082,874
3,231,971
457,818,481
9,871,625
3,771,310
2,428,491
520,379
73,713,287
63,732,421
72,191,260
11,623,504
27,333,088
91,065,509
3,100,116
139,931
94,305,556
7,376,527
79,567,787
2,644,294
58,681
82,270,762
1,187,694
12,811,198
425,757
9,448
13,246,403
Issued: 45,962,376 and 46,000,312 shares as of March 31,
2012 and 2013, respectively
Outstanding: 44,815,626 and 45,105,312 shares as of
March 31, 2012 and 2013, respectively
Treasury shares—nil and 26,440 common shares as of March 31,
2012 and 2013, respectively, at cost
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total shareholders’ equity
Commitments and contingencies
(12)
(12)
(15)
3,442,803
3,461,060
557,265
—
440,832,695
(26,004,399)
(51,856,528)
366,414,571
(329,357)
427,443,700
(26,379,146)
(28,648,538)
375,547,719
(53,030)
68,822,648
(4,247,302)
(4,612,697)
60,466,884
Total liabilities and shareholders’ equity
460,720,127
457,818,481
73,713,287
See accompanying notes to consolidated financial statements.
F-3
ATA INC.
Consolidated Statements of Comprehensive Income
Note
(9)
2011
RMB
303,903,811
149,216,172
154,687,639
Year Ended March 31,
2012
RMB
352,085,560
158,818,041
193,267,519
2013
RMB
366,675,495
188,831,873
177,843,622
22,756,340
54,382,019
54,421,441
2,235,627
133,795,427
18,402,166
46,345,286
61,683,088
2,350,990
128,781,530
21,846,305
49,394,470
70,449,357
9,140,062
150,830,194
2013
USD
59,038,368
30,403,792
28,634,576
3,517,470
7,952,996
11,343,041
1,471,640
24,285,147
Table of Contents
Net revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Provision for doubtful accounts
Total operating expenses
Income from operations
20,892,212
64,485,989
27,013,428
4,349,429
Other income:
Interest income
Foreign currency exchange gains, net
Total other income
1,035,607
1,138,484
2,174,091
2,061,020
3,633,543
5,694,563
3,122,304
77,240
3,199,544
502,722
12,436
515,158
Earnings before income taxes
23,066,303
70,180,552
30,212,972
4,864,587
Income tax expense
Net income
(10)
3,312,287
19,754,016
14,339,082
55,841,470
7,004,982
23,207,990
1,127,871
3,736,716
Other comprehensive income:
Foreign currency translation adjustment, net of nil income
taxes
Comprehensive income
(5,817,855)
13,936,161
(3,787,210)
52,054,260
(374,747)
22,833,243
(60,338)
3,676,378
Basic earnings per common share
Diluted earnings per common share
(16)
(16)
0.44
0.44
1.22
1.19
0.50
0.50
0.08
0.08
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
ATA INC.
Consolidated Statements of Changes in Equity
Common shares
Number
of
shares
Amount
Treasury
Shares
Receivable
from
shareholders
Additional
paid-in
capital
Accumulated
other
comprehensive
loss
Accumulated
deficit
Total
shareholders’
equity
shares
Amount
RMB
Shares
RMB
shareholders
RMB
capital
RMB
loss
RMB
deficit
RMB
equity
RMB
Balance as of March 31, 2010
Net income
Foreign currency translation adjustment, net of nil tax
Share-based compensation (Note 11)
Exercise of common share option and issuance of common shares (Note
11)
Balance as of March 31, 2011
Net income
Foreign currency translation adjustment, net of nil tax
Share-based compensation (Note 11)
Exercise of common share option and issuance of common shares (Note
11)
Repayment from shareholders (Note 11)
Special cash dividend (Note 13)
Balance as of March 31, 2012
Net income
Foreign currency translation adjustment, net of nil tax
Share-based compensation (Note 11)
Issuance of common shares with net-settlement of employee individual
income tax (Note 11)
Repurchase of common shares (Note 12)
Special cash dividend (Note 13)
Balance as of March 31, 2013
Balance as of March 31, 2013-USD
44,441,762
—
—
—
154,654
44,596,416
—
—
219,210
—
—
44,815,626
—
—
—
289,686
—
—
45,105,312
3,418,709
—
—
—
10,131
3,428,840
—
—
13,963
—
—
3,442,803
—
—
—
18,257
—
—
3,461,060
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(329,357)
—
(329,357)
557,265
(53,030)
—
—
—
—
(1,035,796)
(1,035,796)
—
—
—
1,035,796
—
—
—
—
—
—
—
—
—
—
485,907,507
—
—
4,651,971
1,025,665
491,585,143
—
12,264,397
617,881
—
(63,634,726)
440,832,695
—
—
12,874,056
(931,710)
—
(25,331,341)
427,443,700
(16,399,334)
—
(5,817,855)
—
—
(22,217,189)
(3,787,210)
—
—
—
—
(26,004,399)
—
(374,747)
—
—
—
—
(26,379,146)
(127,452,014)
19,754,016
—
—
—
(107,697,998)
55,841,470
—
—
—
—
—
(51,856,528)
23,207,990
—
—
—
—
—
(28,648,538)
345,474,868
19,754,016
(5,817,855)
4,651,971
—
364,063,000
55,841,470
(3,787,210)
12,264,397
631,844
1,035,796
(63,634,726)
366,414,571
23,207,990
(374,747)
12,874,056
(913,453)
(329,357)
(25,331,341)
375,547,719
68,822,648
(4,247,302)
(4,612,697)
60,466,884
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
ATA INC.
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Unrealized foreign currency exchange gain
Provision for doubtful accounts
Write-down of inventories
Depreciation and amortization
Loss (gain) from disposal of property and equipment
Share-based compensation
Deferred income tax (benefit) expense
Changes in operating assets and liabilities:
Accounts receivable
Income tax payable (receivable)
Inventories
Prepaid expenses and other current assets
Other assets
Accrued expenses and other payables
Deferred revenues
Net cash provided by operating activities
Cash flows from investing activities :
Cash paid for property and equipment
Cash receipt from property and equipment disposal
Net cash used in investing activities
Cash flows from financing activities :
Proceeds from exercise of share options
Cash paid for employee individual income tax for net-
settlement of vested shares
Cash paid for repurchase of common shares
Collection of receivable from shareholders
Special cash dividend
Net cash used in financing activities
2011
RMB
Year Ended March 31,
2012
RMB
2013
RMB
2013
USD
19,754,016
55,841,470
23,207,990
3,736,716
(1,778,813)
2,235,627
2,033,211
13,635,560
125,893
4,651,971
(3,891,524)
33,330,718
2,276,045
(262,900)
1,149,849
—
(3,856,480)
(7,304,694)
62,098,479
(857,940)
2,350,990
—
11,278,264
4,067
12,264,397
1,149,668
(37,143,965)
(3,831,623)
(29,473)
(1,971,939)
(1,465,719)
14,255,685
7,508,984
59,352,866
—
9,140,062
—
10,617,534
(64,608)
12,874,056
(3,221,555)
21,589,791
12,564,291
60,809
726,033
1,358,490
(662,767)
(20,412,383)
67,777,743
—
1,471,640
—
1,709,528
(10,403)
2,072,850
(518,702)
3,476,169
2,022,975
9,791
116,898
218,730
(106,712)
(3,286,595)
10,912,885
(3,875,495)
—
(3,875,495)
(5,367,648)
20,640
(5,347,008)
(7,966,826)
—
(7,966,826)
(1,282,738)
—
(1,282,738)
—
—
—
—
—
—
631,844
—
—
—
—
1,035,796
(63,634,726)
(61,967,086)
(913,453)
(329,357)
—
(25,331,341)
(26,574,151)
(147,075)
(53,030)
—
(4,078,595)
(4,278,700)
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
ATA INC.
Consolidated Statements of Cash Flows (Continued)
2011
RMB
Year Ended March 31,
2012
RMB
2013
RMB
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
(4,039,042)
54,183,942
213,874,252
268,058,194
(2,929,270)
(10,890,498)
268,058,194
257,167,696
(374,747)
32,862,019
257,167,696
290,029,715
2013
USD
(60,338)
5,291,109
41,406,533
46,697,642
Supplemental disclosures of cash flow information :
Cash paid for income tax
Cash refunded for income tax
Non-cash investing and financing activities:
Acquisition of property and equipment included in
accrued expenses and other payables
Receivable from shareholders for exercise of common
share options
6,663,540
(1,735,774)
17,267,282
(246,245)
3,920,712
(6,258,466)
631,273
(1,007,675)
322,477
349,090
1,841,182
296,448
1,035,796
—
—
—
See accompanying notes to consolidated financial statements.
F-7
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements
(1) DESCRIPTION OF BUSINESS, ORGANIZATION AND SIGNIFICANT CONCENTRATIONS AND RISKS
Description of Business and Organization
ATA Inc. (the “Company”), through its wholly-owned subsidiaries, ATA Testing Authority (Holdings) Limited (“ATA BVI”), ATA
Testing Authority (Beijing) Limited (“ATA Testing”), Beijing JinDiXin Software Technology Limited (“Beijing JDX”), ATA Learning
(Beijing) Inc. (“ATA Learning”), and its consolidated variable interest entity (“VIE”), ATA Online (Beijing) Education Technology
Limited (“ATA Online”) (collectively, referred to as the “Group”), provides computer-based testing services, test-based educational
services, test preparation and training solutions and other related services in the People’s Republic of China (the “PRC”).
Significant Concentrations and Risks
The Group is subject to the following significant concentration and risks:
Country risk
The Group is subject to special risks associated with the PRC. These include risks associated with, among others, the political, economic,
legal and social environment in the PRC, including the relative difficulty of protecting and enforcing intellectual property rights in the
PRC. The interpretation and application of current or proposed requirements and regulations may have an adverse effect on the Group’s
business, financial condition and results of operations. In addition, the ability to negotiate and implement specific business development
projects in a timely and favorable manner may be impacted by political considerations unrelated to or beyond the control of the Group.
Although the PRC government has been pursuing economic reform policies for almost three decades, no assurance can be given that the
PRC government will continue to pursue such policies or that such policies may not be significantly altered. Any change in PRC
government policies and regulations affecting the education and testing service industry may have a negative impact on the Group’s
operating results and financial condition.
F-8
Table of Contents
Revenue concentration
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
For the years ended March 31, 2011, 2012 and 2013, RMB209.3 million, RMB240.7 million and RMB246.9 million, representing
68.9%, 68.4% and 67.3% of the Group’s net revenues, respectively, were generated from service fees from Chinese government
controlled entities including governmental agencies, educational institutions and industry associations controlled by the PRC government.
The demand for the Group’s products and services by these agencies, institutions and associations are affected by government budgetary
cycles, funding availability and government policies. Funding reductions, reallocations or delays could adversely impact demand for the
Group’s products and services or reduce the fees these customers are willing to pay for the Group’s products and services.
Net revenues from customers that individually exceeded 10% of the Group’s net revenues are as follows:
2011
RMB
%
Year Ended March 31,
2012
RMB
%
2013
RMB
%
Securities Association of China
China Banking Association
The Chinese Institute of Certified
Public Accountants
115,742,065
51,681,348
38.1%
17.0%
131,404,013
36,971,719
37.3%
10.5%
84,244,267
60,573,979
23.0%
16.5%
—
—
—
—
54,255,662
14.8%
Accounts receivable, net from customers, that individually exceeded 10% of the Group’s accounts receivable are as follows:
Securities Association of China
China Customs Education and Training Center
Concentration of cash balances held at financial institutions
Cash balances include deposits in:
Financial institutions in the mainland of the PRC
— Denominated in Renminbi (“RMB”)
— Denominated in United Stated Dollars (“USD”)
March 31,
2012
RMB
25,579,897
9,863,856
%
31.3%
12.1%
2013
RMB
19,643,518
7,927,308
%
38.4%
15.5%
March 31,
2012
RMB
2013
RMB
208,631,163
719
248,284,360
719
Total cash balances held at mainland PRC financial institutions
208,631,882
248,285,079
Financial institutions in HKSAR of the PRC
— Denominated in RMB
— Denominated in Hong Kong Dollar
— Denominated in USD
45,917,908
437,435
2,177,482
16,662,994
3,172,392
21,909,250
Total cash balances held at HKSAR financial institutions
48,532,825
41,744,636
Total cash balances held at financial institutions
257,164,707
290,029,715
Management believes these financial institutions have high credit ratings. Cash denominated in currencies other than functional currency
is subject to foreign currency risk due to the appreciation or depreciation of the RMB under the current exchange rate regime in the PRC
and Hong Kong Special Administrative Region (“HKSAR”).
F-9
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and its VIE for which the Group
is the primary beneficiary. All significant intercompany balances and transactions have been eliminated upon consolidation.
(b) Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”).
the United States of America (“U.S. GAAP”).
(c) Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management of the Group to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include the
determination of primary beneficiary of VIE, the fair values of share-based payments, the collectibility of accounts receivable, the
realizability of deferred income tax assets, the useful lives and residual values of long-lived assets, the recoverability of the carrying
values of long-lived assets and goodwill, realizable value of inventories and with respect to revenue recognition, the expected service
period for course programs and the expected licensing period for perpetual license. Actual results could differ from those estimates.
F-10
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
(d) Foreign currency translation and risks
The accompanying consolidated financial statements have been expressed in RMB, the Company’s reporting currency.
The Company and ATA BVI’s functional currency is the USD. The functional currency of the Company’s PRC subsidiaries and VIE is
the RMB.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates
prevailing at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the
functional currency using the applicable exchange rates at the balance sheet dates. The resulting foreign exchange gains and losses are
included in the consolidated statements of comprehensive income in the line item “Foreign currency exchange gains, net.”
Assets and liabilities of the Company and ATA BVI are translated into RMB using the applicable exchange rate at each balance sheet
date. Revenues and expenses are translated into RMB at average rates prevailing during the year. The resulting foreign currency
translation adjustments are recognized as a separate component of accumulated other comprehensive losses within equity.
For the convenience of the readers, the 2013 RMB amounts included in the accompanying consolidated financial statements have been
translated into USD at the rate of USD1.00 = RMB6.2108, the noon buying rate in New York cable transfers of RMB per USD as set
forth in the H.10 weekly statistical release of Federal Reserve Board, as of March 31, 2013. No representation is made that the RMB
amounts could have been, or could be, converted into USD at that rate or at any other rate on March 31, 2013.
(e) Commitments and contingencies
In the normal course of business, the Group is subject to contingencies, such as legal proceedings and claims that cover a wide range of
matters. Liabilities for such contingencies are recorded when it is probable that a liability has been incurred and the amount of the
assessment can be reasonably estimated.
(f) Fair value measurements
The Group utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the
extent possible. The Group determines fair value based on assumptions that market participants would use in pricing an asset or liability
in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the
following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following
levels:
· Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the
measurement date.
· Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the asset or liability.
· Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not
available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
The Group did not have any nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis as of March 31,
2012 and 2013.
The Company’s financial instruments consist of cash, accounts receivable, advances to third parties, employees and suppliers, which are
included in the prepaid expenses and other current assets, other assets excluding deferred income tax assets, and accrued expenses and
other payables, all of which have a carrying amount that approximate fair value because of the short maturity of these instruments.
F-11
Table of Contents
(g) Revenue recognition
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
The Group’s revenues are principally derived from the provision of testing services, test-based educational services and test preparation
solutions. The Group recognizes revenues when all of the following have occurred:
· persuasive evidence of an agreement with the customer exists;
· services have been performed and/or delivery of goods has occurred;
· the fees for services performed and/or price of goods sold are fixed or determinable; and
· collectibility of the fees and/or sales proceeds is reasonably assured.
The application of the above criteria for revenue recognition for each type of service or product is as follows:
i) Testing services
Fees for testing services are recognized upon the completion of the exam by the test taker since the Group has no significant future
involvement after the completion of the examination. Fees received in advance of test delivery are recorded as deferred revenue.
F-12
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
ii) Test preparation and training solutions
The Group derives test preparation and training solutions revenues from online test preparation and training service and online
training platform development and maintenance service.
a) Online test preparation and training service fees
The Group sells online training to end users directly or through distributors on a consignment basis. The online training entitles
end users to access online test preparation and training services during a specified service period, which normally ranges between
90 to 365 days from activation.
Online training revenue is recognized on a straight-line basis over the service period commencing at the point of time the online
training is activated. If the online training sold to end users is not activated before the expiration date, related online service revenue
is recognized on the expiration date. For online training granted with fixed online hours, the Group compares the revenue
recognized to the actual completion status, and makes any revenue adjustments to reflect the actual completion status.
The Group is not contractually obligated to accept, nor has the Group historically accepted, returns from end users.
b) Online training platform development and maintenance service fees
The Group develops online training platform based on customer’s requirements and provides maintenance services during the
contract period. The online training platform enables end users to participate online training courses.
Fees from online training platform development and maintenance service are recognized, when the platform has been delivered,
collectibility is reasonably assured, and on a straight-line basis over the contractual period.
iii) Other revenue
a) Test-based educational services
Fees from educational institutions for degree major course programs are recognized, when collectibility is reasonably assured,
on a straight-line basis over the contractual period , which typically starts in the month of September and ends in the month of
June or August of the following year, or 10 to 12 months.
Fees from educational institutions for single course programs are recognized on a straight-line basis over the expected service
period or the contractual period, whichever is longer. At the end of each reporting period upon the closing of the Group’s
period or the contractual period, whichever is longer. At the end of each reporting period upon the closing of the Group’s
financial records, the Group compares the revenue recognized at the onset of the contracts to the actual completion status of
each contract, on a contract by contract basis, and makes any revenue adjustments to reflect the actual completion status.
Fees are not refundable if the student fails to complete one or more of the courses or the entire degree major course programs
or fails any of the exams.
b) Licensing fees from authorized test centers
The Group receives a fixed fee for a perpetual license or an initial fee plus continuing annual fees for renewable annual
licenses that provide authorized test centers the right to use the Group’s brand name and E-testing platform.
The Group is obligated to provide ongoing technical support and unspecific system upgrades; and to provide training to
authorized test centers’ staff. Initial fees for renewable annual license and fixed fees for perpetual licenses are recognized on a
straight-line basis over the expected licensing period of 10 years, which is the period the Group is expected to have continuing
involvement with the authorized test centers. Management estimates the expected licensing period based on its historical
retention experience, factoring in the expected level of future competition, the risk of technological obsolescence, technological
innovation, and the expected changes in the education training environment.
F-13
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
c) Test development services
Test development service fees are recognized upon the acceptance of the developed tests by the customer. The period to
develop the tests is short, generally within two to six months from commencement of development.
d) Test administration software products
Test administration software products sales are recognized upon delivery and when collectibility is reasonably assured.
iv) Business tax and value added tax (“VAT”)
Prior to September 1, 2012, revenue is recorded, net of business tax. Business tax is levied on the Group’s service-related
revenues generated in the PRC at 5%.
From September 1, 2012, pursuit to the new PRC tax law, the Company’s business is subject to VAT instead of business tax.
From September 1, 2012, revenue is recorded, net of VAT. VAT collected from customers, net of VAT paid for purchases, is
recorded as a liability in the balance sheet until it is paid to the tax authorities. VAT is levied on the Group’s service-related
revenues generated in the PRC at 6%.
(h) Cost of revenues
Cost of revenues consists primarily of cost of test monitoring, royalty fees for IT vendors and test sponsor licensing arrangements, cost
of inventories, payroll compensation, technical support, and other related costs, which are directly attributable to the rendering of
services and delivery of goods.
The test monitoring costs are recognized upon completion of examinations based on actual number of test takers. Royalty fees are
recognized as cost of revenues based on actual usage according to contract provisions.
The test monitoring costs and royalty fees for the years ended March 31, 2011, 2012 and 2013 are as follows:
Test monitoring costs
Royalty fees
(i) Research and development costs
2011
RMB
Year Ended March 31,
2012
RMB
2013
RMB
85,375,463
17,561,272
88,232,358
22,032,654
129,127,028
15,594,990
Research and development costs primarily consist of software developed for internal use and software developed for sale.
i) Software developed for internal use
The Group expenses all costs that are incurred in connection with the planning and implementation phases of the development of
software. Costs incurred in the development phase are capitalized and amortized over the estimated product life. No costs were
capitalized for any of the periods presented.
capitalized for any of the periods presented.
F-14
Table of Contents
ii) Software developed for sale
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Costs incurred internally in researching and developing a computer software product are charged to expense as research and
development costs prior to technological feasibility being established for the product. Once technological feasibility is established,
all computer software costs are capitalized until the product is available for general release to customers. Technological feasibility
is established upon completion of all the activities that are necessary to substantiate that the computer software product can be
produced in accordance with its design specifications, including functions, features, and technical performance requirements. No
costs were capitalized for any of periods presented.
(j) Income taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and tax loss carryforwards. Deferred income tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred income tax assets and liabilities of a change in tax rates or tax status is recognized in income in the period
that includes the enactment date or the date of change in tax status. A valuation allowance is provided to reduce the amount of deferred
income tax assets if it is considered more likely than not that some portion or all of the deferred income tax assets will not be realized.
The Group recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of
being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the
largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in
which the change in judgment occurs.
The Group’s accounting policy is to accrue interest and penalties related to unrecognized tax benefits, if and when required, as interest
expense and a component of general and administrative expenses, respectively in the consolidated statements of comprehensive income.
(k) Share-based payment
The Group measures the cost of employee share options or similar equity instruments based on the grant date fair value of the award and
recognizes that cost over the period during which an employee is required to provide services in exchange for the award, which
generally is the vesting period. When no future services are required to be performed by the employee in exchange for an award of
equity instruments, and if such award does not contain a performance or market condition, the cost of the award is expensed on the grant
date. When there is a modification of the terms and conditions of an award of equity instruments, the Company measures the pre-
modification and post-modification fair value of the equity instruments as of the modification date and recognizes the incremental value
as compensation cost over the remaining service period.
When there is a change in the grantee status from an employee to a non-employee, if grantee retains the awards on a change in status and
continues to provide substantive services to the Group, the change in status results in a new measurement date for the unvested awards
with compensation costs measured as if the awards were newly issued to the grantee on the date of the change in status. If grantee
retains the awards on a change in status and is not required to provide substantive services to the grantor subsequent to that change in
status, the change in status is, in substance, an acceleration of the vesting of the arrangement.
F-15
Table of Contents
(l) Cash
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Cash consists of cash on hand and cash in banks. None of the Group’s cash is restricted from withdrawal.
(m) Accounts receivable
Accounts receivable include amounts billed at the invoiced amount.
The allowance for doubtful accounts is the management’s best estimate of the amount of probable credit losses resulting from the
inability of the Group’s customers to make required payments. The allowance for doubtful accounts is based on a review of specifically
identified accounts, aging data and historical collection pattern. Account balances are charged off against the allowance after all means of
identified accounts, aging data and historical collection pattern. Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is considered remote. The Group does not have any off-balance-sheet
credit exposure related to its customers.
(n) Inventories
Inventories include textbooks, exam papers and low value consumables. Inventories are stated at the lower of cost or market value. Cost
is determined using the first-in, first-out method. Adjustments are recorded to write down the carrying amount of any obsolete and
excess inventory to its estimated net realizable value based on historical and forecasted demand. Provisions to write-down the carrying
amount of obsolete inventory to its estimated net realizable value amounted to of RMB2,033,211, RMB nil and RMB nil for the years
ended March 31, 2011, 2012 and 2013, respectively, and were recorded as cost of revenues in the consolidated statements of
comprehensive income.
(o) Property and equipment, net
Property and equipment is stated at historical cost.
Depreciation is recognized over the following useful lives on the straight-line method, taking into consideration the assets’ estimated
salvage value:
Building
Computer equipment
Furniture, fixtures and office equipment
Software
Motor vehicles
Leasehold improvements
F-16
30 years
5 years
5 years
3 to 5 years
5 years
the shorter of the lease terms or 5 years
Table of Contents
(p) Intangible assets
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Intangible assets acquired are initially recognized and measured at fair value and are amortized on a straight-line basis over their
respective estimated useful lives, which range from 3 to 12 years. The Company has no intangible assets with indefinite useful lives.
(q) Impairment of long-lived assets, excluding goodwill
Long-lived assets, such as property and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances
require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows
expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is
not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair
value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and
third-party independent appraisals, as considered necessary. No impairment of long-lived assets was recognized for any of the periods
presented.
(r) Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not
individually identified and separately recognized. Goodwill is reviewed for impairment at least annually. In September 2011, the FASB
issued ASU 2011-08, Testing Goodwill for Impairment, which provides an entity the option to perform a qualitative assessment to
determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the
two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more-likely-than-not that
the fair value of a reporting is greater than its carrying amount, the two-step goodwill impairment test is not required. The Company
adopted this guidance in the year ended March 31, 2013.
If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying amount
(including goodwill). If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists
for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is
recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The
implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price
allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the
reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying amount,
step two does not need to be performed.
The Company performs its annual impairment review of goodwill at March 31, and when a triggering event occurs between annual
impairment tests. No impairment loss was recorded for any of the periods presented.
(s) Employee benefit plans
As stipulated by the regulations of the PRC, the Company’s PRC subsidiaries are required to contribute to various defined contribution
plans, organized by municipal and provincial governments on behalf of their employees. The contributions to these plans are based on
certain percentages of the employee’s standard salary base as determined by the local Social Security Bureau. The Group has no other
obligation for the payment of employee benefits associated with these plans beyond the annual contributions described above.
Employee benefit expenses recognized under these plans for the years ended March 31, 2011, 2012 and 2013 is allocated to the
following expense items:
2011
RMB
3,461,455
3,553,612
3,649,029
2,109,344
12,773,440
Year Ended March 31,
2012
RMB
3,847,873
3,694,142
3,551,100
2,206,793
13,299,908
2013
RMB
4,898,098
4,214,374
5,269,923
2,608,307
16,990,702
F-17
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Cost of revenues
Research and development
Sales and marketing
General and administrative
Total employee benefit expenses
Table of Contents
(t) Earnings per share
Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the
year using the two-class method. Under the two-class method, net income is allocated between common shares and other participating
securities based on their participating rights in undistributed earnings. The Company’s nonvested shares relating to the share-based
awards under the share incentive plan were considered participating securities since the holders of these securities have non-forfeitable
rights to cash dividends.
Diluted earnings per share is calculated by dividing net earnings adjusted for the effect of dilutive common equivalent shares, if any, by
the weighted average number of common and dilutive common equivalent shares outstanding during the year. Common equivalent shares
consist of common shares issuable upon the exercise of outstanding share options (using the treasury stock method). Common equivalent
shares in the diluted earnings per share computation are excluded to the effect that they would be anti-dilutive. In calculating the diluted
earnings per share, the undistributed earnings are not reallocated to the participating securities and the common and dilutive common
equivalent shares.
(u) Segment reporting
The Group has one operating segment, testing and training services. Substantially all of the Group’s operations and customers are located
in the PRC. Consequently, no geographic information is presented.
(v) Variable Interest Entity (“VIE”)
PRC regulations prohibit direct foreign ownership of business entities that engage in internet content provision (“ICP’’) services in the
PRC. The Company and its subsidiaries are foreign owned business entities under the PRC law and accordingly are prohibited from
providing ICP services in the PRC, including having ownership of entities engaged in providing such services. ATA Online provides
ICP online test preparation services in the PRC.
The Group has no legal ownership interest in ATA Online. The legal ownership interests of ATA Online are held by Mr. Kevin Xiaofeng
Ma, the Company’s co-founder, chairman and chief executive officer and Mr. Walter Lin Wang, the Company’s co-founder and director.
A series of contractual agreements, including loan agreements, a call option and cooperation agreement, an equity pledge agreement, a
technical support agreement, a strategic consulting service agreement and a power of attorney (collectively, the “VIE Agreements”) were
entered among ATA BVI, ATA Learning, ATA Online, Mr. Kevin Xiaofeng Ma and Mr. Walter Lin Wang. As a result of the VIE
Agreements and as described below, the financial statements of ATA Online are consolidated in the Company’s consolidated financial
statements.
ATA Online is determined to be a VIE because although Mr. Kevin Xiaofeng Ma and Mr. Walter Lin Wang are the equity holders of
ATA Online, (i) their equity investment of RMB10 million in ATA Online was financed by the Group and (ii) they do not participate in
any profit or loss of ATA Online.
Although the Group does not have an equity investment in ATA Online, the Group has other variable interests in ATA Online through,
among others, (i) the Group’s subordinated loans to Mr. Kevin Xiaofeng Ma and Mr. Walter Lin Wang (used by them to finance their
equity investment in ATA Online) and other subordinated loans to ATA Online, (ii) the Group’s right, under the loan agreement, to
receive all the dividends declared by ATA Online through its equity holders and (iii) the Group’s exclusive purchase option to acquire (or
receive all the dividends declared by ATA Online through its equity holders and (iii) the Group’s exclusive purchase option to acquire (or
to have the Group’s designee acquire) 100% of the equity interest or assets in ATA Online for a consideration equal to the loans provided
by the Group to Mr. Kevin Xiaofeng Ma and Mr. Walter Lin Wang, to the extent permitted under PRC law. As a result of these variable
interests, the Group has the obligation to absorb the expected losses and the right to receive expected residual returns of ATA Online.
F-18
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Through the VIE Agreements, the Group has a controlling financial interest in ATA Online because the Group (i) has the power to direct
activities of ATA Online that most significantly impact the economic performance of ATA Online; and (ii) the obligation to absorb the
expected losses and the right to receive expected residual return of ATA Online that could potentially be significant to ATA Online.
Accordingly, the financial statements of ATA Online are consolidated in the Company’s consolidated financial statements. All of the equity
(net assets) and net incomes or losses of ATA Online are attributed to the Company; therefore, non-controlling interest in ATA Online is not
presented in the Company’s consolidated financial statements.
The key terms of these VIE Agreements are as follows:
Loan agreements: ATA BVI lent to ATA Online’s equity holders, Mr. Kevin Xiaofeng Ma, and Mr. Walter Lin Wang, interest free loans
in the amount of RMB10 million for the sole purpose of investing in ATA Online as ATA Online’s registered capital. The equity holders of
ATA Online can only repay the loans by transferring all of their legal ownership interest in ATA Online to ATA BVI or to a third party
designated by ATA BVI. The equity holders of ATA Online are required to pay to ATA BVI all dividend received from ATA Online. The
initial terms of the loans are ten years, which may be extended upon the agreement of ATA BVI and ATA Online’s equity holders. The
approval of ATA Online is not required for the renewal of the loan agreements nor can ATA Online terminate the loan agreement during the
contract term. ATA BVI lent RMB 1 million on October 27, 2006 and RMB 9 million on July 7, 2009. As of March 31, 2013, the
remaining terms of the loan agreements are 3.6 years and 6.3 years for the loans of RMB 1 million and RMB 9 million, respectively,
assuming no renewal of the agreement.
Technical support agreement: ATA Learning has the exclusive right to provide technical support services to ATA Online. ATA Online
pays a quarterly service fee to ATA Learning. The service fees are mutually agreed by both parties, and are determined based on certain
objective criteria such as the actual services required by ATA Online and the actual labor costs, as determined by the number of days and
personnel involved, incurred by ATA Learning for providing the services during the relevant period. The term of this agreement is ten years,
automatically renewable for successive one year terms unless ATA Learning notifies ATA Online of its intention not to renew 30 days
before the relevant term expires. ATA Online may not terminate this agreement during its term or upon its expiration. The agreement was
entered into on October 27, 2006 with a remaining term of 3.6 years as of March 31, 2013, assuming no renewal of the agreement.
Strategic consulting service agreement: ATA Learning provides ATA Online with strategic consulting and related services to ATA Online.
The fees for these services are determined by ATA Learning and calculated monthly but paid quarterly based on actual time spent providing
the services. ATA Learning has the right to adjust the fees payable by ATA Online in accordance with its performance. The term of this
agreement is twenty years, automatically renewable for successive one year terms unless ATA Learning notifies ATA Online of its intention
not to renew 30 days before the relevant term expires. ATA Online can only terminate this agreement if ATA Learning fails to perform its
obligation under this agreement. The agreement was entered into on October 27, 2006 with a remaining term of 13.6 years as of March 31,
2013, assuming no renewal of the agreement.
For the years ended March 31, 2011, 2012 and 2013, the Company billed RMB nil, RMB nil and RMB 12.6 million to ATA Online based
on the technical support agreement and strategic consulting service agreement. As of March 31, 2011, 2012 and 2013, RMB nil, RMB nil
and RMB 12.6 million was collected.
Call option and cooperation agreement: Through the call option and cooperation agreement entered into among ATA BVI, ATA Online
and its equity holders, ATA BVI or any party designated by ATA BVI, has an exclusive purchase option to acquire the equity interest in
ATA Online from its equity holders or acquire ATA Online’s assets at any time when permitted by applicable Chinese laws and regulations.
The proceeds from the exercise of the call option will be applied to repay the loans under the loan agreements described above. Further,
without ATA BVI’s prior written consent, ATA Online or its equity holders cannot sell, assign, mortgage or dispose any of ATA Online’s
assets or operation, cannot enter into any transaction which may materially affect ATA Online’s assets, liability, operation, equity or other
legal rights, and cannot distribute any dividend to its equity holders. ATA BVI is also obligated to provide financial support to ATA
Online’s operation to which ATA BVI has no recourse right if ATA Online cannot repay such financing due to its losses. This agreement
has an indefinite term and can only be terminated with the unanimous consent of all parties, except that ATA BVI may terminate this
agreement with 30 days prior notice to the other parties.
F-19
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Equity pledge agreement: To secure the payment obligations of ATA Online under the technical support agreement and the strategic
consulting service agreement described above, ATA Online’s equity holders have pledged to ATA Learning their entire equity ownership
interests in ATA Online. Under this agreement, equity holders of ATA Online may not transfer the pledged equity interest without ATA
Learning’s prior written consent. This agreement will also be binding upon successors of the pledgor and transferees of the pledged equity
interest. The term of the pledge is the same as the term of the strategic consulting service agreement. ATA Online may terminate this
agreement upon the completion of its contractual obligations under the technical support agreement and the strategic consulting service
agreement as described above. As of March 31, 2013, the remaining term of this agreement is 13.6 years, assuming no renewal of the
strategic consulting service agreement.
Power of attorney: Each of Mr. Kevin Xiaofeng Ma and Mr. Walter Lin Wang signed a power of attorney, on March 27, 2013 and April 3,
2013 respectively, with ATA Learning to exclusively assign their rights as an shareholder of ATA Online to ATA Learning, including but
not limited to voting right and right to appoint director and executive management of ATA Online. The assignment of the shareholder’s
rights is legally binding, irrevocable. The agreement is retrospectively effective when the call option and cooperation agreement and equity
pledge agreement were effective and remains effective as long as the call option and cooperation agreement and equity pledge agreement are
effective.
Risks and uncertainties of the VIE Agreements: The Company relies on the VIE Agreements to operate and control ATA Online.
However, these contractual arrangements may not be as effective as direct equity ownership in providing the Company with control over
ATA Online. Any failure by ATA Online or its equity holders to perform their obligations under the VIE Agreements would have a material
adverse effect on the financial position and financial performance of the Company. All the VIE Agreements are governed by PRC law and
provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with
PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as
some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit the Company’s ability to
enforce these contractual arrangements. In addition, if the legal structure and the VIE Agreements were found to be in violation of any
existing or future PRC laws and regulations, the Company may be subject to fines or other legal or administrative sanctions.
In the opinion of management, based on the legal opinion obtained from the Company’s PRC legal counsel, the above contractual
arrangements are legally binding and enforceable and do not violate current PRC laws and regulations. However, there are uncertainties
regarding the interpretation and application of existing and future PRC laws and regulations.
Accordingly, the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to its opinion. If the
current ownership structure of the Company and the VIE Agreements are found to be in violation of any existing or future PRC laws and
regulations, the PRC government could:
· revoke the Company’s business and operating licenses;
· levy fines on the Company;
· confiscate any of the Company’s income that they deem to be obtained through illegal operations;
· shut down a portion or all of the Company’s servers or block a portion or all of the Company’s web site;
· discontinue or restrict the Company’s operations in the PRC;
· impose conditions or requirements with which the Company may not be able to comply;
· require the Company to restructure the Company’s corporate and contractual structure;
· take other regulatory or enforcement actions that could be harmful to the Company’s business.
F-20
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
If the imposition of any of these government actions, or any inability to enforce the contractual arrangements upon a breach, causes the
Company to lose its ability to direct the activities of ATA Online or receive substantially all the economic benefits and residual returns from
ATA Online and the Company is not able to restructure its ownership structure and operations in a satisfactory manner, the Company would
no longer be able to consolidate the financial results of ATA Online in the Company’s consolidated financial statements. Total assets, total
liability, equity, net sales, net income and cash flows of the Company would be significantly less than the reported amount in the
consolidated financial statements of the Company. In the opinion of management, the likelihood of loss in respect of the Company’s current
ownership structure or VIE Agreements is remote based on current facts and circumstances.
The assets and liabilities of ATA Online as of March 31, 2012 and 2013 and the net revenue and net income (loss) for the years ended
March 31, 2011, 2012 and 2013 are as follows:
Cash
Accounts receivable, net
Prepayment and other current assets
Amounts due from related parties
March 31,
2012
RMB
26,474,179
12,839,077
1,260,738
—
2013
RMB
12,118,865
11,441,392
3,395,536
29,562
Amounts due from related parties
Total current assets
Property and equipment, net
Total assets
Accrued expenses and other payables
Amounts due to related parties
Deferred revenue
Total liabilities
Net revenue
Net income (loss)
—
40,573,994
680,857
41,254,851
4,785,359
4,213,631
854,095
9,853,085
29,562
26,985,355
1,277,283
28,262,638
5,058,492
1,804,678
493,284
7,356,454
2011
RMB
Year ended March 31,
2012
RMB
2013
RMB
21,022,662
3,590,196
49,782,361
25,782,832
24,960,260
(10,495,582)
Amounts due from related parties’ represent the amount due from ATA Inc.’s other subsidiaries, which are eliminated on consolidation.
Amounts due to related parties represent the amount due to ATA BVI and ATA Inc.’s other subsidiaries, which are eliminated on
consolidation.
All of the assets of ATA Online can be used only to settle obligations of ATA Online. None of the assets of ATA Online has been pledged
or collateralized. The creditors of ATA Online do not have recourse to the general credit of ATA BVI or the Company.
F-21
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
(w) Recently issued accounting standards
In June 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-05, Presentation of Comprehensive Income (“ASU
2011-05”), which amended accounting guidance related to presentation of comprehensive income. The standards update is intended to
help financial statement users better understand the causes of an entity’s change in financial position and results of operation. The
amendment eliminates the option to present components of other comprehensive income as part of the statement of changes in equity.
The amendment requires that all non-owner changes in equity be presented either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. The guidance also requires that reclassification adjustments for items that are
reclassified from other comprehensive income to net income be presented on the face of the financial statement where the components
of net income and other comprehensive income are presented. In December 2011, the FASB issued ASU 2011-12, Deferral of the
Effective Date for Amendments to the Presentation of Items Out of Accumulated Other Comprehensive Income in Accounting
Standards Update No. 2011-05 (“ASU 2011-12”), which defers only those changes in ASU 2011-05 that relate to the presentation of
reclassification adjustments out of accumulated other comprehensive income. ASU 2011-05 and ASU 2011-12 are effective for
reporting periods beginning after December 15, 2011. The Company adopted the new guidance on April 1, 2012.
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income (“ASU 2013-02”). The standard requires that companies present either in a single note or parenthetically on the face of the
financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income
based on its source (e.g., the release due to cash flow hedges from interest rate contracts) and the income statement line items affected
by the reclassification (e.g., interest income or interest expense). If a component is not required to be reclassified to net income in its
entirety (e.g., the net periodic pension cost), companies would instead cross reference to the related footnote for additional information
(e.g., the pension footnote). ASU 2013-02 is effective for interim and annual reporting periods beginning after December 15, 2012.
The Company will adopt the provisions of the new guidance on April 1, 2013. The adoption will not have a material impact on its
consolidated financial statements or related disclosures.
(3) ACCOUNTS RECEIVABLE, NET
Accounts receivable, net is summarized as follows:
Accounts receivable
Less: allowance for doubtful accounts
Accounts receivable, net
F-22
March 31,
2012
RMB
111,944,576
(30,100,005)
81,844,571
2013
RMB
86,119,787
(35,005,069)
51,114,718
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Management performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on
accounts receivable.
The activity in the allowance for doubtful accounts for accounts receivable for the years ended March 31, 2011, 2012 and 2013 is as
follows:
Beginning allowance for doubtful accounts
Additions charged to bad debt expense
Write-off of accounts receivable
Ending allowance for doubtful accounts
Table of Contents
F-23
2011
RMB
29,934,512
2,235,627
(4,231,941)
27,938,198
Year Ended March 31,
2012
RMB
27,938,198
2,350,990
(189,183)
30,100,005
2013
RMB
30,100,005
9,140,062
(4,234,998)
35,005,069
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
(4) PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
Prepaid business tax
Income tax receivable
Deferred income tax assets (note 10)
Advances to employees
Other current assets
Total prepaid expenses and other current assets
(5) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
Building
Computer equipment
Furniture, fixtures and office equipment
Software
Motor vehicles
Leasehold improvements
Less: accumulated depreciation and amortization
Property and equipment, net
March 31,
2012
RMB
287,925
4,934,777
4,233,996
1,090,425
5,509,994
16,057,117
2013
RMB
—
—
7,524,161
1,022,036
5,079,466
13,625,663
March 31,
2012
RMB
2013
RMB
53,049,213
21,672,897
516,794
12,261,549
1,885,402
9,018,139
98,403,994
(38,513,688)
59,890,306
53,049,213
27,631,940
572,567
12,828,775
2,023,598
10,204,808
106,310,901
(45,000,211)
61,310,690
Total depreciation expense recognized for the year ended March 31, 2011, 2012 and 2013 is allocated to the following expense items:
Cost of revenues
Research and development
Sales and marketing
General and administrative
2011
RMB
Year Ended March 31,
2012
RMB
4,766,712
676,394
706,316
4,635,651
2,306,543
362,720
238,776
5,611,387
2013
RMB
1,746,736
876,166
726,239
4,754,001
General and administrative
Total depreciation expense
4,635,651
10,785, 073
5,611,387
8,519,426
4,754,001
8,103,142
F-24
Table of Contents
(6) INTANGIBLE ASSETS, NET
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
The following table summarizes the Company’s intangible assets, as of March 31, 2012 and 2013.
ETS TOEIC license
Customer relationships
Total intangible assets
ETS TOEIC license
Customer relationships
Total intangible assets
Gross
carrying
amount
RMB
24,126,706
1,300,000
25,426,706
Gross
carrying
amount
RMB
24,126,706
1,300,000
25,426,706
March 31, 2012
Accumulated
amortization
RMB
(7,495,275)
(334,165)
(7,829,440)
March 31, 2013
Accumulated
amortization
RMB
(9,901,334)
(442,498)
(10,343,832)
Net
carrying
amount
RMB
16,631,431
965,835
17,597,266
Net
carrying
amount
RMB
14,225,372
857,502
15,082,874
Weighted
Average
Amortization
Period
Years
10
12
Weighted
Average
Amortization
Period
Years
10
12
ETS TOEIC license represents the amounts paid to Educational Testing Service (“ETS”) under a master distributor agreement for the
exclusive right to market, distribute, administer and sell the Test of English for International Communication (“TOEIC”) in mainland PRC
for ten years commencing from March 2009.
Amortization expenses for intangible assets were RMB 2,850,487, RMB 2,758,838 and RMB 2,514,392 for the year ended March 31,
2011, 2012 and 2013, respectively. Estimated amortization expense is RMB 2,514,392 for each of the next five years.
F-25
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
(7) ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables consist of the following:
Business and other taxes payable
Accrued payroll and welfare
Accrued test monitoring fees
Accrued certificates costs
Royalty fees payable
Income taxes payable
Other current liabilities
Total accrued expenses and other payables
March 31,
2012
RMB
4,701,736
17,688,960
12,379,899
8,126,036
8,651,161
1,173,344
11,011,285
63,732,421
2013
RMB
6,276,692
15,684,309
14,946,724
2,593,694
9,721,066
8,802,858
14,165,917
72,191,260
Other current liabilities as of March 31, 2012 and 2013 mainly include accrued traveling expenses, rental expenses, meeting expense and
other operating expenses.
(8) DEFERRED REVENUES
Deferred revenues consist of the following:
Testing services
Test-based education services
Test preparation and training solutions
Other revenue — licensing fees from authorized test centers
Other revenue — others
Total deferred revenues
Representing:
Current deferred revenues
Non-current deferred revenues
Table of Contents
(9) NET REVENUES
F-26
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
March 31,
2012
RMB
19,316,486
5,178,840
854,095
4,362,115
721,668
30,433,204
2013
RMB
3,866,368
1,131,246
376,885
3,614,738
1,031,584
10,020,821
27,333,088
3,100,116
7,376,527
2,644,294
The components of net revenues for the years ended March 31, 2011, 2012 and 2013 are as follows:
Testing services
Test preparation and training solutions
Other revenue
Net revenues
2011
RMB
243,103,305
15,426,587
45,373,919
303,903,811
Year Ended March 31,
2012
RMB
290,881,289
26,996,054
34,208,217
352,085,560
2013
RMB
335,790,689
11,343,066
19,541,740
366,675,495
Other revenue includes net revenues from test-based educational services of RMB 25,727,038, RMB 12,614,294 and RMB 6,778,429
for the year ended March 31, 2011, 2012 and 2013, respectively.
Product sales of RMB 478,468, RMB 788,062 and RMB 1,095,370 for the years ended March 31, 2011, 2012 and 2013 are included in
other revenue. Other revenue primarily includes test-based educational services, licensing fees from authorized test centers, test
development services, test certificate services, and test administration software product sales.
(10) INCOME TAXES
Cayman Islands and British Virgin Islands
Under the current laws of the Cayman Islands and the British Virgin Islands, the Group is not subject to any income tax in these
jurisdictions.
People’s Republic of China
The Company’s consolidated PRC entities file separate income tax returns.
On March 16, 2007, the National People’s Congress passed the new Enterprise Income Tax Law (“new EIT Law”) which statutory
income tax rate is 25% effective from January 1, 2008. According to the new EIT Law, entities that qualify as “high-and-new technology
enterprises eligible for key support from the State” (“HNTE”) are entitled to a preferential income tax rate of 15%.
The Company’s PRC entities are subject to income tax at 25%, unless otherwise specified.
F-27
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
In December 2008, ATA Testing received approval from the tax authority that it qualified as an HNTE. The certificate entitled ATA
Testing to the preferential income tax rate of 15% effective retroactively from January 1, 2008 to December 31, 2010. As of March 31,
2011, ATA Testing’s applicable income tax rate from January 1, 2011 onwards was 25%. In October 2011, ATA Testing received
2011, ATA Testing’s applicable income tax rate from January 1, 2011 onwards was 25%. In October 2011, ATA Testing received
approval from the tax authority on its renewal as an HNTE which entitled it to the preferential income tax rate of 15% effective
retroactively from January 1, 2011 to December 31, 2013. ATA Testing’s applicable income tax rate from January 1, 2014 onwards is
25%.
In December 2009, ATA Learning, ATA Online and Beijing JDX received approvals from the tax authorities that they qualified as
HNTEs. The certificates entitled them to the preferential income tax rate of 15% effectively retroactively from January 1, 2009 to
December 31, 2011. As of March 31, 2012, ATA Learning, ATA Online and Beijing JDX’s applicable income tax rate from January 1,
2012 onwards was 25%. In May and July 2012, ATA Learning, ATA Online and Beijing JDX received approvals from the tax
authorities on its renewals as HNTEs which entitled them to the preferential income tax rate of 15% effective retroactively from January 1,
2012 to December 31, 2014. ATA Learning, ATA Online and Beijing JDX’s applicable income tax rate from January 1, 2015 onwards is
25%.
The new EIT Law and its relevant regulations impose a withholding tax at 10%, unless reduced by a tax treaty or agreement, for dividends
distributed by a PRC-resident enterprise to its immediate holding company outside the PRC for earnings generated beginning on
January 1, 2008. Undistributed earnings generated prior to January 1, 2008 are exempt from withholding tax. As of March 31, 2013, the
Company has not provided for income taxes on earnings of RMB 142,455,116 generated by its PRC consolidated entities since
January 1, 2008 as the Company plans to reinvest these earnings indefinitely in the PRC. As of March 31, 2013, the unrecognized
deferred income tax liability related to these earnings was RMB 14,245,512.
The earnings before income taxes were generated in the following jurisdictions:
Cayman Islands and British Virgin Islands
PRC
Earnings before income taxes
2011
RMB
(11,433,911)
34,500,214
23,066,303
Year Ended March 31,
2012
RMB
(15,598,329)
85,778,881
70,180,552
2013
RMB
(19,373,510)
49,586,482
30,212,972
Income tax expense (benefit) recognized in the consolidated statements of comprehensive income consists of the following:
PRC
Current expense
Deferred (benefit) expense
Total income tax expense
2011
RMB
Year Ended March 31,
2012
RMB
2013
RMB
7,203,811
(3,891,524)
3,312,287
13,189,414
1,149,668
14,339,082
10,226,537
(3,221,555)
7,004,982
The actual income tax expense reported in the consolidated statements of comprehensive income differs from the respective amount
computed by applying the PRC statutory income tax rate of 25% for each of the years ended March 31, 2011, 2012 and 2013 to earnings
before income taxes due to the following:
F-28
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Computed “expected” income tax expense
Decrease in valuation allowance
Preferential income tax rate
Entities not subject to income tax
Non-deductible expenses
Entertainment
Share-based compensation
Bad debt loss
Changes in tax rates
Tax rate differential
Prior year tax return true up
Additional deduction of research and development costs
Other
Actual income tax expense
2011
RMB
5,766,576
(1,379,408)
(4,486,178)
1,695,485
1,308,601
1,162,993
—
—
(1,503,124)
450,139
—
297,203
3,312,287
Year Ended March 31,
2012
RMB
17,545,138
(2,035,788)
(8,301,350)
833,483
1,344,639
3,066,099
47,296
2,032,901
(53,254)
—
(371,754)
231,672
14,339,082
2013
RMB
7,553,243
(735,773)
(7,069,673)
1,624,864
1,213,569
3,218,514
1,058,750
429,667
1,977,043
—
(2,309,671)
44,449
7,004,982
The applicable PRC statutory tax rate is used since the Group’s taxable income is generated in the PRC.
The tax effects of the Group’s temporary differences that give rise to significant portions of the deferred income tax assets and liabilities
The tax effects of the Group’s temporary differences that give rise to significant portions of the deferred income tax assets and liabilities
are as follows.
Deferred income tax assets:
Tax loss carryforwards
Property and equipment, net
Allowance for doubtful accounts
Write-down of inventories
Accrued expenses and other payables
Total gross deferred income tax assets
Less: valuation allowance
Net deferred income tax assets
Deferred income tax liabilities:
Intangible assets acquired in JDX acquisition:
Customer relationships
Total gross deferred income tax liabilities
Net deferred income tax assets
Table of Contents
F-29
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Current deferred income tax assets, included in prepaid expenses and other current assets
Non-current deferred income tax assets, included in other assets
Non-current deferred income tax liabilities
Net deferred income tax assets
March 31,
2012
RMB
479,411
1,859,136
912,399
579,644
4,021,629
7,852,219
(1,657,524)
6,194,695
241,494
241,494
5,953,201
2013
RMB
2,876,488
1,709,276
1,592,868
317,163
3,796,164
10,291,959
(921,751)
9,370,208
195,452
195,452
9,174,756
March 31,
2012
RMB
4,233,996
1,859,136
(139,931)
5,953,201
2013
RMB
7,524,161
1,709,276
(58,681)
9,174,756
The decrease in the valuation allowance for the years ended March 31, 2011, 2012 and 2013 were RMB1,379,408, RMB2,035,788 and
RMB735,773, respectively. As of March 31, 2013, the valuation allowance of RMB921,751 was mainly related to the deferred income
tax assets of entities at cumulative losses. As of March 31, 2013, management believes it is more likely than not that the Group will realize
the deferred income tax assets, net of the valuation allowance. The amount of the deferred income tax assets, however, considered
realizable as of March 31, 2013 could be reduced in the near term if estimates of future taxable income are reduced.
As of March 31, 2013, the Group had net tax loss carry forwards for PRC income tax purpose of RMB 17,623,772, if unused, will
expire by December 31, 2018.
For the years ended March 31, 2011, 2012 and 2013, the Group had no unrecognized tax benefits, and thus no related interest and
penalties were recorded. Also, the Group does not expect that the amount of unrecognized tax benefits will significantly increase within
the next twelve months.
According to the PRC Tax Administration and Collection Law, the statute of limitation is three years if the underpayment of taxes is due
to computational errors made by the taxpayer or the withholding agent. The statute of limitation is extended to five years under special
circumstances where the underpayment of taxes is more than RMB 100,000. In the case of transfer pricing issues, the statute of limitation
is ten years. There is no statute of limitation in the case of tax evasion. The income tax return of each of the Company’s PRC consolidated
entities is subject to examination by the relevant tax authorities for the calendar tax years beginning in 2008.
F-30
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
(11) SHARE BASED COMPENSATION
2005 Share incentive plan
In April 2005, the Company adopted a share incentive plan (the “2005 Plan”), pursuant to which the Company is authorized to issue
options to officers, employees, directors and consultants of the Group to purchase up to 2,894,000 of its common shares. In
October 2007, the Company’s board of directors approved an increase in the number of shares reserved for issuance under the 2005 Plan
October 2007, the Company’s board of directors approved an increase in the number of shares reserved for issuance under the 2005 Plan
to 3,310,300 shares. The 2005 Plan expires in ten years. Options awards provide for accelerated vesting if there is a change in control (as
defined in the 2005 Plan).
2008 Share incentive plan
On January 7, 2008, the Company adopted a share incentive plan (the “2008 Plan”), pursuant to which the Company is authorized to
issue options and other share-based awards to officers, employees, directors and consultants of the Group to purchase up to 336,307 of
its common shares, plus, unless the board of directors determines a lesser amount, an annual increase on January 1 of each calendar year
beginning in 2009 equal to the lesser of 1) one percent of the number of shares issued and outstanding on December 31 of the
immediately preceding calendar year, and 2) 336,307 shares. The 2008 Plan expires in ten years. Options awards provide for accelerated
vesting if there is a change in control (as defined in the 2008 Plan). As of March 31, 2013, 2,017,842 shares were reserved for issuance
under the 2008 Plan.
Under both the 2005 Plan and 2008 Plan, share options are generally granted with 25% vesting on the first anniversary of the grant date
and the remaining 75% vesting ratably over the following 36 months, unless a shorter or longer duration is established at the time of the
option grant. Share options are granted at an exercise price equal to the fair market value of the Company’s share at the date of grant and
expire 10 years from the grant date.
Under the 2008 Plan, nonvested shares are granted with a graded vesting as to 25% at the end of each year from the grant date over
4 years.
For the graded vesting share options and nonvested shares, the Company recognizes the compensation cost over the requisite service
period for each separately vesting portion of the award as if the award is, in substance, multiple awards.
During the year ended March 31, 2013, the Company extended the exercise period of two employees’ vested share options and continued
the vesting of their unvested share options and continued the vesting of one employee’s nonvested shares upon their resignation. The
modification resulted in additional compensation expense of RMB1,294,834 recognized in the “general and administrative expense” for
the year ended March 31, 2013.
F-31
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Outstanding as of March 31, 2010
Granted
Exercised
Forfeited
Expired
Outstanding as of March 31, 2011
Granted
Exercised
Forfeited
Expired
Outstanding as of March 31, 2012
Granted
Exercised
Forfeited
Expired
Outstanding as of March 31, 2013
Vested and expected to vest as of March 31, 2013
Exercisable as of March 31, 2013
Number of
shares
3,413,251
—
(43,884)
(225)
(106,492)
3,262,650
—
(27,864)
—
(446,444)
2,788,342
—
—
—
(41,000)
2,747,342
2,747,342
2,672,342
Weighted
average
exercise
USD
Weighted
remaining
contractual
Years
Aggregate
intrinsic
value
USD
2.98
—
3.60
3.60
3.32
2.96
—
3.60
—
3.60
2.85
—
—
—
3.60
2.84
2.84
2.86
3.1
3.0
Nil
Nil
The aggregate intrinsic value of options outstanding and exercisable at March 31, 2013, was calculated based on the closing price of the
Company’s common shares on March 31, 2013.
The total intrinsic value of options exercised in the years ended March 31, 2011, 2012 and 2013 are USD 10,175, USD 28,775 and USD
nil respectively.
In March 2011, certain individuals exercised 43,884 share options with an exercise price of USD3.6 per share. The proceeds of
USD157,982 (RMB1,035,796) were not received by the Company as of March 31, 2011 and a receivable from shareholders of RMB
1,035,796 was recorded in the shareholders’ equity. The Company received the proceeds in May 2011.
F-32
Table of Contents
Information relating to options outstanding and exercisable as of March 31, 2013 is as follows:
Number of
Shares
Options outstanding as of March 31, 2013
Exercise
Price
per Share
USD
Remaining
Contractual
Life
Years
1,312,600
674,000
250,000
101,000
100,000
9,742
300,000
2,747,342
2.26
3.60
3.60
3.60
4.75
2.69
2.12
2.84
Number
of Shares
Options exercisable as of March 31, 2013
Exercise
Price
per Share
USD
Remaining
Contractual
Life
Years
1,312,600
674,000
250,000
101,000
100,000
9,742
225,000
2,672,342
2.1
2.7
3.6
4.7
4.5
5.9
7.0
3.1
F-33
2.26
3.60
3.60
3.60
4.75
2.69
2.12
2.86
2.1
2.7
3.6
4.7
4.5
5.9
7.0
3.0
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Compensation expense for share options is allocated to the following expense items:
Cost of revenues
Research and development
Sales and marketing
General and administrative
Total share based compensation expense
2011
RMB
568
1,450
6,897
1,636,369
1,645,284
Year Ended March 31,
2012
RMB
—
—
42,914
547,231
590,145
2013
RMB
—
—
—
306,659
306,659
As of March 31, 2013, RMB 94,511 of total unrecognized compensation expense related to nonvested share options is expected to be
recognized over one year.
Nonvested shares
A summary of the nonvested shares activities for the year ended March 31, 2011, 2012 and 2013 is presented below:
F-34
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Outstanding at March 31, 2010
Granted
Vested
Forfeited
Outstanding at March 31, 2011
Granted
Vested
Forfeited
Outstanding at March 31, 2012
Granted
Vested
Number
of shares
431,049
20,000
(120,121)
(24,928)
306,000
1,060,000
(116,245)
(103,005)
1,146,750
100,000
(334,250)
Weighted
average
grant date
fair value
USD
2.943
1.655
2.865
2.209
2.949
4.963
2.076
4.470
4.788
4.030
4.423
Vested
Forfeited
Outstanding at March 31, 2013
(334,250)
(17,500)
895,000
4.423
3.807
4.858
The total fair value of shares vested during the years ended March 31, 2011, 2012 and 2013, was USD 219,615, USD 527,371 and USD
829,077 respectively.
Compensation expense recognized for nonvested shares for the years ended March 31, 2011, 2012 and 2013 is allocated to the following
expense items:
Cost of revenues
Research and development
Sales and marketing
General and administrative
Total share based compensation expense
2011
RMB
140,900
194,527
595,713
2,075,547
3,006,687
Year Ended March 31,
2012
RMB
71,691
189,462
344,226
11,068,873
11,674,252
2013
RMB
21,813
308,577
702,683
10,239,490
11,272,563
As of March 31, 2013, RMB8,161,687 of total unrecognized compensation expense related to nonvested shares is expected to be
recognized over a weighted average period of approximately 2.44 years.
F-35
Table of Contents
(12) COMMON SHARES
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
The Company’s board of directors approved a share repurchase program on November 13, 2008 to repurchase up to USD5 million worth
of its outstanding American Depository Shares (“ADS”) from time to time in open-market transactions. On February 12, 2010, the
Company’s board of director reviewed and approved the continuation of the share repurchase program through March 31, 2011. The
Company’s board of directors approved a share repurchase program on November 1, 2012 to repurchase up to USD5 million worth of its
issued and outstanding ADSs in both open-market and privately negotiated transactions. On January 31, 2013, the Company’s board of
director reviewed and approved the continuation of the share repurchase program through May 31, 2013. For the year ended March 31,
2011, 2012 and 2013, the Company repurchased nil, nil and 26,440 common shares at a repurchase price of RMB nil, RMB nil and RMB
329,357, respectively.
(13) SPECIAL CASH DIVIDEND
On June 1, 2011, the Company’s board of directors declared a special cash dividend of USD0.215 per common share, or USD0.43 per
ADS. The total amount of cash distributed in the dividend was USD9.8 million (RMB 63,634,726) and was paid from the cash held by
ATA Inc. in August 2011.
On August 7, 2012, the Company’s board of directors declared a special cash dividend of USD0.087 per common share, or USD0.174
per ADS. The total amount of cash distributed in the dividend was USD4.0 million (RMB 25,331,341) and was paid from the cash held
by ATA Inc. in September 2012.
(14) STATUTORY RESERVES
In accordance with the relevant laws and regulations of the PRC, the Company’s PRC consolidated entities are required to transfer 10%
of their respective after tax profit, as determined in accordance with PRC accounting standards and regulations to a general reserve fund
until the balance of the fund reaches 50% of the registered capital of the respective entity. The transfer to this general reserve fund must be
made before distribution of dividends can be made. As of March 31, 2012 and 2013, the PRC consolidated entities had appropriated
RMB 10,598,807 and RMB 14,892,860, respectively, to the general reserve fund, which is restricted for distribution to the Company.
(15) COMMITMENTS AND CONTINGENCIES
Lease commitments
The Group entered into non-cancelable operating leases, primarily for office space, for initial terms of two to three years.
Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease, including any periods of
free rent.
F-36
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of
March 31, 2013 are:
Year ended:
March 31, 2014
March 31, 2015
March 31, 2016
March 31, 2017
March 31, 2018
Minimum
Lease Amount
RMB
5,859,831
2,368,911
1,963,867
—
—
10,192,609
Rental expense for operating leases (except leases with a term of one month or less that are not renewed) for the years ended March 31,
2011, 2012 and 2013 were RMB 5,446,033, RMB 5,159,138 and RMB 6,517,907 respectively.
(16) EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share are calculated as follows:
Numerator:
Net earnings
Less: Dividends paid to participating securities
Net earnings attributable to participating securities
Net earnings available to common shareholders
Denominator:
Denominator for basic earnings per share:
Weighted average common shares outstanding
Plus: Incremental shares issuable upon exercise of share options
Denominator for diluted earnings per share
Basic earnings per common share
Diluted earnings per common share
2011
RMB
Year Ended March 31,
2012
RMB
2013
RMB
19,754,016
—
(162,360)
19,591,656
44,469,182
—
44,469,182
0.44
0.44
55,841,470
(1,476,269)
—
54,365,201
23,207,990
(525,049)
—
22,682,941
44,713,418
951,469
45,664,887
1.22
1.19
44,967,823
147,794
45,115,617
0.50
0.50
The following table summarizes potential common shares outstanding excluded from the calculation of diluted earnings per share for the
years ended March 31, 2011, 2012 and 2013, because their effect is anti-dilutive:
Shares issuable under share options
F-37
2011
3,262,650
Year ended March 31,
2012
100,000
2013
1,134,742
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
(17) ATA INC. (“Parent Company”)
The following presents condensed financial information of the Parent Company only.
Condensed Balance Sheets
Cash
Prepaid expenses and other current assets
Investments in subsidiaries
Total assets
2012
RMB
48,532,826
840,201
317,670,591
367,043,618
March 31,
2013
RMB
41,744,636
464,873
334,415,959
376,625,468
2013
USD
6,721,298
74,849
53,844,265
60,640,412
Total assets
367,043,618
376,625,468
60,640,412
Accrued expenses and other current liabilities
Total liabilities
Common shares
Treasury shares
Additional paid in capital
Accumulated other comprehensive loss
Accumulated deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
629,047
629,047
1,077,749
1,077,749
173,528
173,528
3,442,803
—
440,832,695
(26,004,399)
(51,856,528)
366,414,571
367,043,618
3,461,060
(329,357)
427,443,700
(26,379,146)
(28,648,538)
375,547,719
376,625,468
557,265
(53,030)
68,822,648
(4,247,302)
(4,612,697)
60,466,884
60,640,412
F-38
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Condensed Statements of Comprehensive Income
Operating expenses
Investment income
Interest income
Foreign currency exchange gains (losses), net
Earnings before income taxes
Income tax expense
Net income
Foreign currency translation adjustment, net of nil income
taxes
Comprehensive income
Year Ended March 31,
2012
RMB
2013
RMB
(7,487,523)
60,175,402
377,333
2,776,258
55,841,470
—
55,841,470
(3,787,210)
52,054,260
(7,567,474)
30,685,632
112,656
(22,824)
23,207,990
—
23,207,990
(374,747)
22,833,243
2013
USD
(1,218,437)
4,940,689
18,139
(3,675)
3,736,716
—
3,736,716
(60,338)
3,676,378
2011
RMB
(8,754,744)
27,535,955
97,045
875,760
19,754,016
—
19,754,016
(5,817,855)
13,936,161
F-39
Table of Contents
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
Condensed Statements of Cash Flows
Net cash used in operating activities
Cash flows from investing activities :
Collection from (advances to) subsidiaries
Net cash provided by (used in) investing activities
Cash flows from financing activities :
Proceeds from exercise of share options
Cash paid for employee individual income tax of net-
settlement of vested shares
Cash paid for repurchase of common shares
Collection of receivable from shareholders
Special cash dividend
Net cash used in financing activities
Year Ended March 31,
2011
RMB
(8,122,776)
2012
RMB
(4,529,639)
2013
RMB
(6,675,424)
2013
USD
(1,074,809)
(5,139)
(5,139)
1,140,127
1,140,127
26,836,132
26,836,132
4,320,882
4,320,882
631,844
—
—
—
—
—
—
—
—
—
—
1,035,796
(63,634,726)
(61,967,086)
(913,453)
(329,357)
—
(25,331,341)
(26,574,151)
(374,747)
(6,788,190)
48,532,826
(147,075)
(53,030)
—
(4,078,595)
(4,278,700)
(60,338)
(1,092,965)
7,814,263
Effect of foreign exchange rate changes on cash
Net decrease in cash
Cash at beginning of year
(4,039,042)
(12,166,957)
128,985,651
(2,929,270)
(68,285,868)
116,818,694
Cash at beginning of year
Cash at end of year
128,985,651
116,818,694
116,818,694
48,532,826
48,532,826
41,744,636
7,814,263
6,721,298
Supplemental disclosures of cash flow information :
Non-cash investing and financing activities:
Receivable from shareholders for exercise of common
share options
1,035,796
—
—
—
F-40
Exhibit 2.4
REGISTRATION RIGHTS EXTENSION AGREEMENT
THIS REGISTRATION RIGHTS EXTENSION AGREEMENT (this “Agreement”) is entered into as of March 5, 2013 (the
“Effective Date”), by and among ATA Inc., an exempted company duly incorporated and validly existing under the Laws of the Cayman
Islands (the “Company”), and SB ASIA INVESTMENT FUND II, L.P., a limited partnership organized and existing under the Laws of
the Cayman Islands (“SAIF”). The Company and SAIF are referred to herein as “Parties” collectively and a “Party” individually.
RECITALS
WHEREAS, the Company, SAIF and certain other shareholders of the Company were parties to a Shareholders Agreement dated
November 10, 2006 (the “Shareholders Agreement”), under which SAIF held certain registration rights, which terminate on March 31,
2013;
WHEREAS the Company and SAIF have agreed to enter into this agreement to provide SAIF substantially the same registration
rights from April 1, 2013 until March 31, 2017; and
WHEREAS the Parties have agreed that from April 1, 2013 SAIF’s registration rights will be governed by this Agreement and not
the Shareholders Agreement.
WITNESSETH
NOW, THEREFORE, in consideration of the premises set forth above, the mutual promises and covenants set forth herein and
other good and valuable consideration, the Parties agree as follows:
1. Interpretation.
1.1 Definitions. The following terms shall have the meanings ascribed to them below:
“Affiliate”, with regard to a given Person, means a Person that Controls, is Controlled by or is under common Control with
the given Person; the term “Affiliated” has the meaning correlative to the foregoing.
“Applicable Securities Law” means (i) with respect to any offering of securities in the United States, or any other act or
omission within that jurisdiction, the securities Law of the United States, including the Exchange Act and the Securities Act, and any
applicable securities Law of any state of the United States, and (ii) with respect to any offering of securities in any jurisdiction other
than the United States, or any related act or omission in that jurisdiction, the applicable securities Laws of that jurisdiction.
“Board” means the board of directors of the Company.
“Commission” means the Securities and Exchange Commission of the United States or any other federal agency at the time
administering the Securities Act.
“Common Shares” means the common shares, par value US$0.01, of the Company.
“Common Share Equivalents” means warrants, options and rights exercisable for Common Shares or securities
convertible into or exchangeable for Common Shares.
“Control” of a given Person means the power or authority, whether exercised or not, to direct the business, management
and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise,
which power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the
vote of more than 50% of the votes entitled to be cast at meetings of the members or shareholders of such Person or power to control
the composition of the board of directors of such Person; the terms “Controlling” and “Controlled” have meanings correlative to the
foregoing.
“Equity Securities” means any Common Shares or Common Share Equivalents of the Company.
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
“Form F-1” means Form F-1 promulgated by the Commission under the Securities Act or any successor form or
substantially similar form then in effect.
“Form F-3” means Form F-3 promulgated by the Commission under the Securities Act or any successor form or
substantially similar form then in effect.
“Governmental Authority” means a nation or government or any province or state or any other political subdivision
thereof, and any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including any government authority, agency, department, board, commission or instrumentality or any
political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.
“Holders” mean SAIF and any permitted assignee of SAIF hereunder.
“Initiating Holders” means, with respect to a request duly made under Section 2.1 to Register any Registrable Securities,
the Holders initiating such request.
“Law” means any constitutional provision, statute or other law, rule, regulation, official policy or interpretation of any
Governmental Authority and any injunction, judgment, order, ruling, assessment or writ issued by any Governmental Authority.
“Person” means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability
company, firm, trust, estate or other enterprise or entity.
“PRC” means the People’s Republic of China, but solely for the purposes of this Agreement, excluding the Hong Kong
Special Administrative Region, Macau Special Administrative Region and the islands of Taiwan.
“Registrable Securities” means (i) the 12,707,436 Common Shares held by SAIF as of February 1, 2008, and (ii) any
Common Shares of the Company issued as a dividend or other distribution with respect to, in exchange for, or in replacement of, the
shares referenced in (i). For purposes of this Agreement, (i) Registrable Securities shall cease to be Registrable Securities when a
Registration Statement covering such Registrable Securities has been declared effective under the Securities Act by the Commission
whether or not such Registrable Securities have been disposed of pursuant to such effective Registration Statement and (ii) the
Registrable Securities of a Holder shall not be deemed to be Registrable Securities at any time when the entire amount of such
Registrable Securities proposed to be sold by such Holder in a single sale are or, in the opinion of counsel satisfactory to the
Company and such Holder, each in their reasonable judgment, may be, so distributed to the public pursuant to Rule 144 (or any
successor provision then in effect) under the Securities Act in any three (3) month period or any such Registrable Securities have
been sold in a sale made pursuant to Rule 144 of the Securities Act.
“Registration” means a registration for sale of Registrable Securities under the Securities Act effected by preparing and
filing a Registration Statement and the declaration or ordering of the effectiveness of that Registration Statement; and the term
“Register” means the act of effecting such Registration.
“Registration Statement” means a registration statement prepared on Form F-1 or F-3, under the Securities Act (including,
without limitation, Rule 415 under the Securities Act), or on any successor form to such forms under the Securities Act.
“Securities Act” means the United States Securities Act of 1933, as amended.
“Selling Expenses” means all underwriting discounts and selling commissions applicable to the sale of Registrable
Securities pursuant to this Agreement.
2. Demand Registration.
2.1 Registration on Form F-3. Subject to the terms of this Agreement, if the Company qualifies for registration on Form F-
3, Holders holding a majority of the then outstanding Registrable Securities may request the Company to file a Registration Statement on
Form F-3 for a public offering of Registrable Securities for which the reasonably anticipated aggregate price to the public, net of Selling
Expenses, would exceed US$10,000,000. Upon receipt of such a request, the Company shall (i) promptly give written notice of the
proposed Registration to all other Holders and (ii) as soon as practicable, use its reasonable best efforts to cause the Registrable Securities
specified in the request, together with any Registrable Securities of any Holder who requests in writing to join such Registration within
fifteen (15) days after the Company’s delivery of written notice, to be Registered and qualified for sale and distribution. If the Company is
not entitled to use Form F-3, Holders holding a majority of the then outstanding Registrable Securities may request the Company file a
Registration Statement on a form other than Form F-3 under the Securities Act providing for the Registration of such Registrable Securities.
A written request under this Section 2.1 shall be delivered to the Company in accordance with the notice provisions set forth below, and shall
specify the number of Registrable Securities for which registration is requested. Subject to the provisions of this Agreement, the Holders
may at any time, and from time to time, require the Company to effect the Registration of Registrable Securities under this Section 2.1.
However, the Company shall not be required to effect more than five (5) Registrations pursuant to this Section 2.1.
2.3 Right of Deferral.
(a) The Company shall not be obligated to file a Registration Statement or qualify Registrable Securities pursuant to this
Section 2:
(i) if, within ten (10) days of the receipt of any request of the Holders to Register any Registrable Securities under
Section 2.1 or Section 2.2, the Company gives notice to the Initiating Holders of its bona fide intention to effect the filing for its own account
of a Registration Statement of Common Shares within sixty (60) days of receipt of that request; provided that the Company is actively
employing in good faith its reasonable best efforts to cause that Registration Statement to become effective within sixty (60) days of the
employing in good faith its reasonable best efforts to cause that Registration Statement to become effective within sixty (60) days of the
initial filing; provided further that the Holders are entitled to join such Registration subject to Section 3;
(ii) during the period starting with the date of filing by the Company of, and ending six (6) months following the effective
date of, any Registration Statement pertaining to Common Shares of the Company; provided that the Holders are entitled to join such
Registration subject to Section 3; or
(iii) after September 30th of any year if any interim financial statements shall be required to be included in such
Registration Statement and such interim financial statements are not available or such Registration Statement is required to be filed under this
Agreement before such interim financial statements can be reasonably produced.
(b) If, after receiving a request from the Initiating Holders pursuant to Section 2.1 hereof, the Company furnishes to the
Holder a certificate signed by the chief executive officer of the Company stating that, in the good faith judgment of the Board, there is a
reasonable likelihood that it would be materially detrimental to the Company or its members for a Registration Statement to be filed in the
near future, then the Company shall have the right to defer such filing for a period during which such filing would be materially detrimental,
provided that such deferral by the Company shall not exceed ninety (90) days from the receipt of any request duly submitted by Holders
under Section 2.1 to Register Registrable Securities; provided further, that the Company may not Register any other of its Securities during
such 90-day period (except for Registrations contemplated by Section 3.4).
2.4 Underwritten Offerings. If, in connection with a request to Register Registrable Securities under Section 2.1, the
Initiating Holders seek to distribute such Registrable Securities in an underwritten offering, they shall so advise the Company as a part of the
request, and the Company shall include such information in the written notice to the other Holders described in Sections 2.1. In such event,
the right of any Holder to include its Registrable Securities in such Registration shall be conditioned upon such Holder’s participation in such
underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority
in interest of the Initiating Holders and such Holder) to the extent provided herein. . All Holders proposing to distribute their securities
through such underwritten offering shall enter into an underwriting agreement in customary form with the underwriter or underwriters of
internationally recognized standing selected for such underwriting by the Company. Notwithstanding any other provision of this Agreement,
if the managing underwriter advises the Company that marketing factors (including without limitation the aggregate number of securities
requested to be Registered, the general condition of the market, and the status of the Persons proposing to sell securities pursuant to the
Registration) require a limitation of the number of Registrable Securities to be underwritten in a Registration pursuant to Section 2.1, the
underwriters may exclude up to 70% of the Registrable Securities requested to be Registered but only after excluding all other Equity
Securities from the Registration and underwriting and so long as the number of shares to be included in the Registration on behalf of Holders
is allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities requested by such
Holders to be included, provided that if, as a result of such underwriter cutback, the Holders cannot include in the initial public offering all of
the Registrable Securities that they have requested to be included therein, then such Registration shall not be deemed to constitute one of the
five demand Registrations to which the Holders are entitled pursuant to Section 2.1. Any Registrable Securities excluded or withdrawn from
such underwriting shall be withdrawn from the Registration.
3. Piggyback Registrations.
3.1 Registration of the Company’s Securities. Subject to the terms of this Agreement, if the Company proposes to
Register for its own account any of its Equity Securities, or for the account of any holder (other than a Holder) of Equity Securities any of
such holder’s Equity Securities, in connection with the public offering of such securities solely for cash (except as set forth in Section 3.4),
the Company shall promptly give each Holder written notice of such Registration and, upon the written request of any Holder given within
fifteen (15) days after delivery of such notice, the Company shall use its reasonable best efforts to include in such Registration any
Registrable Securities thereby requested to be Registered by such Holder. If a Holder decides not to include all or any of its Registrable
Securities in such Registration by the Company, such Holder shall nevertheless continue to have the right to include any Registrable
Securities in any subsequent Registration Statement or Registration Statements as may be filed by the Company, all upon the terms and
conditions set forth herein.
3.2 Right to Terminate Registration. The Company shall have the right to terminate or withdraw any Registration initiated
by it under Section 3.1 prior to the effectiveness of such Registration, whether or not any Holder has elected to participate therein. The
expenses of such withdrawn Registration shall be borne by the Company in accordance with Section 4.3.
3.3 Underwriting Requirements.
(a) In connection with any offering involving an underwriting of the Company’s Equity Securities solely for cash,
the Company shall not be required to Register the Registrable Securities of a Holder under this Section 3 unless such Holder’s Registrable
Securities are included in the underwriting and such Holder enters into an underwriting agreement in customary form with the underwriters
selected by the Company and setting forth such terms for the underwriting as have been agreed upon between the Company and the
underwriters. In the event the underwriters advise Holders seeking Registration of Registrable Securities pursuant to this Section 3 in
writing that market factors (including the aggregate number of Registrable Securities requested to be Registered, the general condition of the
market, and the status of the Persons proposing to sell securities pursuant to the Registration) require a limitation of the number of
Registrable Securities to be underwritten, the underwriters may exclude up to seventy percent (70%) of the Registrable Securities requested
to be Registered but only after excluding all other Equity Securities (except for securities to be offered by the Company) from the
Registration and underwriting and so long as the Registrable Securities to be included in such Registration on behalf of Holders are allocated
among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities requested by such Holders to be
included.
(b) If any Holder disapproves the terms of any underwriting, the Holder may elect to withdraw therefrom by written
notice to the Company and the underwriters delivered at least ten (10) days prior to the effective date of the Registration Statement. Any
Registrable Securities excluded or withdrawn from the underwriting shall be withdrawn from the Registration.
3.4 Exempt Transactions. The Company shall have no obligation to Register any Registrable Securities under this
Section 3 in connection with a Registration by the Company (i) relating solely to the sale of securities to participants in a Company share
award plan, or (ii) relating to a corporate reorganization or other transaction under Rule 145 of the Securities Act.
4. Procedures.
4.1 Registration Procedures and Obligations. Whenever required under this Agreement to effect the Registration of any
Registrable Securities held by the Holders, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a Registration Statement with respect to those Registrable Securities and
use its reasonable best efforts to cause that Registration Statement to become effective, and, upon the request of the Holders holding a
majority of the Registrable Securities Registered thereunder, keep the Registration Statement effective for up to one hundred and eighty (180)
days or, if earlier, until the distribution thereunder has been completed; provided, however, that such one hundred and eighty (180) day
period shall be extended for a period of time equal to the period any Holder refrains from selling any Registrable Securities included in such
Registration at the written request of the underwriter(s) for such Registration.
(b) Prepare and file with the Commission amendments and supplements to that Registration Statement and the
prospectus used in connection with the Registration Statement as may be necessary to comply with the provisions of Applicable Securities
Law with respect to the disposition of all securities covered by the Registration Statement;
(c) Furnish to the Holders the number of copies of a prospectus, including a preliminary prospectus, required by
Applicable Securities Law, and any other documents as they may reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its reasonable best efforts to Register and qualify the securities covered by the Registration Statement under
the securities Laws of any jurisdiction, as reasonably requested by the Holders, provided that the Company shall not be required to qualify to
do business or file a general consent to service of process in any such jurisdictions;
(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting
agreement, in customary form, with the managing underwriter(s) of the offering. Each shareholder participating in the underwriting shall
also enter into and perform its obligations under such an agreement;
(f) Notify each Holder of Registrable Securities covered by the Registration Statement at any time when a
prospectus relating thereto is required to be delivered under Applicable Securities Law of (i) the issuance of any stop order by the
commission, or (ii) the happening of any event as a result of which any prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(g) Provide a transfer agent and registrar for all Registrable Securities Registered pursuant to the Registration
Statement and, where applicable, a number assigned by the Committee on Uniform Securities Identification Procedures for all those
Registrable Securities, in each case not later than the effective date of the Registration;
(h) Furnish, at the request of any Holder requesting Registration of Registrable Securities pursuant to this
Agreement, on the date that such Registrable Securities are delivered for sale in connection with a Registration pursuant to this Agreement,
(i) an opinion, dated the closing date of the sale, of the counsel representing the Company for the purposes of the Registration, in form and
substance as is customarily given to underwriters in an underwritten public offering; (ii) (A) a comfort letter dated the signing date of the
underwriting agreement; and (B) a bring down comfort letter dated the closing of the sale, each from the independent certified public
accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters; and
Company’s American depositary receipts representing Common Shares are then traded.
(i) Take all reasonable action necessary to list the Registrable Securities on the primary exchange on which the
4.2 Information from Holder. It shall be a condition precedent to the obligations of the Company to take any action
pursuant to this Agreement with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company
such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be
required to effect the Registration of such Holder’s Registrable Securities.
4.3 Expenses of Registration. All Registration, filing and qualification fees, printers’ and accounting fees and fees and
disbursements of counsel for the Company, as well as reasonable fees and disbursement of one counsel for all selling Holders up to
$20,000, in relation to any Registration hereunder shall be borne by the Company. The Company shall not, however, be required to pay for
any expenses of any Registration proceeding begun pursuant to this Agreement if the Registration request is subsequently withdrawn at the
request of a Holder or Holders requesting such Registration (in which case all participating Holders shall bear such expenses pro rata based
upon the number of Registrable Securities that were to be thereby Registered in the withdrawn Registration).
upon the number of Registrable Securities that were to be thereby Registered in the withdrawn Registration).
4.4 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying
any Registration as the result of any controversy that may arise with respect to the interpretation or implementation of this Agreement.
5. Indemnification.
5.1 Company Indemnity.
(a) To the maximum extent permitted by Law, the Company will indemnify and hold harmless each Holder, such
Holder’s officers, directors, shareholders, legal counsel and accountants, any underwriter (as defined in the Securities Act) for such Holder
and each Person, if any, who controls (as defined in the Securities Act) such Holder or underwriter, against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under Laws which are applicable to the Company and relate to action or
inaction required of the Company in connection with any Registration, qualification, or compliance, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (each a
“Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, on the effective
date thereof (including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto), (ii) the
omission or alleged omission to state in the Registration Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, a material fact required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of Applicable Securities Laws, or any rule or regulation promulgated
under Applicable Securities Laws. The Company will reimburse each such Holder, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action.
(b) The indemnity agreement contained in this Section 5.1 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be
unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to
the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished
for use in connection with such Registration by any such Holder, underwriter or controlling person.
5.2 Holder Indemnity.
(a) To the maximum extent permitted by Law, each selling Holder will indemnify and hold harmless the Company,
its directors, officers, legal counsel and accountants, any underwriter, any other Holder selling securities in connection with such Registration
and each Person, if any, who controls (within the meaning of the Securities Act) the Company, such underwriter or other Holder, against any
losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under Applicable
Securities Laws, or any rule or regulation promulgated under Applicable Securities Laws, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written information furnished by such Holder for use in connection with such
Registration; and each such Holder will reimburse any Person intended to be indemnified pursuant to this Section 5.2, for any legal or other
expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage, liability or action.
No Holder’s liability under this Section 5.2 shall exceed the net proceeds (less underwriting discounts and selling commissions) received by
such Holder from the offering of securities made in connection with that Registration; provided, however, such limitation shall not apply in
the case of willful fraud by such Holder.
(b) The indemnity contained in this Section 5.2 shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent of the selling Holders (which consent shall not be unreasonably
withheld or delayed).
5.3 Notice of Indemnification Claim. Promptly after receipt by an indemnified party under Section 5.1 or Section 5.2 of
notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to
be made against any indemnifying party under Section 5.1 or Section 5.2, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the
indemnifying parties. An indemnified party (together with all other indemnified parties that may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the reasonably incurred fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying party, to the extent so prejudiced, of any liability to the indemnified party under
this Section 5, but the omission to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 5.
5.4 Contribution. If any indemnification provided for in Section 5.1 or Section 5.2 is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault
of the indemnifying party, on the one hand, and of the indemnified party, on the other, in connection with the statements or omissions that
resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged
indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or
omission.
5.5 Underwriting Agreement. To the extent that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
5.6 Survival. The obligations of the Company and Holders under this Section 5 shall survive the completion of any
offering of Registrable Securities in a Registration Statement under this Agreement.
6. Additional Undertakings.
6.1 Reports under the Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated
under the Securities Act and any comparable provision of any Applicable Securities Law that may at any time permit a Holder to sell
securities of the Company to the public without Registration or pursuant to a Registration on Form F-3, the Company agrees to:
comparable provision, if any, under Applicable Securities Laws), at all times;
(a) make and keep public information available, as those terms are understood and defined in Rule 144 (or
Applicable Securities Laws; and
(b) file with the Commission in a timely manner all reports and other documents required of the Company under all
(c) promptly furnish to any Holder holding Registrable Securities, upon request (i) a written statement by the
Company that it has complied with the reporting requirements of all Applicable Securities Laws at any time after it has become subject to
such reporting requirements or, at any time after so qualified, that it qualifies as a registrant whose securities may be resold pursuant to
Form F-3, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents as may be filed by
the Company with the Commission, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or
regulation of the Commission, that permits the selling of any such securities without Registration or pursuant to Form F-3.
6.2 Effectiveness and Termination of Registration Rights. The registration rights set forth in Section 2 and Section 3 of
this Agreement shall become effective on April 1, 2013 and terminate on March 31, 2017.
7. Assignments and Transfers; No Third Party Beneficiaries. This Agreement and the rights and obligations of the parties
hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives, but shall not
otherwise be for the benefit of any third party. This Agreement and the rights and obligations of the parties hereunder are not assignable or
transferable without the written consent of both Parties.
8. Miscellaneous.
8.1 Governing Law. This Agreement shall be governed by and construed under the Laws of the State of New York, without
regard to principles of conflicts of law thereunder.
8.2 Dispute Resolution.
(a) Any dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation, breach,
termination or validity hereof, shall first be subject to resolution through consultation of the parties to such dispute, controversy or claim.
Such consultation shall begin within seven (7) days after one party hereto has delivered to the other party hereto a written request for such
consultation. If within thirty (30) days following the commencement of such consultation the dispute cannot be resolved, the dispute shall be
submitted to arbitration upon the request of either party with notice to the other.
(b) The arbitration shall be conducted in Hong Kong under the auspices of the Hong Kong International Arbitration
Centre (the “Centre”). There shall be three arbitrators. The complainant or complainants, on the one hand, and the respondent or
respondents, on the other hand, shall each select one arbitrator within thirty (30) days after giving or receiving the demand for arbitration.
Such arbitrators shall be freely selected, and the parties shall not be limited in their selection to any prescribed list. The Chairman of the
Centre shall select the third arbitrator, who shall be qualified to practice law in New York. If either party does not appoint an arbitrator who
has consented to participate within thirty (30) days after selection of the first arbitrator, the relevant appointment shall be made by the
Chairman of the Centre.
(c) The arbitration proceedings shall be conducted in English. The arbitration tribunal shall apply the Arbitration
Rules of the Centre in effect at the time of the arbitration. However, if such rules are in conflict with the provisions of this Section 8.2,
including the provisions concerning the appointment of arbitrators, the provisions of this Section 8.2 shall prevail.
substantive Law of New York and shall not apply any other substantive Law.
(d) The arbitrators shall decide any dispute submitted by the parties to the arbitration strictly in accordance with the
information and documents requested by the other in connection with such arbitration proceedings, subject only to any confidentiality
(e) Each party hereto shall cooperate with the other in making full disclosure of and providing complete access to all
information and documents requested by the other in connection with such arbitration proceedings, subject only to any confidentiality
obligations binding on such party.
apply to a court of competent jurisdiction for enforcement of such award.
(f) The award of the arbitration tribunal shall be final and binding upon the disputing parties, and either party may
jurisdiction pending the constitution of the arbitral tribunal.
(g) Either party shall be entitled to seek preliminary injunctive relief, if possible, from any court of competent
8.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Facsimile and e-mailed copies of signatures shall be deemed to be
originals for purposes of the effectiveness of this Agreement.
8.4 Notices. Any notice required or permitted pursuant to this Agreement shall be given in writing and shall be given either
personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to the address as shown below
the signature of such party on the signature page of this Agreement (or at such other address as such party may designate by 15 days’
advance written notice to the other parties to this Agreement given in accordance with this Section). Where a notice is sent by next-day or
second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day
or second-day service through an internationally-recognized courier a letter containing the notice, with a confirmation of delivery, and to have
been effected at the expiration of two days after the letter containing the same is sent as aforesaid. Where a notice is sent by fax or electronic
mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting
organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid.
8.5 Headings and Titles. Headings and titles used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
8.6 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may
be entitled.
8.7 Entire Agreement: Amendments and Waivers. This Agreement constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof, and SAIF hereby waives all rights under Sections 2, 3, 4 or 5 of the
Shareholders Agreement. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and SAIF.
8.8 Severability. If a provision of this Agreement is held to be unenforceable under applicable Laws, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.
8.9 Further Assurances. The parties agree to execute such further instruments and to take such further action as may be
reasonably necessary to carry out the intent of this Agreement.
8.10 Rights Cumulative. Each and all of the various rights, powers and remedies of a party hereto will be considered to be
cumulative with and in addition to any other rights, powers and remedies which such party may have at law or in equity in the event of the
breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the
exclusive election thereof nor the waiver of any other right, power or remedy available to such party.
8.11 No Waiver. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be
deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance
with, any right, power or remedy power hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or
remedy at any other time or times.
8.12 No Presumption. The parties acknowledge that any applicable Law that would require interpretation of any claimed
ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. If any claim is made by a party
relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or burden of proof or persuasion will be
implied because this Agreement was prepared by or at the request of any party or its counsel.
[The remainder of this page is intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
COMPANY:
ATA INC.
By:
/s/ Ma Xiaofeng
Name: Ma Xiaofeng
Capacity: Authorized Signatory
Address:
th
8 Floor East Building
No. 6 Jian Guo Men Nei Gong Yuan Xi Jie
Beijing 100005, People’s Republic of China
Attention: Chief Financial Officer
Fax: +86(10) 6517-9517
With a copy to:
th
O’Melveny & Myers LLP
37 Floor Yintai Centre, Office Tower
No. 2 Jianguomenwai Avenue
Beijing 100022, China
Attention: David Roberts
Fax: +86(10) 6563-4201
Signature Page Registration Rights Extension Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
INVESTORS:
SB ASIA INVESTMENT FUND II, L.P.
By:
/s/ Andrew Y. Yan
Name: Andrew Y. Yan
Capacity: Authorized Signatory
Address:
c/o M&C Corporate Services Limited
PO Box 309GT
Ugland House, South Church Street
George Town, Grand Cayman
Cayman Islands
With a copy to:
c/o SAIF Advisors
18F C Tower Central International Trade Center
6A Jianguomenwai Avenue Chao Yang District
Beijing, 100022 China
Attention:
Fax +86 (10) 8519-2048
And a copy to:
c/o SAIF Advisors
SAIF Advisors Limited 2516-2520, Two Pacific Place,
88 Queensway, Hong Kong
Attention:
Fax: +(852) 2234-9116
Power of Attorney
Exhibit 4.14
Authorizing Party: Xiaofeng Ma
Personal ID #:
Address:
Authorized Party: ATA Learning (Beijing) Inc.
Address:
Telephone:
Facsimile:
I, Xiaofeng Ma, a PRC citizen, hereby irrevocably authorize ATA Learning (Beijing) Inc. (hereinafter, “ATA Learning”) to exercise the
following rights during the term of this Power of Attorney:
Authorizing ATA Learning or any eligible PRC citizens authorized thereby (hereinafter, the “Designees”, and ATA Learning and the
Designees are collectively referred to as “Authorized Party”) to act as my sole and exclusive agent who have full power to represent myself
in connection with the following:
Exercising any and all of my voting rights in the capacity of a shareholder of ATA Online (Beijing) Education Technology Limited
(hereinafter “ATA Online”) and such other shareholder’s rights, including but not limited to, appointing and electing, in the capacity of my
authorized representative, directors, general manager and other executives of ATA Online in ATA Online’s shareholders’ meetings.
The Authorized Party has the right to, within the scope of authorization specified herein, execute on my behalf any transfer documents
necessary for the performance of obligations under the Equity Pledge Contract and the Call Option and Cooperation Agreement attached as
Appendix I hereto and signed by me.
The Authorized Party has the right to join the liquidation committee and participate in liquidation matters on my behalf in the case of
liquidation of ATA Online. I hereby acknowledge, ratify and approve any actions to be taken and documents to be executed by the
Authorized Party during the liquidation of ATA Online.
Any actions to be taken by and any documents to be executed by the Authorized Party in connection with ATA Online shall be considered
taken/executed by myself. I hereby acknowledge, ratify and approve any actions to be taken and documents to be executed by the
Authorized Party.
The abovementioned authorization and designation shall be subject to the following conditions: the Designees are PRC citizens and are
employees of ATA Learning , and the controlling shareholders of ATA Learning consent to such authorization and designation. Promptly
upon the occurrence that any Designees no longer hold any positions in ATA Learning or ATA Learning issues written notice to replace
any Designees, I will immediately withdraw the authorization and designation granted to the Designees herein and will authorize and/or
designate other employees that are PRC citizens designated by ATA Learning to exercise my aforesaid shareholder’s voting rights in ATA
Online’s shareholders’ meetings.
The Authorized Party shall perform its fiduciary obligations in a prudent and diligent manner in accordance with law and within the scope of
authorization, and shall hold the Authorizing Party free from any and all losses/damages arising out of such authorization and/or designation,
except for the losses/damages caused by willful or gross negligence by the Authorized Party, in which case the Authorized Party shall bear
all legal and economic liabilities to the Authorizing Party and ATA Online.
The Authorizing Party hereby agrees that the duration of this Power of Attorney shall be the same as that set forth in the Equity Pledge
Contract and Call Option and Cooperation Agreement attached as Appendix I hereto and shall have a retroactive effect to the date of
execution of the Equity Pledge Contract and Call Option and Cooperation Agreement attached as Appendix I hereto. The duration of this
Power of Attorney shall be postponed accordingly in the case the duration of Equity Pledge Contract and Call Option and Cooperation
Agreement is postponed.
Authorizing Party (signature):
/s/ Xiaofeng Ma
March 27, 2013
Appendix I: Equity Pledge Contract and Call Option and Cooperation Agreement
Power of Attorney
Exhibit 4.15
Authorizing Party: Lin Wang
Personal ID #:
Address:
Authorized Party: ATA Learning (Beijing) Inc.
Address:
Telephone:
Facsimile:
I, Lin Wang, a PRC citizen, hereby irrevocably authorize ATA Learning (Beijing) Inc. (hereinafter, “ATA Learning”) to exercise the
following rights during the term of this Power of Attorney:
Authorizing ATA Learning or any eligible PRC citizens authorized thereby (hereinafter, the “Designees”, and ATA Learning and the
Designees are collectively referred to as “Authorized Party”) to act as my sole and exclusive agent who have full power to represent myself
in connection with the following:
Exercising any and all of my voting rights in the capacity of a shareholder of ATA Online (Beijing) Education Technology Limited
(hereinafter “ATA Online”) and such other shareholder’s rights, including but not limited to, appointing and electing, in the capacity of my
authorized representative, directors, general manager and other executives of ATA Online in ATA Online’s shareholders’ meetings.
The Authorized Party has the right to, within the scope of authorization specified herein, execute on my behalf any transfer documents
necessary for the performance of obligations under the Equity Pledge Contract and the Call Option and Cooperation Agreement attached as
Appendix I hereto and signed by me.
The Authorized Party has the right to join the liquidation committee and participate in liquidation matters on my behalf in the case of
liquidation of ATA Online. I hereby acknowledge, ratify and approve any actions to be taken and documents to be executed by the
Authorized Party during the liquidation of ATA Online.
Any actions to be taken by and any documents to be executed by the Authorized Party in connection with ATA Online shall be considered
taken/executed by myself. I hereby acknowledge, ratify and approve any actions to be taken and documents to be executed by the
Authorized Party.
The abovementioned authorization and designation shall be subject to the following conditions: the Designees are PRC citizens and are
employees of ATA Learning , and the controlling shareholders of ATA Learning consent to such authorization and designation. Promptly
upon the occurrence that any Designees no longer hold any positions in ATA Learning or ATA Learning issues written notice to replace
any Designees, I will immediately withdraw the authorization and designation granted to the Designees herein and will authorize and/or
designate other employees that are PRC citizens designated by ATA Learning to exercise my aforesaid shareholder’s voting rights in ATA
Online’s shareholders’ meetings.
The Authorized Party shall perform its fiduciary obligations in a prudent and diligent manner in accordance with law and within the scope of
authorization, and shall hold the Authorizing Party free from any and all losses/damages arising out of such authorization and/or designation,
except for the losses/damages caused by willful or gross negligence by the Authorized Party, in which case the Authorized Party shall bear
all legal and economic liabilities to the Authorizing Party and ATA Online.
The Authorizing Party hereby agrees that the duration of this Power of Attorney shall be the same as that set forth in the Equity Pledge
Contract and Call Option and Cooperation Agreement attached as Appendix I hereto and shall have a retroactive effect to the date of
execution of the Equity Pledge Contract and Call Option and Cooperation Agreement attached as Appendix I hereto. The duration of this
Power of Attorney shall be postponed accordingly in the case the duration of Equity Pledge Contract and Call Option and Cooperation
Agreement is postponed.
Authorizing Party (signature):
/s/ Lin Wang
April 3, 2013
Appendix I: Equity Pledge Contract and Call Option and Cooperation Agreement
CONFIDENTIAL TREATMENT REQUESTED
Exhibit 4.16
Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange
Commission. Confidential Treatment has been requested with respect to the omitted portions.
Service Agreement for 2013 Securities Practitioner Qualification Exams
Party A:
Address:
Party B:
Address:
Securities Association of China
nd
2 Floor, B Tower, Fukai Plaza, 19 Jinrong Street, Xicheng District, Beijing
ATA Testing Authority (Beijing) Limited (“ATA”)
16th Floor, E Tower, No. 6 Gongyuan West Street, Jianguomennei, Beijing
Securities Association of China is the holder of Securities Practitioner Qualification Exams. ATA is a specialty supplier of exam technology
services and exam delivery services. Based on the principles of rigorousness, scientific methodology and efficiency, and through friendly
negotiation, Party A and Party B hereby enter into this Agreement for mutual observance.
Article 1 In accordance with relevant State laws and regulations and the overall arrangement on Securities Practitioner Qualification Exams
(“Exam” or “Qualification Exam”), Party A hereby entrusts Party B to perform relevant services for the exams of 2013. The exams will be
performed on computers (“Computer-based Exam”).
Article 2 Services entrusted by Party A to Party B in connection with the exams include: providing technical services for exams, handling
exam takers’ registrations and payment, issuing and mailing receipts, arranging exam venues, arranging exam premises’ layout, producing
admission cards, arranging exams, collecting and processing exam score, carrying out statistical and analysis work for the exams, evaluating
exam papers, and other work deemed necessary by Party A.
Article 3 Party A will formulate and inform Party B of the standards and regulations of the Qualification Exam and the Computer-based
Exam.
Article 4 Party B shall perform services for Party A on the basis of the above Article 2 and such services shall be consistent with the
requirements in Party A’s announcement in respect of each specific exam.
Article 5 The services to be provided by Party B should be examined and supervised by Party A. Party B should promptly notify Party A of
relevant information regarding action against Exam Takers that violated rules.
Article 6 Party B shall, according to the principle of ensuring smooth administration of exams, formulate Service Criteria for Securities
Practitioner Qualification Exams and specific working plan for each exam and submit to Party A for its records.
Article 7 Party B will accept registrations from exam takers (“Exam Takers”) by means of online registration and the payment relating thereto
may be made via bank transfer or online payment. Party B should take effective measures to ensure smooth registration.
Article 8 Party A and Party B should enter into a joint fund management agreement with the party that collects the registration fee so that the
three parties may jointly manage the funds. The account for the registration fee collection should be named according to Party A’s exam and
shall be used for fee collection and accounts transfers only. Party B shall not withdraw funds from the registration fee account by any means
without Party A’s approval.
Article 9 ╪
Bank account holder:
Bank name:
Account number:
╪
╪
╪
Article 10 Party B shall arrange sufficient manpower to assist Party A in issuing and mailing receipts for registration fees to Exam
Takers.
Article 11 Party B is required to create a specific window on the exam registration website so that Party A will be informed of the
registration status from time to time.
Article 12 Party B is required to provide the information of the registered Exam Takers within one month of the completion of
registration. The information security officer of Party A shall go to Party B’s site to examine, among others, the data storage and backup
record, and supervise the destruction of exam data throughout the entire process and the completion of ATA’s List of Eliminated Exam
Results by Party B’ data administrator.
Article 13 Party B shall, according to Party A’s express standards and requirements on exam venues and exam premises, arrange
Article 13
exam venues and exam premises based on the principles of facilitating Exam Takers. The exam venues should be safe, conveniently located,
have a clean environment, and have sufficient hardware facilities to ensure smooth conduction of exams.
Party B shall, according to Party A’s express standards and requirements on exam venues and exam premises, arrange
Article 14 The exam venues and exam premises should be inspected and accepted by Party A; those considered not meeting relevant
standards and requirements should be corrected or replaced by Party B.
Article 15 Party B shall enter into contracts with the exam venues and exam premises it selected, and shall take proper measures to
ensure the performance of the contracts.
Article 16 Party B shall arrange the Exam Takers to attend the exam, and shall take the effective measures listed below to ensure the
success of the exam:
(1) Exam premises shall be equipped with sufficient monitoring teachers who are required to fulfill the duty to keep the exam premises
in order;
(2) Exam premises shall be equipped with on-site video capture facilities and have integrated video capture standard;
(3) Exam premises shall be equipped with necessary remote surveillance equipment;
(4) Each exam premises shall be equipped with sufficient technicians;
(5) Each exam premises shall be equipped with sufficient computers and backups to meet the need of exams. After an exam is started,
computers in premises should be able to work properly, and the number of malfunctioning computers (such as computer breakdown) shall
not exceed 0.1% of the total computers used in the exam. Moreover, upon adoption of preventive and corrective measures, all the computers
shall be in proper working conditions during the exam; and
(6) Other preventive measures in other comparable exams.
Article 17 Party B shall, through the exam premises administrator, read out the exam rules formulated by Party A to exam takers.
Article 18 Party B shall, within 5 working days after the exam is over, finish the test paper review and submit to Party A the exam
data, including exam result, analysis of exam data, disciplinary action against breach of exam discipline. The information security officer of
Party A shall, within 15 working days after the exam is over, go to Party B’s site to examine, among others, the data storage and backup
record, and supervise the destruction of exam data throughout the entire process and the completion of ATA’s List of Eliminated Exam
Results by Party B’ data administrator.
Article 19 Party A may entrust Party B with accepting inquiries from exam takers about the exam matters; without permission of
Party A, Party B may not engage in any publicity activity relating to the exam or accept any inquiries about exam results.
Article 20 ╪
Bank account name: ╪
Bank name: ╪
Account number: ╪
Article 21 Each party shall respect and protect the other party’s intellectual property rights and shall only use the other party’s
intellectual property rights to the extent expressly authorized or agreed and shall make best endeavors to protect the other party’s intellectual
property rights.
Article 22 Both parties shall undertake that their respective own intellectual property rights will not infringe upon any interest of any
third party; if any third party raises any objection, institutes any action or applies for arbitration, which causes any loss to a party hereto, the
party at fault shall be solely liable for damages.
Article 23 Party A shall absolutely own the intellectual property rights to the exam question pool and the exam papers it provided,
irrespective of whether this agreement is terminated or not, and Party B may not use or divulge in any way any information relating to the
exam question pool and the exam papers that it learned during the performance of the terms of this agreement without the written consent of
Party A.
Article 24 Irrespective of whether this agreement is terminated or not, each party shall treat as confidential any Confidential
Information of the other party that it obtained during the performance of this agreement. The party aware of such Confidential Information
may communicate such Confidential Information to its relevant employees or relevant professionals engaged by it, provided that it guarantee
that such personnel shall agree to be bound by this agreement and not to divulge the Confidential Information in any manner.
Article 25 The “Confidential Information” hereunder means the exam question pool, test paper, financial information of the parties,
exam takers’ information, exam data and result relating to the products and services provided by the parties in connection with the exam
work, as well as proprietary technology, software programs and working.
Article 26 The test technology and software owned by Party B to provide test related services shall be kept under strict confidential
arrangement and reliable technical support shall be provided to ensure the secrecy of intellectual property rights of Party A and other
arrangement and reliable technical support shall be provided to ensure the secrecy of intellectual property rights of Party A and other
confidential matters under this agreement.
Article 27 If Party B breaches Articles 3 to 19 hereof and the circumstance of such breach is moderate, Party A shall give
admonition and ask Party B to make a correction within a prescribed time limit; if the breach is serious or if Party B refuses to accept such
admonition and fails to make a correction, Party A shall have the right to unilaterally rescind this agreement.
Article 28 If Party B violates Articles 21 to 25hereof, and such action results in serious consequences and prevents the normal
administration of the exam, Party A shall have the right to immediately terminate this agreement and to demand that Party B indemnify Party
A for the losses arising therefrom which shall be equal to the fees already paid by Party A to Party B.
Article 29 If Party B cooperates with any third party in connection with the exam matters delegated by Party A, and Party A’s
interest is impaired by such third party, Party B shall be liable for damages.
Article 30 Neither party shall be liable for any delay in performing, or any failure to perform, any of its obligations under this
agreement if such delay or failure arises from force majeure.
Article 31 Any dispute arising from the content or the performance of this agreement shall be settled through active consultations
between the parties. If consultations come to no avail, either party may institute legal action with a court located near where Party A is
situated.
Article 32 During the performance of this agreement, Party A, depending on its needs, has the right to delegate to any third party the
exam work not expressly set forth in this agreement.
Article 33 If the terms of this agreement conflict with an announcement regarding exam content issued by Party A during the
performance hereof, the announcement issued by Party A shall prevail.
Article 34 Either party has the right to terminate this agreement if the other party becomes bankrupt or stops doing business during
the performance of this agreement; the party that becomes bankrupt or stops doing business shall indemnify the other party for its relevant
loss.
Article 35 Any matters not covered herein shall be provided for in a supplementary agreement.
Article 36 This agreement will come into force upon signature and seal of both parties and will be valid for a period of 1 year.
Article 37 This agreement shall be executed in 4 counterparts, with each party holding 2 counterparts.
Party A: Securities Association of China
Party B: ATA Testing Authority (Beijing) Limited
Authorized representative of Party A:
(signature/official seal)
Authorized representative of Party B: (signature/official seal)
Signature: (handwritten)
Signature: (handwritten)
Date: January 15, 2013
Date: January 7, 2013
Exhibit 12.1
Certification by the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kevin Xiaofeng Ma, certify that:
1. I have reviewed this annual report on Form 20-F of ATA Inc. (the “Company”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, 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;
(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered
by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting; and
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s
internal control over financial reporting.
Date: June 26, 2013
/s/ Kevin Xiaofeng Ma
By:
Name: Kevin Xiaofeng Ma
Title:
Chief Executive Officer
Exhibit 12.2
Certification by the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Benson Tsang, certify that:
1. I have reviewed this annual report on Form 20-F of ATA Inc. (the “Company”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, 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;
(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered
by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting; and
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal
control over financial reporting.
Date: June 26, 2013
/s/ Benson Tsang
By:
Name: Benson Tsang
Title:
Chief Financial Officer
Certification by the Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.1
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Kevin
Xiaofeng Ma, Chief Executive Officer of ATA Inc. (the “Company”), hereby certifies, to the best of his knowledge, that the Company’s
annual report on Form 20-F for the year ended March 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or
15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company as of, and for the periods presented in the Report.
Date: June 26, 2013
/s/ Kevin Xiaofeng Ma
By:
Name: Kevin Xiaofeng Ma
Title:
Chief Executive Officer
Certification by the Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.2
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Benson
Tsang, Chief Financial Officer of ATA Inc. (the “Company”), hereby certifies, to the best of his knowledge, that the Company’s annual
report on Form 20-F for the year ended March 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company as of, and for the periods presented in the Report.
Date: June 26, 2013
By:
Name:
Title:
/s/ Benson Tsang
Benson Tsang
Chief Financial Officer
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
ATA Inc.
We consent to the incorporation by reference in the registration statement (No. 333-182258) on Form S-8 of ATA Inc. of our reports dated
June 26, 2013, with respect to the consolidated balance sheets of ATA Inc. as of March 31, 2013 and 2012, and the related consolidated
statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended March 31, 2013,
and the effectiveness of internal control over financial reporting as of March 31, 2013, which reports appear in the March 31, 2013 annual
report on Form 20-F of ATA Inc.
/s/ KPMG
Hong Kong, China
June 26, 2013
JINCHENG TONGDA & NEAL
10th Floor, China World Tower, No.1 JianguoMenwai Avenue, Beijing 100004, China
Tel : (86-10) 5706-8585 Fax : (86-10) 6518-5057, 8515-0267
Exhibit 23.2
June 26, 2013
ATA Inc.
8th Floor, Tower E
6 Gongyuan West Street,
Jian Guo Men Nei
Beijing 100005, China
Ladies and Gentlemen:
We have acted as legal advisors as to the laws of the People’s Republic of China to ATA Inc. (the “Company”), in connection with the filing
by the Company with the United States Securities and Exchange Commission of an annual report on Form 20-F for the fiscal year ended
March 31, 2013.
We hereby consent to the use of our name under “Key Information — Risk Factors” and “Information on the Company — Business
Overview — Regulation” in the Company’s annual report on Form 20-F for the fiscal year ended March 31, 2013.
Yours faithfully,
/s/ Jincheng Tongda & Neal Law Firm
Jincheng Tongda & Neal Law Firm
10th Floor, China World Tower, No.1 JianguoMenwai Avenue, Beijing 100004, China
JINCHENG TONGDA & NEAL
Tel : (86-10) 5706-8585 Fax : (86-10) 6518-5057, 8515-0267
ATA Inc.
8th Floor, Tower E
6 Gongyuan West Street,
Jian Guo Men Nei
Beijing 100005, China
Re: ATA Inc.
Dear Sirs,
Exhibit 23.3
June 26, 2013
We are qualified lawyers of the People’s Republic of China (the “PRC”, for the purpose of this legal opinion (the “Opinion”), excluding the
Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan), and as such are qualified to issue legal
opinions on the PRC laws, regulations or rules.
We are acting as the PRC counsel for ATA Inc., an exempted company incorporated in the Cayman Islands with limited liability (the
“Company”), in connection with the filing of its annual report on Form 20-F (the “Annual Report”) for the fiscal year ended March 31,
2013 with the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
In rendering this Opinion, we have examined the originals or copies certified or otherwise identified to our satisfaction, of documents
provided to us by the Company and such other documents, corporate records, certificates issued by Governmental Agencies (as defined
below) in the PRC, by officers of the Company, and/or by the Group Companies (as defined below) and other instruments (the
“Documents”) as we have considered necessary, advisable or desirable for the purpose of rendering this Opinion. Where certain facts were
not or may not be possible to be independently established by us, we have relied upon certificates or statements or representations issued or
made by relevant Governmental Agencies of the PRC and the appropriate representatives of the Company and/or the PRC Companies with
the proper powers and functions.
In our examination of the Documents and for purpose of rendering this Opinion, we have assumed without further inquiry: (A) the
genuineness of all signatures, seals and chops, and the authenticity of all documents submitted to us as originals and the conformity with
authentic original documents submitted to us as copies; (B) the Documents as submitted to us remain in full force and effect up to the date of
this Opinion, and have not been revoked, amended, revises, modified or supplemented except as otherwise indicated in such Documents;
(C) the truthfulness, accuracy, fairness and completeness of Documents as well as all factual statements in the Documents; (D) that all
information provided to us by the Company in response to our inquiries for the purpose of this Opinion is true, accurate, complete and not
misleading and that the Company has not withheld anything that, if disclosed to us, would reasonably cause us to alter this Opinion in whole
or in part; (E) other than in relation to the Control Agreements (as defined below), that all parties have the requisite power and authority to
enter into, execute, deliver and perform the Documents to which they are parties; (F) other than in relation to the Control Agreements, that all
parties have duly executed, delivered, performed, and will duly perform their obligations under the Documents to which they are parties; and
(G) other than in relation to the Control Agreements, that all Documents are legal, valid, binding and enforceable under all such laws as
govern or relate to them other than PRC Laws (as defined below).
This Opinion is rendered on the basis of the PRC Laws effective as at the date hereof. We do not purport to be an expert on, generally
familiar with, or qualified to express legal opinions based on, any laws other than the PRC Laws. Accordingly, we express no opinion on
the laws of any jurisdiction other than the PRC. Furthermore, there is no guarantee that any such PRC Laws will not be changed, amended
or replaced in the immediate future or in the longer term with or without retrospective effect.
The following terms as used in this Opinion are defined as follows:
“ATA Learning”
“ATA Testing”
“BVI Subsidiary”
“Control Agreements”
means ATA Learning (Beijing), Inc. a company incorporated under the PRC Laws of which 100%
equity interest is indirectly owned by the Company. ATA Testing Authority (Beijing) Limited
means ATA Testing Authority (Beijing) Limited, a company incorporated under the PRC Laws of
which 100% equity interest is indirectly owned by the Company.
means ATA Testing Authority (Holdings) Limited, a company incorporated under the laws of
British Virgin Islands of which 100% equity interest is directly owned by the Company.
means the agreements set forth in Item 7.B of the Annual Report headed “Related Party
Transactions—Agreements among ATA BVI, ATA Learning and ATA Online,” and as listed in
Schedule I of this Opinion.
“Group Companies”
means the Company, BVI Subsidiary, and the PRC Companies.
Schedule I of this Opinion.
“Government Agency”
means any competent government authorities, courts, arbitration commissions or regulatory bodies
of the PRC.
“Governmental Authorization”
means any approval, consent, permit, authorization, filing, registration, exemption, waiver,
endorsement, annual inspection, qualification and license required by the applicable PRC Laws to
be obtained from any Government Agency.
“Material Adverse Effect”
means any event, circumstance, condition, occurrence or situation or any combination of the
foregoing that has or could be reasonably expected to have a material and adverse effect upon the
conditions (financial or otherwise), business, properties or results of operations or prospects of the
Group Companies taken as a whole.
“Initial Public Offering”
means the initial public offering of American depositary shares representing the Company’s
ordinary shares as described in the prospectus for such offering dated January 28, 2008.
“PRC Laws”
means any and all laws, regulations, statutes, rules, decrees, notices and supreme court’s judicial
interpretations currently in force and publicly available in the PRC as of the date hereof.
“PRC Companies”
means the PRC Wholly Owned Subsidiaries, and the PRC Subsidiary.
“PRC Subsidiary”
means ATA Online (Beijing) Education Technology Limited, a company incorporated under the
PRC Laws of which 90% of the equity interest is directly owned by Kevin Xiaofeng Ma and 10%
of the equity interest is directly owned by Walter Lin Wang
“PRC Wholly Owned Subsidiaries”
means ATA Learning and ATA Testing.
Based on the foregoing, after our due inquiry, we are of the opinion that:
(i) Corporate Structure. The descriptions of the corporate structure of the PRC Companies and the Control Agreements set forth in the
“Risk Factors,” “Organizational Structure” and “Related Party Transactions—Agreements among ATA BVI, ATA Learning and
ATA Online” sections of the Annual Report are correct and accurate in all material respects and nothing has been omitted from such
descriptions which would make the same misleading in any material respect.
We are of the opinion that, except as disclosed in the Annual Report, (A) the ownership structure of the PRC Companies as
described in the Annual Report under the headings “Risk Factors,” “Organizational Structure” and “Related Party Transactions—
Agreements among ATA BVI, ATA Learning and ATA Online” are and has been in compliance with all current PRC Laws;
(B) each of the Control Agreements has been duly executed and delivered by each of the parties thereto and constitutes its or his
binding obligations; (C) the contractual arrangements among ATA Learning, the PRC Subsidiary and the shareholders of the PRC
Subsidiary, established by the Control Agreements, individually and as a whole, are valid, legally binding and enforceable, and will
not result in any violation of the PRC Laws currently in effect; and (D) the business operations of the Company and the PRC
Companies, as described in the Annual Report, are in compliance with all current PRC Laws in all material aspects.
(ii) M&A Rules. On August 8, 2006, six PRC regulatory agencies, namely, the PRC Ministry of Commerce, the State Assets
Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and
Commerce, the China Securities Regulatory Commission (the “CSRC”), and the State Administration of Foreign Exchange of the
PRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A
Rules”), which became effective on September 8, 2006 and amended on June 22, 2009. The M&A Rules purport, among other
things, to require offshore special purpose vehicles (the “SPVs”) formed for overseas listing purposes through acquisitions of PRC
domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing
their securities on an overseas stock exchange. On September 21, 2006, pursuant to the M&A Rules and other PRC Laws and
regulations, the CSRC, on its official website, promulgated relevant guidance with respect to the issues of listing and trading of PRC
domestic enterprises’ securities on overseas stock exchanges, including a list of application materials with respect to the listing on
overseas stock exchanges by SPVs.
We are of the opinion that as of the date hereof, the Company was not and is not required under the M&A Rules and other relevant
PRC Laws to obtain the approval of the CSRC for the issuance and sale of the American depositary shares representing the
Company’s common shares or the listing of the Company’s American depositary shares on Nasdaq in connection with the Initial
Public Offering, because (1) the Company established the PRC Wholly Owned Subsidiaries as a foreign-invested enterprise by
means of direct investment and not through a merger or acquisition of the equity or assets of a “PRC domestic company” as such
term is defined under the M&A Rules, and (2) there is no provision in the M&A Rules that clearly classifies contractual
arrangements described under “Our Corporate Structure” and “Related Party Transactions—Agreements among ATA BVI, ATA
Learning and ATA Online” sections of the Annual Report as the type of merger and acquisition transaction falling under the M&A
Rules.
This Opinion is rendered to you and is intended to be used in the context which is specifically referred to herein and solely for the benefit of
the Company in connection with its Annual Report filing and each paragraph should be looked at as a whole and no part should be extracted
the Company in connection with its Annual Report filing and each paragraph should be looked at as a whole and no part should be extracted
and referred to independently.
We hereby consent to the filling of this Opinion with the U.S. Securities and Exchange Commission as an exhibit to the Annual Report and
to the use of and references to our name and this Opinion and its contents under the sections headed “Risk Factors” and “Regulation” and
other sections of the Annual Report.
Yours faithfully,
/s/ Jincheng Tongda & Neal Law Firm
Jincheng Tongda & Neal Law Firm
SCHEDULE I
List of Control Agreements
(1) Equity Pledge Agreement, dated as of Feb 12, 2007, among Kevin Xiaofeng Ma, Walter Lin Wang, and ATA Learning
(Beijing), Inc.
(2) Notices of Equity Pledge Registration, issued by Beijing Administration for Industry and Commerce Haidian Branch Office to
Kevin Xiaofeng Ma, Walter Lin Wang, and ATA Learning (Beijing), Inc on April 25, 2012.
(3) Loan Agreement, dated as of October 27, 2006, between ATA Testing Authority (Holdings) Limited and Kevin Xiaofeng Ma.
(4) Amendment to Loan Agreement, dated as of Feb 12, 2007, between ATA Testing Authority (Holdings) Limited and Walter Lin
Wang.
(5) Call Option and Cooperation Agreement, dated as of Feb 12, 2007, among ATA Testing Authority (Holdings) Limited, Kevin
Xiaofeng Ma, Walter Lin Wang, and ATA Online Education Technology Limited.
(6) Technical Support Agreement, dated as of October 27, 2006, between ATA Online (Beijing) Education Technology Limited. and
ATA Learning (Beijing), Inc.
(7) Strategic Consulting Service Agreement, dated as of October 27, 2006, between ATA Online (Beijing) Education Technology
Limited and ATA Learning (Beijing), Inc.
(8) Power of Attorney, dated as of March 27, 2013, between Kevin Xiaofeng Ma and ATA Learning (Beijing), Inc.
(9) Power of Attorney, dated as of April 3, 2013, between Walter Lin Wang and ATA Learning (Beijing), Inc.