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(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐
☒
☐
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2020.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
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: 001-36363
Tarena International, Inc.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
6/F, No. 1 Andingmenwai Street, Litchi Tower,
Chaoyang District, Beijing 100011,
People’s Republic of China
(Address of principal executive offices)
1/F, Block A, Training Building,
65 Kejiyuan Road, Baiyang Jie Dao,
Economic Development District,
Hangzhou 310000, People’s Republic of China
(Address of principal executive offices)
Wing Kee Lau, Chief Financial Officer
E-mail: liuyongji@tedu.cn
6/F, No. 1 Andingmenwai Street, Litchi Tower,
Chaoyang District, Beijing 100011,
People’s Republic of China
Telephone: +86 139 0119 2404
(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 one Class A ordinary share,
par value US$0.001 per share
Class A ordinary shares,
par value US$0.001 per share
Trading Symbol
TEDU
Name of each exchange on which registered
The NASDAQ Stock Market LLC
(The NASDAQ Global Select Market)
The NASDAQ Stock Market LLC
(The NASDAQ Global Select Market)*
* Not for trading, but only in connection with the listing on The NASDAQ Global Select Market of American depositary shares, each representing one
Class A ordinary share.
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:
(Title of Class)
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual
report. As of December 31, 2020, there were 55,552,443 ordinary shares outstanding, par value $0.001 per share, being the sum of 48,346,384 Class A
ordinary shares (excluding 7,099,141 Class A ordinary shares issued to our depositary bank for bulk issuance of ADSs reserved for issuances upon the
exercise or vesting of awards under our share incentive plan) and 7,206,059 Class B ordinary shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ Yes ⌧ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. ☐ Yes ⌧ 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. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
⌧ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth
company. See definition of “accelerated filer,” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ⌧
Accelerated filer ☐
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided
pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its
Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued by
the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has
elected to follow. ☐ Item 17 ☐ 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). ☐ Yes ⌧ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐ Yes ☐ No
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EXPLANATORY NOTE
INTRODUCTION
PART I.
TABLE OF CONTENTS
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 1.
OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2.
KEY INFORMATION
ITEM 3.
ITEM 4.
INFORMATION ON THE COMPANY
ITEM 4.A. UNRESOLVED STAFF COMMENTS
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10. ADDITIONAL INFORMATION
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
PART II.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
ITEM 14.
USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16.B. CODE OF ETHICS
ITEM 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
ITEM 16.E.
ITEM 16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16.G. CORPORATE GOVERNANCE
ITEM 16.H. MINE SAFETY DISCLOSURE
PART III.
ITEM 17.
ITEM 18.
ITEM 19.
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
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EXPLANATORY NOTE
Our annual consolidated financial statements for the years ended December 31, 2016, 2017, 2018, 2019 and 2020 have
been audited by Marcum Bernstein & Pinchuk LLP in accordance with the standards of the Public Company Accounting
Oversight Board (United States). As previously disclosed in the Explanatory Note to our annual report on Form 20-F for
the year ended December 31, 2018 filed on April 24, 2020, our consolidated financial statements for the years ended
December 31, 2014, 2015, 2016 and 2017 have been restated. Our previously issued consolidated financial statements (and
the related audit opinion) included in our annual reports on Form 20-F for the years ended December 31, 2016 and 2017
should not be relied upon. The restatement of our financial statements (the “Restatement”) as of and for the years ended
December 31, 2014, 2015, 2016 and 2017 has resulted in certain changes to the Company’s consolidated financial
statements previously issued.
We have not amended, and we do not intend to amend, our previously filed annual reports on Form 20-F or our quarterly
financial statements attached as exhibits to our current reports on Form 6-K previously furnished to the United States
Securities and Exchange Commission (the “SEC”). The financial information included in reports previously filed or
furnished by us in the years from 2016 to 2019 is superseded by the applicable information in this annual report.
In this annual report, except where the context otherwise requires and for purposes of this annual report only:
INTRODUCTION
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“we,” “us,” “our company,” “our” and “Tarena” refer to Tarena International, Inc., a Cayman Islands company,
and its subsidiaries, and, in the context of describing our operations, risk factors and financial results, also
include our variable interest entity;
“China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only,
Taiwan, Hong Kong and Macau;
“shares” or “ordinary shares” refers to our ordinary shares, par value US$0.001 per share, which include both
Class A ordinary shares and Class B ordinary shares;
“ADSs” refers to our American depositary shares, each of which represents one Class A ordinary share;
“K-12” refers to the year before the first grade through the last year of high school;
“IT” refers to information technology;
“STEAM education” refers to science, technology, engineering, arts, and mathematics education;
“student enrollments” for a certain period refers to, for adult education, the total number of courses enrolled in by
students during that period, including multiple courses enrolled in by the same student; for K-12 education, the
total number of students who attended at least one paid lesson during that period or have deposit balances in their
accounts at the end of that period;
“variable interest entity”, or “VIE,” refers to Beijing Tarena Jinqiao Technology Co., Ltd., which is a domestic
PRC company in which we do not have any equity interests but whose financial results have been consolidated
into our consolidated financial statements in accordance with U.S. GAAP because we have effective financial
control over, and Tarena International, Inc. is the primary beneficiary of, such company. As the context may
require, “variable interest entities” or “VIEs” may also include Shanghai Tarena Software Technology Co., Ltd.,
which used to be a variable interest entity consolidated by us but was wound up in December 2016; and
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all references to “RMB” or “Renminbi” refer to the legal currency of China; all references to “US$,” “dollars”
and “U.S. dollars” refer to the legal currency of the United States.
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We present our financial results in RMB. We make no representation that any RMB or U.S. dollar amounts could have
been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The PRC
government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB
into foreign exchange and through restrictions on foreign trade. This annual report contains translations of certain foreign
currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of Renminbi
into U.S. dollars were made at the rate at RMB6.5250 to US$1.00, the exchange rate as set forth in the H.10 statistical
release of the Board of Governors of the Federal Reserve System in effect as of December 31, 2020 (except the cash
dividend which is translated at the rate on the exercise date).
FORWARD-LOOKING INFORMATION
This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties. All statements
other than statements of historical facts are forward-looking statements. These statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially
different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,”
“aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-
looking statements largely on our current expectations and projections about future events and financial trends that we
believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-
looking statements include, but are not limited to, statements about:
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our goals and growth strategies;
our expectations regarding demand for and market acceptance of our courses;
our ability to retain and increase our course and student enrollments;
our ability to maintain and increase the utilization rate of our learning centers;
our ability to offer new courses in existing and new subject areas;
our ability to replicate the success and growth of our adult education services to the K-12 education market;
our ability to maintain and increase the tuition fees of our courses;
our ability to deepen and expand our corporate employer relationships;
our ability to maintain our relationships with universities and colleges;
our future business development, results of operations and financial condition;
the expected growth of, and trends in, the markets for our services in China;
relevant government policies and regulations relating to our corporate structure, business and industry;
the potential impact of the COVID-19 to our business operation and the economy in China and elsewhere
generally; and
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assumptions underlying or related to any of the foregoing.
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You should read thoroughly this annual report and the documents that we refer to in this annual report with the
understanding that our actual future results may be materially different from and worse than what we expect. Other sections
of this annual report include additional factors which could adversely impact our business and financial performance.
Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is
not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on
our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary
statements.
You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
PART I.
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3.
KEY INFORMATION
A.
Selected Financial Data
The following selected consolidated statements of comprehensive income data (other than ADS data) for the years ended
December 31, 2018, 2019 and 2020 and the selected consolidated balance sheet data as of December 31, 2019 and 2020
have been derived from our audited consolidated financial statements included elsewhere in this annual report. The
following selected consolidated statements of comprehensive income data (other than ADS data) for the year ended
December 31, 2016 and 2017 and the selected consolidated balance sheet data as of December 31, 2017 and 2018 have
been derived from our audited consolidated financial statements which are not included in this annual report. The following
selected consolidated balance sheet data as of December 31, 2016 has been derived from our unaudited consolidated
financial statements which are not included in this annual report and has been prepared on the same basis as our audited
consolidated financial statements and includes all adjustments, consisting only of normal and recurring adjustments, that
we consider necessary for a fair presentation of our financial position and operating results for the year presented. Our
historical results for any period are not necessarily indicative of results to be expected for any future period. The selected
consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our
audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects”
below. Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting
principles in the United States, or U.S. GAAP.
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Selected Consolidated
Statements of Comprehensive
Income Data:
Net revenues
Cost of revenues(1)
Gross profit
Selling and marketing
expenses(1)
General and administrative
expenses(1)
Research and development
expenses(1)
Operating income/(loss)
Interest income
Other income (loss)
Loss on foreign currency
forward contract
Foreign currency exchange gains
(loss)
Income/(loss) before income
taxes
Net income/(loss)
Net income/(loss) attributable
to Class A and Class B
ordinary shareholders
Cash dividend declared per
share(2)
Weighted average number of
class A and class B ordinary
shares outstanding(3):
Basic
Diluted
Earnings/(loss) per Class A
ordinary share, and per Class B
ordinary share(4)
Basic
Diluted
Earnings/(loss) per ADS(5)
Basic
Diluted
2016
RMB
For the Year ended December 31,
2020
2017
RMB
RMB
(in thousands, except for share, per share and per ADS data)
2018
RMB
2019
RMB
2020
USD
1,520,035
(443,467)
1,076,568
1,753,695
(592,946)
1,160,749
2,085,371
(918,549)
1,166,822
2,051,354
(1,173,834)
877,520
1,897,883
(1,066,842)
831,041
290,863
(163,501)
127,362
(524,077)
(707,157)
(1,047,632)
(1,119,698)
(906,337)
(138,902)
(264,445)
(354,832)
(546,568)
(723,306)
(630,618)
(96,646)
(65,594)
222,452
25,065
15,960
(100,032)
(1,272)
16,097
16,702
(167,254)
(594,632)
26,200
(33,583)
(132,672)
(1,098,156)
15,859
(246)
(100,466)
(806,380)
(199)
5,201
(15,397)
(123,583)
(30)
797
(12,898)
—
—
—
—
—
3,760
(6,284)
4,951
1,614
(4,849)
(743)
254,339
226,120
25,243
(147)
(597,064)
(592,199)
(1,080,437)
(1,038,878)
(806,227)
(771,193)
(123,559)
(118,190)
226,120
(147)
(590,174)
(1,036,086)
(766,643)
(117,493)
0.98
1.10
0.76
—
—
—
55,540,670
59,005,261
56,849,332
56,849,332
54,929,910
54,929,910
53,386,075
53,386,075
54,341,213
54,341,213
54,341,213
54,341,213
4.07
3.83
4.07
3.83
0
0
0
0
(10.74)
(10.74)
(10.74)
(10.74)
(19.41)
(19.41)
(19.41)
(19.41)
(14.11)
(14.11)
(14.11)
(14.11)
(2.16)
(2.16)
(2.16)
(2.16)
Notes:
(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:
For the Year Ended December 31,
2016
2020
RMB RMB RMB RMB RMB USD
2018
2020
2017
2019
Cost of revenues
Sales and marketing expenses
General and administrative expenses
Research and development expenses
(in thousands)
4,124
5,496
51,154
7,050
1,285
4,863
60,491
10,776
2,265
8,866
84,645
28,477
983
6,502
36,719
14,968
379
1,842
26,242
7,783
58
282
4,022
1,193
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(2) On March 7, 2016, our board of directors approved for us to declare a cash dividend of RMB0.98 (US$0.15) per
ordinary share to shareholders as of the close of trading on April 6, 2016. On February 28, 2017, our board of directors
approved for us to declare a cash dividend of RMB1.10 (US$0.16) per ordinary share to shareholders as of the close of
trading on March 27, 2017. On March 6, 2018, our board of directors approved for us to declare a cash dividend of
RMB0.76 (US$0.12) per ordinary share to shareholders as of the close of business on April 5, 2018.
(3) The weighted average number of ordinary shares represents the sum of the weighted average number of Class A and
Class B ordinary shares. See Note 15 to our audited consolidated financial statements included in this annual report for
additional information regarding the computation of the per share amounts and the weighted average numbers of
Class A and Class B ordinary shares.
(4) As holders of Class A and Class B ordinary shares have the same dividend right and the same participation right in our
undistributed earnings, the basic and diluted earnings per Class A ordinary share and Class B ordinary share are the
same for all the periods presented.
(5) Each ADS represents one Class A ordinary share.
The following table presents our selected consolidated balance sheet data as of the dates indicated.
2016
RMB
(Unaudited)
2017
RMB
As of December 31,
2019
2018
RMB
RMB
(in thousands)
2020
RMB
2020
USD
810,672
686,691
530,984
537,701
320,179
49,070
475,391
—
433,041
—
159,102
14,700
83,487
—
6,257
38,369
959
5,880
18,315
427,001
41,760
1,974,010
51,643
502,339
77,170
2,018,427
39,901
626,068
59,651
1,878,047
31,442
576,633
67,773
2,512,020
32,790
464,490
67,592
1,959,249
5,025
71,186
10,359
300,267
328,782
560,762
352,260
748,918
830,019
1,306,404
1,585,970
2,915,084
1,998,198
3,098,518
306,237
474,869
1,413,248
1,413,248
1,269,509
1,269,509
572,618
571,643
(400,047)
(403,064)
(1,132,002)
(1,139,269)
(173,488)
(174,602)
Selected Consolidated Balance Sheet
Data:
Cash and cash equivalents
Time deposits, including non-current
portion
Restricted cash
Accounts receivable, net of allowance
for doubtful accounts
Property and equipment, net
Long-term investments
Total assets
Deferred revenue, including non-
current portion
Total liabilities
Total equity (deficit) attributable to
the shareholders of Tarena
International, Inc.
Total equity (deficit)
B.
Capitalization and Indebtedness
Not Applicable.
C.
Reasons for the Offer and Use of Proceeds
Not Applicable.
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D.
Risk Factors
Risks Related to Our Audit Committee Investigation, Restatement of Our Consolidated Financial Statements,
Internal Controls and Related Matters
We completed an audit committee investigation in the past, which required significant management time and attention,
resulted in significant legal and other expenses, and led to the termination of a number of employees, including certain
executive officers.
As previously disclosed, our Audit Committee undertook an independent investigation (the “Independent Investigation”) of
our accounting practices and internal control over financial reporting related to revenue recognition with the assistance of
independent advisors during 2019. We incurred significant costs in connection with the Audit Committee’s investigation,
and our management team devoted significant time to the investigation.
We may receive inquiries from the SEC and other regulatory authorities regarding our restated financial statements or
matters relating to our restatement, and we and our current and former directors and officers may be subject to future
claims, investigations or proceedings. Any future inquiries from the SEC or other regulatory authorities, or future claims or
proceedings as a result of the restatement or any related regulatory investigation will, regardless of the outcome, likely
consume a significant amount of our internal resources and result in additional costs.
We have entered into indemnification agreements with our current and former directors and certain of our officers, and our
articles of association require us, to the fullest extent permitted by Cayman Islands law, to indemnify each of our directors
and officers who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit
or proceeding by reason of the fact that he or she is or was a director or officer of the Company. Although we maintain
insurance coverage in amounts and with deductibles that we believe are appropriate for our operations, our insurance
coverage may not cover all claims that may be brought against us or our current and former directors and officers, and
insurance coverage may not continue to be available to us at a reasonable cost. As a result, we have been and may continue
to be exposed to substantial uninsured liabilities, including pursuant to our indemnification obligations, which could
materially and adversely affect our business, prospects, results of operations and financial condition.
Matters relating to or arising from the restatement and the Audit Committee’s investigation, including adverse publicity
and potential concerns from our students, have had and could continue to have an adverse effect on our business and
financial condition.
We have been and could continue to be the subject of negative publicity focusing on the restatement and adjustment of our
financial statements, and we may be adversely impacted by negative reactions from our students or others with whom we
do business. Concerns include the perception of the effort required to address our accounting and control environment, and
the ability for us to be a long-term provider to our students. Continued adverse publicity and potential concerns from our
customers could harm our business and have an adverse effect on our financial condition.
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We identified material weaknesses in our internal control over financial reporting for 2019. Even though we have
undertaken remedial steps to address the material weaknesses in our internal control over financial reporting and did
not note or identify any deficiencies that we believe to be material weaknesses as of December 31, 2020, our ability to
report our financial results accurately or to prevent fraud may be adversely affected, and investor confidence and the
market price of the ADSs may be adversely affected, if we fail to maintain effective internal control over financial
reporting in the future.
Our independent registered public accounting firm has conducted an audit of our internal control over financial reporting.
In the course of auditing our internal control, we and our independent registered public accounting firm identified certain
material weaknesses in our internal control over financial reporting as of December 31, 2019. A material weakness is a
deficiency, or combination of deficiencies, in internal controls, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material
weaknesses in our internal controls identified as of December 31, 2019 related to:
a. Failure to provide oversight for the system of internal control and failure to effectively consider the potential for
fraud and non-compliance with laws and regulations in assessing risks to the achievement of objectives;
b. Lack of sufficient requisite skills for the financial reporting under U.S. GAAP;
c. Failure to align incentives and rewards with the fulfillment of internal control responsibilities in the achievement
of objectives;
d. Lack of sufficient controls designed and implemented for the credit approval, initiation, recording, allocation and
cash collection with respect to revenue transactions;
e. Lack of sufficient controls designed and implemented for authorization, validation and payment with respect to
cost or expense transactions;
f.
Failure to evaluate and implement a mix of control activities, considering both manual and automated controls for
other routine transactions;
g. Lack of sufficient segregation of duties and appropriate skill or competence of control owners at certain control
activity level; and
h. Failure to develop control activities to restrict technology access right to authorized users commensurate their job
responsibilities.
As a result of the material weaknesses, management has concluded that our internal control over financial reporting was
ineffective as of December 31, 2019. In addition, our independent registered public accounting firm attesting the
effectiveness of our internal control and reported that our internal control over financial reporting was ineffective as of
December 31, 2019.
During 2020, we have undertaken the remedial steps to address the material weaknesses in our internal control over
financial reporting as set forth under “Item 15. Controls and Procedures—Management’s Annual Report on Internal
Control over Financial Reporting—Management’s Plan for Remediation of Material Weaknesses.” Our management, with
the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of
our company’s internal control over financial reporting as of December 31, 2020. Based on this evaluation, we did not note
or identify any deficiencies that we believe to be material weaknesses as of December 31, 2020.
Even though we did not note or identify any deficiencies that we believe to be material weaknesses as of December 31,
2020. Our ability to report our financial results accurately or to prevent fraud may be adversely affected, and investor
confidence and the market price of the ADSs may be adversely affected, if we fail to maintain effective internal control
over financial reporting in the future.
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Risks Relating to Our Business
We incurred net losses in 2017, 2018, 2019 and 2020, and we may incur net losses again in the future.
While we have achieved positive net income between 2014 and 2016, we incurred net loss of RMB147 thousand,
RMB592.2 million, RMB1,038.9 million and RMB771.2 million (US$118.2 million) in 2017, 2018, 2019 and 2020,
respectively. We cannot assure you that we will be able to generate net profits again in the future. Our ability to achieve
profitability will depend in large part on our ability to increase our operating margin, either by growing our revenues at a
rate faster than our operating expenses increase, or by reducing our operating expenses, especially our selling and
marketing expenses, as a percentage of our net revenues. We intend to continue to invest in our branding and marketing
activities to attract new students, improve our online learning modules to enhance student experience. We cannot assure
you that we will be successful in these efforts, and we may continue to incur net losses for period of time in the future.
If we are not able to continue to attract students to enroll in our courses, our business and prospects will be materially
and adversely affected.
The success of our business depends primarily on the number of students enrolled in our courses. Therefore, our ability to
continue to attract students to enroll in our courses is critical to the continued success and growth of our business. This in
turn will depend on several factors, including our ability to develop new courses and enhance existing courses to respond to
changes in market trends and student demands, expand our learning center network and geographic footprint while keeping
a high utilization rate of our facilities, manage our growth while maintaining consistent and high education quality, broaden
our relationships with corporate employers and market our courses effectively to a broader base of prospective students,
including young children as well as their parents. Furthermore, our ability to attract students also depends on our ability to
provide educational content that is perceived as more effective than the standard curricula of universities in China in terms
of practical job-oriented training and as complementary to standard curricula of primary and secondary schools in China. If
we are unable to continue to attract students to enroll in our courses, our net revenues may decline, which may have a
material adverse effect on our business, financial condition and results of operations.
We may not be able to continue to recruit, train and retain qualified instructors and teaching assistants, who are critical
to the success of our business and effective delivery of our education services to students.
Our instructors and teaching assistants are critical to maintaining the quality of our educational services and our reputation.
We seek to hire highly qualified instructors with rich industry experience and strong teaching skills. As our K-12 education
program continues to develop, we will need to recruit more teaching assistants. We recruit dedicated teaching assistants
primarily from outstanding graduates of our courses. There is a limited pool of instructors and teaching assistants with
these attributes, and we must provide competitive compensation packages to attract and retain them. We must also provide
ongoing training to our instructors and teaching assistants to ensure that they stay abreast of changes in curriculum, student
demands, industry standards and other trends necessary to teach and tutor effectively. We have not experienced major
difficulties in recruiting, training or retaining qualified instructors and teaching assistants in the past. However, we may not
always be able to recruit, train and retain enough qualified instructors and teaching assistants in the future to keep pace
with our growth and maintain consistent education quality. A shortage of qualified teaching staff, a decrease in the quality
of our teaching staff’s classroom performance, whether actual or perceived, or a significant increase in compensation to
retain qualified instructors and teaching assistants would have a material adverse effect on our business, financial condition
and results of operations.
If we are not able to continually tailor our curriculum to market demand and enhance our courses to adequately and
promptly respond to developments in the professional job market, our courses may become less attractive to students.
New trends in the global economy and rapid developments in the professional services industries may change the type of
skills required for professionals in the marketplace. This requires us to continually develop, update and enhance our course
materials to adapt to the needs of the professional job market in China. We may be unable to update our courses in a timely
and cost-effective manner, or at all, to keep pace with changes in market requirements. Any inability to track and respond
to these changes in a cost-effective and timely manner or to tailor our courses to the professional services markets in China
would render our courses less attractive to students, which may materially and adversely affect our reputation and ability to
continue to attract students and cause us to lose market share.
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If we fail to develop and introduce new courses in anticipation of market demand in a timely and cost-effective manner,
our competitive position and ability to generate revenues may be materially and adversely affected.
Since inception, our primary focus has been on providing IT professional education services. We have since expanded our
course offerings to include non-IT training courses, such as digital art, online sales and marketing and accounting. We have
also launched IT and non-IT training courses customized for young kids since December 2015, which primarily include
computer programming and robotics programming. We intend to continue developing new courses in anticipation of
market demand. The introduction of new courses is subject to risks and uncertainties. Unexpected technical, operational,
logistical, regulatory or other problems could delay or prevent the introduction of one or more new courses. Moreover, we
cannot assure you that any of these new courses will match the quality or popularity of those developed by our competitors,
achieve widespread market acceptance or generate the desired level of income for our students.
Offering new courses requires us to make investments in content development, recruit and train additional qualified
instructors and teaching assistants, increase marketing efforts and re-allocate resources away from other uses. We may have
limited experience with the content of new courses and may need to modify our systems and strategies to incorporate new
courses into our existing course offerings. In offering courses in new subject areas, we may face new risks and challenges
that we are not familiar with. Furthermore, we may experience difficulties in recruiting or otherwise identifying qualified
instructors to develop the content for these new courses. If we are unable to offer new courses in a timely and cost-effective
manner, our results of operations and financial condition could be adversely affected.
We rely on K-12 computer programming, digital arts, K-12 robotics programming and java courses for a major part of
our total net revenues, and a decrease in the popularity and usage of K-12 computer programming, digital arts, K-12
robotics programming and java courses would have a material adverse effect on our business and results of operations.
A major part of our total net revenues is generated from the K-12 computer programming, digital arts, K-12 robotics
programming courses and java courses. In 2020, K-12 computer programming, digital arts, K-12 robotics programming
and java courses contributed to 20.6%, 16.8%, 15.7% and 13.8% of our total net revenues, respectively. The historical
rapid growth of our business has been driven by the popularity and usage of Java technology and Adobe design, and we
expect net revenues from these courses to continue to represent a substantial portion of our total net revenues in the near
future. We believe our reliance on Java and digital art courses is mainly attributable to the wide adoption and popularity of
Java technology and Adobe design. However, whether Java as a programming language or Adobe design technology as a
digital art tool can maintain their popularity is beyond our control. Meanwhile, K-12 computer programming courses are
increasingly popular and contribute to an increasing percentage of our net revenues. Any factor that materially and
adversely affects student enrollment in our digital arts, Java or K-12 computer programming courses and K-12 robotics
programming, such as a decrease in the popularity and usage of Adobe design, Java technology or K-12 computer
programming would have a material adverse effect on business and our results of operations.
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Our business depends on the market recognition of our brands, and if we are unable to maintain or enhance our brand
recognition, our business, financial condition and results of operations may be materially and adversely affected.
We believe that the market recognition of our “Tarena” and “TongchengTongmei” brands has significantly contributed to
the success of our business and believe that maintaining and enhancing the reputation of these brands is critical to
sustaining our competitive advantage. Our ability to maintain and enhance our brand recognition and reputation depends
primarily on the perceived effectiveness and quality of our courses as well as the success of our marketing and promotion
efforts. As we continue to grow and expand into new course areas, we may not be able to maintain the quality and
consistency of our educational services as we did in the past. We have devoted significant resources to promoting our
courses and brands in recent years, including internet-based marketing and advertising, traditional media advertising, press
conference and product launch event. However, our marketing and promotion efforts may not be successful or may
inadvertently negatively impact our brand recognition and reputation. For example, if any governmental authority or
competitor publicly alleges that any of our advertisements are misleading, our brand reputation may be adversely impacted.
If we are unable to maintain and further enhance our brand recognition and reputation and increase awareness of our
courses, or if we incur excessive marketing and promotion expenses, our results of operations may be materially and
adversely affected. If we are unable to sustain our brand image, we may not be able to maintain premium tuition fees over
our competitors, which may further exacerbate the extent of any adverse effect on our results of operations. Furthermore,
any negative publicity relating to our company or our courses and services, regardless of its veracity, could harm our brand
image and in turn materially and adversely affect our business and operating results.
Our business, financial condition and results of operations have been and may continue to be adversely affected by the
COVID-19 outbreak.
The outbreak of COVID-19 has spread rapidly to many parts of the world. Since the beginning of 2020, outbreaks of
COVID-19 have resulted in the temporary closure of many corporate offices, retail stores, and manufacturing facilities
across China. In early 2020, in response to intensifying efforts to contain the spread of COVID-19, the Chinese government
took a number of actions, which included extending the Chinese New Year holiday, quarantining individuals infected with
or suspected of having COVID-19, prohibiting certain travels, encouraging employees of enterprises to work remotely
from home, and cancelling public activities, among others.
The COVID-19 pandemic has adversely affected many of our business activities, including delivering lectures at our
learning centers, recruiting students and conducting our day-to-day business in 2020. As part of China’s nationwide efforts
to contain the spread of COVID-19, our classrooms in Beijing as well as our learning centers across China have underwent
temporary yet prolonged closure from February 2020 to May 2020. Although we have arranged online webcasts for our
students to study at home, which covered most of our adult students and K-12 students, we may not be able to achieve the
same effectiveness and service quality without the disciplined and focused learning environment at our learning centers.
Many of the quarantine measures within China have since been relaxed as of the date of this annual report, and we have
gradually opened our learning centers and resumed our offline classes. However, our learning centers may be ordered to
suspend classes and cancel offline activities again if China fails to fully contain COVID-19 or suffers a COVID-19 relapse.
In addition, we have experienced difficulty in recruiting students as we are unable to host regular seminars, information
sessions and preparatory training camps for prospective students at our learning centers as usual as well as conducting
other offline sales and marketing activities due to the general restrictions on travel and outdoor activities. We have arranged
for online recruiting activities, such as conducting online promotional courses, but the effectiveness of such efforts is
uncertain. Our ability to recruit students directly from cooperative universities and colleges is also negatively impacted as
most universities and colleges have been closed in the first half of 2020. Even though most universities and colleges
reopened in the second half of 2020, our ability to recruit students may not quickly or fully recover, or at all. The outbreak
of COVID-19 in China also caused temporary closures of many of our offices, adjustment of operation hours and work-
from-home arrangements in our Beijing headquarters and other offices in China during the first half of 2020.
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The COVID-19 global pandemic has resulted in, and may intensify, global economic distress, and the duration and extent
of the impact of COVID-19 outbreak is highly uncertain at this time. The extent to which it may affect our results of
operations, financial condition and cash flows will depend on the future development of the outbreak, which is also highly
uncertain and will depend on a number of factors, including the duration and severity of COVID-19, possibility of new
waves in China and other countries, the development and progress of distribution of COVID-19 vaccine and other medical
treatment, the potential change in consumer behavior due to the prolonged impact of COVID-19, the actions taken by
government authorities to contain the outbreak and stimulate the economy to improve business condition, all of which are
beyond our control. If the situation materially deteriorates in China or globally, our business, results of operations and
financial condition could be materially and adversely affected.
We may not be able to maintain our high job placement rate for our adult students, which could harm our ability to
attract student enrollments.
We gather data on post-course job placement rates by conducting surveys of our adult graduates. Based on the survey
responses, we calculate the six-month post-course job placement rates for a month by dividing (i) the number of job-
seeking students enrolled in such month who (A) successfully graduated from our programs with graduation certificates
awarded and (B) indicated that they had received employment offers within six months of graduation, by (ii) the total
number of job-seeking students enrolled in such month who later successfully graduated from our programs with
graduation certificates awarded. We calculate the annual average six-month post-course job placement rate by averaging
the rate of each month. Our average six-month post-course job placement rate for each of 2018, 2019 and 2020 was about
90%. When calculating such job placement rates for 2018, 2019 and 2020, a majority of the employment reported by
relevant students was full-time employment, and a majority of the employment reported by relevant students was in the
fields of their studies with us. All of the students enrolled in 2017 and 2018 who later successfully graduated from our
programs with graduation certificates awarded and who were job-seeking, have filled out our surveys. Among the students
enrolled in 2017, 2018 and 2019, 86%, 88% and 96% of such students, respectively, graduated from our programs with
graduation certificates awarded. Among the students enrolled in 2017, 2018 and 2019 who later successfully graduated
from our programs with graduation certificates awarded, 76%, 75% and 65% of such students, respectively, were deemed
to be job-seeking students.
Our student job placement rate depends on a wide range of external and internal factors. External factors include the
macroeconomic conditions, the performance of the professional services sector in China and the recruiting demand of
corporate employers. Internal factors include our education quality, the efforts of our career services personnel, our ability
to provide adequate staffing to achieve desired results and our relationships with corporate employers. A number of such
external and internal factors are outside of our control. Our historical job placement rates have been high. However, we
cannot assure you that we will be able to maintain our current level of job placement rate for our students in the future. Any
decrease in our job placement rate could harm our ability to recruit students, which may materially and adversely affect our
business, financial condition and results of operations.
Our K-12 education programs may not be successful due to our limited experience in providing education services to
minors.
In December 2015, we launched our K-12 education programs under the brand name TongchengTongmei featuring IT
training courses and non-IT training courses for K-12 students. In March 2016, we rolled out another K-12 education
program to offer K-12 robotics programming courses. In 2017, we continued to roll out a new K-12 education course in
coding mathematics to further diversify our course offerings in K-12 education. In 2018 and 2019, our computer coding
and robotics programming courses were popular among our K-12 students and the revenues from K-12 computer
programming courses exceeded 10% of our total revenues in 2019. In 2020, we launched Creative Programming Starter
course which gained popularity among our K-12 students. Our K-12 education programs target students aged between three
and eighteen, and are the most important part of our efforts to enter into the K-12 STEAM education market. As we have
been primarily engaging in adult education programs since our inception, we have limited experience in providing
education programs to minors, who have distinct learning preference and mentality as compared to adult students and
require tailored courses and dedicated class management.
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Our student enrollment rate could be impacted by the operations of academic K-12 education and tutoring service
providers, given our target students have limited time and energy and they need to choose among different courses and
programs. The K-12 education and tutoring market is highly competitive and the concept of STEAM education is relatively
new in China. Students and their parents may prefer academic education and tutoring programs over our STEAM
programs. We cannot assure you that we will be successful in competing for students, and if we fail, our financial status
and results of operation will be adversely impacted.
Furthermore, we have incurred costs in establishing new learning centers due to the fast expansion of our K-12 education
business recently, which we believe are essential to support our education programs in the future. If, however, we fail to
utilize such new learning centers efficiently, or otherwise fully benefit from the investments we made, our financial status
and result of operation will be adversely impacted.
If the level of performance by the students of our K-12 education program deteriorates or satisfaction with our services
declines, our business, financial condition, results of operations and reputation could be adversely affected.
The success of our business depends on our ability to deliver a satisfactory learning experience and improved educational
results. Although the courses provided under our K-12 education programs do not directly link to the academic
performance of our students, their effectiveness could be evaluated by our students and their parents in an intuitive way by
referring to the improvements in programming skills or performances in robotics competitions. The performance of our
students in the IT training courses, non-IT training course, K-12 robotics programming and coding mathematics course will
impact the acceptance of, and the student and parent satisfaction with, our courses.
Accidents or injuries suffered by our students, their parents or other people caused by us, or perceived to be caused by
us may adversely affect our reputation, subject us to liability and cause us to incur substantial costs.
We have a large number of K-12 students and their parents on our premises to attend classes and/or use our facilities, and
they may suffer accidents or injuries or other harm on our premises, including those caused by or otherwise arise from the
actions of our employees. Although we have enhanced preventive measures to avoid such incidents, we cannot assure you
that there will be no any incident in the future.
Other than the liability insurance for part of our adult students and travel insurance for our K-12 students participating in
our camp or event-related travel, we do not carry liability insurance for most of our students at our learning centers. In the
event of accidents or injuries or other harm caused or perceived to be caused by us, our facilities and/or services may be
perceived to be unsafe, which may discourage prospective students from attending our classes and participate in our
activities. We could also face claims alleging that we should be liable for the accidents or injuries, or we were negligent,
provided inadequate supervision to our employees and therefore should be held jointly liable for harm caused by them. A
material liability claim against us or any of our teachers or other employees could adversely affect our reputation,
enrollment and revenues. Even if unsuccessful, such a claim could create unfavorable publicity, cause us to incur
substantial expenses and divert the time and attention of our management.
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Our business, financial condition and results of operations may be adversely affected by a downturn in the global or
Chinese economy.
Because our student enrollment of our professional education courses may depend on our students’ and potential students’
levels of disposable income, perceived job prospects and willingness to spend, as well as the level of hiring demand of
professional services positions, our business and prospects may be affected by economic conditions in China or globally. In
addition, for our K-12 education programs, our student enrollment may depend on the disposable income and willingness
to spend of the parents. The global macroeconomic environment is facing challenges, including the end of quantitative
easing by the U.S. Federal Reserve, the economic slowdown in the Eurozone in 2014, the exit of the United Kingdom from
the European Union, and the impact of COVID-19 in 2020. It is unclear whether the Chinese economy will resume its high
growth rate. The Chinese economy has slowed down in recent years. According to the National Bureau of Statistics of
China, in 2020, China’s gross domestic product grew at a rate of 2.3%. There have also been concerns about the territorial
disputes involving China in Asia and the economic effects, as well as the relationship between China and the U.S.,
including those resulting from the ongoing trade dispute between the two countries. Economic conditions in China,
including the performance of the IT and other professional services industries, are sensitive to global economic conditions,
as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate
in China. A decline in the economic prospects of IT and other professionals could alter current or prospective students’
spending priorities and the recruiting demand from professional service industries. We cannot assure you that professional
education spending in general or with respect to our course offerings in particular will increase, or not decrease, from
current levels, or if the macroeconomic environment deteriorates, parents will continue to spend on STEAM education for
their children. Therefore, a slowdown in China’s economy or the global economy may lead to a reduction in demand for
education services, which could materially and adversely affect our financial condition and results of operations.
If we fail to successfully execute our growth strategies, our business and prospects may be materially and adversely
affected.
Our growth strategies include growing our student enrollments for existing courses, expanding our course offerings, further
enhancing the quality of our education services and expanding our corporate employer network. We may not succeed in
executing our growth strategies due to a number of factors, including, without limitation, the following:
● we may fail to market our courses in new markets or promote new courses in existing markets effectively;
● we may not be able to replicate our successful business model in other geographic markets or in new course
subject areas;
● we may fail to identify new cities with sufficient growth potential to expand our network;
● we may not be able to replicate the success and growth of our adult education services to the K-12 education
market;
● we may not be able to recruit and retain learning center managers, teaching assistants and other key personnel;
●
our analysis for selecting suitable new locations may not be accurate and the demand for our services at such new
locations may not materialize or increase as rapidly as we expect;
● we may fail to obtain the requisite licenses and permits necessary to open learning centers at our desired
locations from local authorities;
● we may not be able to continue to update our existing courses or offer new courses to adapt to changing market
demand and technological advances; and
● we may fail to achieve the benefits we expect from our expansion.
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If we fail to execute our growth strategies successfully, we may not be able to maintain our growth rate and our business
and prospects may be materially and adversely affected as a result.
We may not be able to manage our business expansion effectively, which could harm our financial condition and results
of operations.
We plan to continue to expand our operations in different geographic areas as we address the growth of our customer base
and market opportunities. We closed 54 non-performing learning centers for professional education services and opened 4
new centers in 2019. We closed 26 such non-performing learning centers and did not open any new centers in 2020. There
were 130 and 104 learning centers for professional education services as of December 31, 2019 and 2020, respectively. We
also significantly increased the number of our learning centers exclusively for K-12 education programs from 30 as of
December 31, 2017 to 148 as of December 31, 2018, to 217 as of December 31, 2019 and further to 236 as of December
31, 2020. This expansion has resulted, and will continue to result, in substantial demands on our management, personnel
and operational, technological and other resources. To manage the expected growth of our operations, we will be required
to expand our existing operational, administrative and technological systems and our financial systems, procedures and
controls and to expand training and management of our growing employee base. In addition, the geographic dispersion of
our operations requires significant management resources. We cannot assure you that our current and planned personnel,
systems, procedures and controls will be adequate to support our future operations, or that we will be able to effectively
and efficiently manage the growth of our operations or recruit and retain qualified personnel to support our expansion. Any
failure to effectively and efficiently manage our expansion may materially and adversely affect our ability to capitalize on
new business opportunities, which in turn may have a material adverse effect on our financial condition and results of
operations.
The growth of our business is in part dependent on our continuing access to a broad network of corporate employers.
We derive both direct benefits, such as increased enrollment driven by employer-specific customized courses, and indirect
benefits, such as higher student job placement rate and strengthening of the Tarena brand, from our access to a large
number of corporate employers. We believe our access to a large number of corporate employers in a wide range of
industries is one of our core competitive strengths. If our access to these corporate employers were to become constrained
or limited, or the benefits we derive from this access were to be diminished, whether by our own actions or actions of our
competitors, our growth prospects and our business would be harmed.
Our success depends on the continuing efforts of our senior management team and other key personnel and our
business may be adversely affected if we lose their services.
Our future success depends heavily upon the continuing services of our senior management team. If any member of our
senior management team leaves us and we fail to effectively manage a transition to new personnel, or if we fail to attract
and retain experienced and passionate instructors, regional managers and other key personnel on acceptable terms, our
business, financial conditions and results of operations could be adversely affected. We will need to continue to hire
additional personnel, especially qualified instructors and regional managers, as our business grows. A shortage in the
supply of personnel with requisite skills or our failure to attract and retain high-quality executives or key personnel could
impede our ability to increase revenues from our existing courses, to launch new course offerings and to expand our
operations and would have an adverse effect on our business and financial results.
The operations of certain of our learning centers providing professional education services are, or may be deemed by
relevant PRC government authorities to be, beyond their authorized business scope or without proper license or
registration. If the relevant PRC government authorities take actions against such learning centers, our business and
operations could be materially and adversely affected.
The principal regulations governing private education in China consist of the Education Law, the Private Education Law
with its Amendment, and the Private Education Law Implementation Rules. See “Regulations—Regulations on Private
Education—The Law for Promoting Private Education and its Implementation Rules.”
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Under these PRC laws and regulations and related administrative requirements in effect, private schools are classified as
either non-profit private schools or for-profit private schools, and private schools that provide education for academic
credentials, pre-school education, training for self-study examinations preparation and other cultural education, as well as
professional education including training for professional qualifications, are required to obtain a school permit before their
registration as legal entities with competent authorities. For-profit private training institutions shall be regulated and
governed with reference to the abovementioned rules. To provide professional education services as a for-profit private
school, a company may, in the capacity of a school sponsor, establish a private school which obtains a school permit from
competent human resources and social security authorities. After obtaining a school permit, private schools shall add the
relevant professional education services in the authorized scope of business as specified in their business licenses, and
complete the registration with the local branch of the State Administration for Market Regulation, or the SAMR (formerly
known as the State Administration for Industry and Commerce, or the SAIC). Under the Amendment to the Private
Education Law and the Private Education Law Implementation Rules, a material change in a for-profit private school shall
be approved by the competent education authorities or the authorities in charge of human resources and social security
before it can be registered with the competent local branch of the SAMR. However, since the Amendment to the Private
Education Law just became effective on September 1, 2017 and the relevant detailed rules by national and some of the
local government authorities have not been officially issued, there remains uncertainties about the registration process for
the newly established private schools (including the private training institutions, similarly hereinafter) or the re-registration
process for pre-existing private schools. In practice, there still exists the following two ways to operate and provide the
professional education services: (i) a private school which holds a school permit issued by the human resources and social
security authorities could establish and operate learning centers within the approved regions to provide professional
education services, provided that learning centers located outside the region of the registered address of the private schools
shall be registered with original approving authorities; or (ii) a company with the relevant professional education services
registered in its authorized scope of business as specified in its business licenses with the local branch of the SAMR could
provide professional education services, which way has been widely used before the promulgation of the Amendment to the
Private Education Law. In the latter way, a company with “professional education services” or an equivalent statement
included in its approved scope of business can operate learning centers by itself or through its registered branches.
However, many local government authorities have different views on the relevant rules and regulations and have adopted
different practices in granting school permits to private schools or issuing business licenses to companies that provide
professional education services. For example, in some cities, entities are permitted to include “professional education
services” in their business scope as specified in their business licenses, but in certain other cities, entities are not permitted
to, or are prohibited to, add “professional education services” or similar services in their business scope as specified in their
business licenses according to the policies of the local branch of the SAMR.
We use both ways discussed above to establish our learning centers. As of December 31, 2020, we had a total of 340
learning centers, of which 49 were managed by schools and 291 were managed by our subsidiaries. Among the learning
centers operated by our subsidiaries, 118 have neither professional education services nor education information related
consultation as an authorized scope of business in the licenses of our subsidiaries or their registered branches operating
these learning centers as of December 31, 2020, and these learning centers in the aggregate accounted for 27% of our
student enrollments in 2020. We were not able to include professional education services in these companies’ authorized
business scope mainly because the relevant local branch of SAMR have formulated general local policies prohibiting the
inclusion of “professional education services” or similar services in the business scope of any entity. In addition, 59
learning centers operated by our subsidiaries only have “education information related consultation” rather than
“professional education services” in their respective authorized scopes of business, and these learning centers in the
aggregate accounted for 18.6% of our student enrollments in 2020. The difference between “educational services” and
“education information related consultation” is not very clear under applicable PRC laws and regulations, and it is possible
that the relevant PRC government authorities may determine that operating learning centers in the way as currently
conducted by our relevant subsidiaries is beyond the scope of “education information related consultation.” For these
learning centers, we have been communicating, and will continue to communicate, with the relevant local branch of the
SAMR to expand the authorized business scope of the relevant subsidiaries to include “professional education services” or
similar services. For regions where it becomes apparent that we will not be able to expand the authorized business scope of
the relevant subsidiaries, we will also explore the possibility of obtaining approval from the competent authorities to set up
private schools to take over the operations of the relevant subsidiaries. If the relevant PRC government authorities discover
or determine that our subsidiaries operate beyond their authorized business scope, they may order the relevant subsidiaries
to complete the registration for change of business scope within a given period, failing which each company is subject to a
one-time fine of RMB10,000 to RMB100,000, or may be ordered to cease its operation. We have been fined once for
RMB50,000 for conducting business outside the authorized business scope since 2011.
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For our learning centers operated by schools, we are also required to obtain and maintain various licenses and permits and
make filings for each learning center with the competent human resources and social security authorities and civil affairs
authorities. As of December 31, 2020, 18 of our learning centers are operated by schools outside their registered address
without being registered with the original approving authorities, which may subject us to fines of RMB10,000 to
RMB50,000, confiscation of the gains derived from the noncompliant operations or the suspension of the noncompliant
learning centers. These 18 learning centers in the aggregate accounted for 4.8% of our total student enrollments in 2020. As
of the date of this annual report, all of our 46 schools have the school permit, among which 2 schools need to apply for
updating their principal’s information. Separately, as of December 31, 2020, we have set up 15 schools registered as
schools requiring “reasonable returns” provided in the Private Education Law. We are informed by the local human
resources and social security authorities in some cities in China that they have stopped issuing new school permits
temporarily before any detailed implementing rules being officially issued.
On August 10, 2018, the Ministry of Justice published the draft submitted for approval of the Amendment to the
Regulations on the Implementation of the Private Education Promotion Law of the PRC, or the Draft Amendment to
Private Education Promotion Regulations, to seek public comments. According to the Draft Amendment to Private
Education Promotion Regulations, the private training institutions which provide activities aiming at quality promotion,
personality development in the areas of linguistic competence, arts, physical activities, technology, as well as activities
targeting at the cultural education for adults and non-degree continuing education are allowed to be registered as a legal
person directly. The private training institutions which provide training for professional qualifications or skills shall obtain
a school permit issued by the human resources and social security authorities and make filing with the education
authorities. If such institutions use the internet technology to conduct training for professional qualifications or skills, they
shall obtain the corresponding internet operating permit and make filing with the human resources and social security
authorities at the provincial level where the institution is domiciled. However, it is uncertain when the Draft Amendment to
Private Education Promotion Regulations would be signed into law and whether the final version would have any
substantial changes. During such transitional period between the promulgation of the Amendment to the Private Education
Law and the issuance of the relevant detailed rules by national and the local government authorities, the above uncertainties
and local policies and practices have created certain obstacles for us to comply with all applicable rules and regulations for
all of our local operations. We have been fined once for RMB155,000 for providing professional training without school
permit. We may be subject to material fines or other penalties in relation to any non-compliance with licensing
requirements in the past with respect to our learning centers operated by schools, if we fail to cure any non-compliance in a
timely manner, we may be subject to fines, confiscation of the gains derived from our noncompliant operations or the
suspension of our noncompliant learning centers, which may materially and adversely affect our business and results of
operation.
The operations of certain learning centers providing after-school K-12 education programs are, or may be deemed by
relevant PRC government authorities to be, beyond their authorized business scope or without proper license or
registration. If the relevant PRC government authorities take actions against such learning centers, our business and
operations could be materially and adversely affected.
The General Office of the State Council promulgated the Opinions of the General Office of the State Council on Regulating
the Development of Off-Campus Training Institutions, or Circular 80, on August 6, 2018. Circular 80 provides that after-
school education institutions shall obtain school operation permits and business licenses. For courses of school academic
subjects such as Chinese, mathematics, English, physics, chemistry and biology, the key information of such courses,
including the specific subjects, course schedules, and course syllabi, shall be filed with the local education authorities and
made public, and the course progress shall not surpass the same-period progress of local primary schools and secondary
schools. Circular 80 further provides that after-school education institutions shall obtain approvals from local education
authorities for opening new branches or learning centers. In addition, the MOE and other relevant authorities promulgated
a series of notices in 2018 and 2019 to regulate the operation of the after-school education institutions, which emphasize
and strengthen the same principle as provided in Circular 80.
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Our K-12 education programs were launched in December 2015, which include IT training courses and non-IT training
courses, were operated through our 236 learning centers in 53 cities in China as of December 31, 2020, as well as through
the internet. According to the rules mentioned above, our learning centers providing K-12 education programs may be
deemed as after-school education institutions which are required to obtain school operation permits and business licenses.
In addition, the coding mathematics course organized under IT-training courses of TongchengTongmei may be regarded as
the courses of school academic subjects, which are required to be filed with the local education authorities and the progress
of which shall not surpass the same-period progress of local primary schools and secondary schools. As of December 31,
2020, 13 of our leaning centers has obtained school operation permits from the local education authorities for our after-
school kid education programs, and 124 have either professional education services or education information related
consultation as an authorized scope of business in the licenses of our subsidiaries or their registered branches operating
these learning centers. However, since the Circular 80 just became effective on August 6, 2018, there remains uncertainties
about the registration process with respect to after-school K-12 education programs, and the filing process with respect to
the courses of school academic subjects with some local education authorities. We have been communicating and will
continue to communicate, with the competent provincial education regulatory authorities to obtain school operation permits
and filings with respect to the courses of school academic subjects. Although we have not been subject to any material
fines or other penalties in relation to any non-compliance with licensing and filing requirements in the past with respect to
our learning centers providing after-school K-12 education programs, if we fail to cure any non-compliance in a timely
manner, we may be subject to fines, confiscation of the gains derived from our noncompliant operations or the suspension
of our noncompliant learning centers, which may materially and adversely affect our business and results of operation.
In addition, according to the Draft Amendment to Private Education Promotion Regulations, if private training institutions
use the internet technology to conduct training and educational activities, they shall obtain the corresponding internet
operating permit and make filing with the education authorities at the provincial level where the institution is domiciled.
However, it is uncertain when the Draft Amendment to Private Education Promotion Regulations would be signed into law
and whether the final version would have any substantial changes. According to the Implementation Opinions on
Regulating Online After-School Training, or the Online After-School Training Opinions, promulgated by the MOE jointly
with certain other PRC government authorities and effective on July 12, 2019, the academic subjects online after-school
training institutions for primary and secondary school students shall file with the competent provincial education regulatory
authorities before October 31, 2019 and that such education regulatory authorities shall, jointly with other provincial
government authorities, review such filings and the qualifications of the academic subjects online after-school training
institutions submitting such filings. After receiving the rectification opinion from relevant regulatory authorities, the
academic subjects online after-school training institutions shall complete rectification and resubmit their materials before
the end of June 2020. The Online After-School Training Opinions also impose a series of new regulatory requirements,
including (i) each class shall not last longer than 40 minutes and shall be taken at intervals of not less than 10 minutes;
(ii) live streaming courses provided to students receiving compulsory education shall not end later than 9:00 p.m.;
(iii) where fees are charged based on the number of classes, fees are not allowed to be collected in a lump sum for more
than 60 classes, and where fees are charged based on the length of the course, the fees shall not be collected for a course
length of more than three months; and (iv) instructors are required to obtain the necessary teacher qualification licenses. As
of the date of this annual report, we have not received any rectification opinion from relevant regulatory authorities, or
been subject to penalties imposed by the relevant government authorities for alleged failure of us to comply with the
Online After-School Training Opinions, and we have been communicating and will continue to communicate, with the
competent provincial education regulatory authority to complete such filings, but we cannot assure you that we will
complete such filing and comply with other regulatory requirements under the Online After-School Training Opinions and
its related local rules in a timely manner. If we fail to cure any non-compliance in a timely manner, we may be subject to
fines, confiscation of the gains derived from our noncompliant operations or the suspension of our noncompliant
disciplinary online after-school training, which may materially and adversely affect our business and results of operation.
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We may lose market share and our financial results may be materially and adversely affected, if we fail to compete
effectively with our present and future competitors or to adjust effectively to changing market conditions and trends.
The professional education services market in China is fragmented, rapidly evolving and highly competitive. We face
competition in our offered courses and in many of the geographic markets in which we operate. As the IT professional
education market in China matures, there is increased demand for highly specialized IT labor, and we may face competition
from IT professional education providers that offer specialized training programs targeting certain niche job markets in the
IT industry. In the future, we may also face competition from new entrants into the Chinese IT professional education
market. As we expand beyond IT education into other fields of professional education, we also face competition for student
enrollment from existing online and offline providers of professional education services, as well as smaller regional
professional education services providers in China. Furthermore, we also face competition from other K-12 education
service providers.
Some of our competitors may be able to devote more resources than we can to the development, promotion and provision
of their education services and respond more quickly than we can to changes in student needs, market trends or new
technologies. In addition, some of our competitors may be able to respond faster to changes in student preferences in some
of our geographic markets and engage in price-cutting strategies. For our K-12 education programs, some of our
competitors may have more experiences in designing courses based on minor’s preferences, mentality and learning curve.
We cannot assure you that we will be able to compete successfully against current or future competitors. If we are unable to
maintain our competitive position or otherwise respond to competitive pressure effectively, we may be forced to reduce our
tuition fees and lose our market share, which will adversely impact our financial results.
Our business and financial results may be materially and adversely affected if we are unable to maintain our
cooperative relationships with financing service providers for student loans.
In 2018, 2019 and 2020, a substantial portion of our students relied on loans provided or arranged by a number of financing
service providers to pay our tuition fees. In 2018, we collaborated with well-known personal financing service providers
such as Baidu Small Loan Co., Ltd., Bank of China Consumer Finance Co., Ltd. and Beijing Ronglian Shiji Information
Technology Co., Ltd., whereby they assisted our students in obtaining loans to pay for our tuition fees. In 2018, 2019 and
2020, 45.6%, 52.3% and 15.0% of our students received loans provided or arranged by financing service providers to pay
for our tuition fees.
Our financing service partners have full discretion in deciding whether or not to extend or arrange for loans to a particular
student. Furthermore, macroeconomic conditions in China may force the financing service providers to decrease or
eliminate the amount of credit available for our students, making it difficult for our prospective students to afford our
education. In addition, if the default rates on the loans provided or arranged by these and other financing service providers
were to increase, they may raise the interest rates on the student loans, making such financing options less attractive to our
students. If our cooperative relationships with the financing service providers are damaged or lost, or if the financing
service providers significantly increase their interest rates, our business and financial results would be adversely affected.
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If we fail to protect our intellectual property rights, we may lose our competitive advantage and our brands and
operations may suffer.
We consider our copyrights, trademarks, trade names and domain names invaluable to our ability to continue to develop
and enhance our brand recognition. Unauthorized use of our copyrights, trademarks, trade names and domain names may
damage our reputation and brands. Our major brand names and logos are registered trademarks in China. Our proprietary
curricula and course materials, together with our Tarena Teaching System, or TTS, are protected by copyrights. However,
preventing copyright, trademark and trade name infringement or misuse could be difficult, costly and time-consuming,
particularly in China. The measures we take to protect our copyrights, trademarks and other intellectual property rights are
currently based upon a combination of trademark and copyright laws in China and may not be adequate to prevent
unauthorized uses. Furthermore, application of laws governing intellectual property rights in China is uncertain and
evolving, and could involve substantial uncertainties to us. There had been several incidents in the past where third parties
used our “Tarena” brand without our authorization, and we had to resort to litigation to protect our intellectual property
rights. These proceedings were all resolved in our favor and our brand and business were not materially harmed. However,
if we are unable to adequately protect our trademarks, copyrights and other intellectual property rights in the future, we
may lose our competitive advantage, our brand name may be harmed and our business may suffer materially. Furthermore,
our management’s attention may be diverted by violations of our intellectual property rights, and we may be required to
enter into costly litigation to protect our proprietary rights against any infringement or violation.
We may be subject to intellectual property rights claims or other claims which could result in substantial costs and
diversion of our financial and management resources away from our business.
We cannot assure you that our course materials, other educational contents or other intellectual properties developed or
used by us do not or will not infringe upon patents, valid copyrights or other intellectual property rights held by third
parties. We have, and may from time to time be subject to legal proceedings and claims relating to the intellectual property
of others. In addition, some of our employees were previously employed at other companies, including our current and
potential competitors. To the extent these employees are involved in content development at our company similar to
content development in which they have been involved at their former employers, we may become subject to claims that
such employees or we may have used or disclosed trade secrets or other proprietary information of the former employers of
our employees. In addition, our competitors may file lawsuits against us. If any such claim arises in the future, litigation or
other dispute resolution proceedings may be necessary to retain our ability to offer our current and future course materials
or other content, which could result in substantial costs and diversion of our financial and management resources.
Furthermore, if we are found to have violated the intellectual property rights of others, we may be enjoined from using
such intellectual property rights, incur additional costs to license or develop alternative intellectual property rights and be
forced to pay fines and damages, any of which may materially and adversely affect our business.
We recruit a significant portion of our students directly from our network of cooperative universities and colleges. If we
lose these relationships, or the benefits we derive from these relationships diminish, our growth and our business may
be harmed.
As of December 31, 2020, we established various kinds of cooperative relationships with 665 universities and colleges in
China. We enroll a significant percentage of our students directly from these universities and colleges through jointly
offered majors, university recruiting promotional events and other marketing approaches as agreed by our university
partners. If our relationships with any of these universities and colleges were to be damaged or lost, or the benefits we
derive from these relationships were to be diminished, whether by our own actions, actions of one or more governmental
entities or actions of our competitors, our growth and our business may be harmed.
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Failure to control rental costs, obtain leases at desired locations at reasonable prices or protect our leasehold interests
could materially and adversely affect our business.
A majority of our offices and learning centers are located on leased premises. At the end of each lease term we must
negotiate an extension of the lease. If we are not able to negotiate an extension on terms acceptable to us, we will be forced
to move to a different location, or the rent may increase significantly. This could disrupt our operations and adversely affect
our profitability. All of our leases are subject to renewal at market prices, which could result in a substantial rent increase
each renewal period. We compete with many other businesses for sites in certain highly desirable locations. As a result, we
may not be able to obtain new leases at desirable locations or renew our existing leases on acceptable terms or at all, which
could adversely affect our business. As of December 31, 2020, we had received from our lessors copies of title certificates
or proof of authorization to lease the properties to us for all leased properties. However, we cannot assure you that we will
be able to obtain copies of title certificates or proof of authorization to lease any properties that we may lease in the future
or the title to these properties we currently lease or any properties that we may lease in the future will not be otherwise
challenged. Furthermore, several of our leased properties are owned by universities or built on allocated land in China.
Such properties may not be legally leased to us under PRC law. Our leasehold interest in these properties may be
challenged by relevant PRC governmental authorities to be invalid, and we may be forced to move out of such premises. In
addition, we have not registered most of our lease agreements with relevant PRC governmental authorities as required by
PRC law, and although failure to do so does not in itself invalidate the leases, we may not be able to defend these leases
against bona fide third parties. As of the date of this annual report, we are not aware of any actions, claims or investigations
being contemplated by governmental authorities against us or our lessors with respect to the defects in our leased real
properties or any challenges by third parties to our use of these properties. However, if any of our leases are terminated as a
result of challenges by third parties or governmental authorities for lack of title certificates or proof of authorization to
lease, we may not be able to protect our leasehold interest and may be forced to relocate the affected learning centers and
incur additional expenses relating to such relocation. If we fail to find suitable replacement sites in a timely manner or on
terms acceptable to us, our business and results of operations could be materially and adversely affected.
Our accounts receivable have been relatively high. Inability to collect our accounts receivable on a timely basis, if at all,
could materially and adversely affect our financial condition, liquidity and results of operations.
Understanding the difficulty for recent college graduates to afford the tuition fees of our courses, we offered qualified
students the post-graduation tuition payment option beginning in 2006, which led to our relatively high accounts
receivable. As of December 31, 2018, 2019 and 2020, our outstanding accounts receivable, net of allowance for doubtful
accounts, were RMB52.1 million, RMB32.2 million and RMB33.0 million (US$5.1 million), respectively. Although we
conduct financial evaluations of our students applying to use our post-graduation tuition payment option, we do not require
collateral or other security from our students. Adverse changes in the macroeconomic environment and the earnings
capacity of our students may negatively impact our ability to collect our accounts receivable. Furthermore, as time passes,
it might be more difficult for us to collect historical accounts receivables. Our bad debt allowance amounted nil, RMB2.3
million and RMB9.2 million (US$1.4 million) in 2018, 2019 and 2020, respectively. Our balance of bad debt allowance
amounted RMB2.3 million and RMB9.2 million (US$1.4 million) as of December 31, 2019 and 2020, respectively. There
is no guarantee that our bad debt allowance expense will not increase in the following years. Our inability to collect our
accounts receivable on a timely basis, if at all, could cause our bad debt allowance to increase in the future, and materially
and adversely affect our financial condition, liquidity and results of operations.
Furthermore, we have extended loans with one-year terms to certain of our employees to support their personal needs. As
of December 31, 2020, our outstanding accounts receivable for such loans was RMB20.4 million (US$3.1 million). We
have no receivables due from any of our directors and officers. If we cannot collect such outstanding accounts receivable in
a timely manner, or at all, our financial condition, liquidity and result of operations will be adversely impacted, and any
legal proceedings initiated to collect such receivables may adversely impact our relationship with such employees.
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Capacity constraints of our learning centers could cause us to lose students to our competitors.
Our learning centers are limited in size and number of classrooms. We may not be able to admit all students who would
like to enroll in our courses due to the capacity constraints of our learning centers. If we fail to expand our physical
capacity as quickly as the demand for our classroom-based services grows, we could lose potential students to our
competitors, which could adversely affect our results of operations and business prospects. As we further expand our K-12
education programs, we may face more intense capacity challenges. Furthermore, the investment in the expansion of
learning centers can be costly, which may have adverse impact on our gross margin, if we can manage to make such
investments at all.
We may not be able to recoup the capital expenditures or investments we make to expand and upgrade our teaching,
administrative, research and other capabilities.
We purchased two office buildings in Beijing for an aggregate price of RMB231.9 million in 2016. The office buildings are
mainly for teaching purpose, and to a lesser extent for an administrative function. We also purchased a building in Qingdao
and another one in Haikou for an aggregate price of RMB49.6 million in 2016. The purpose of these two buildings is for
teaching purposes as learning centers to accommodate the growing demand in local market and enjoy local favorable
policies. We may continue to invest in our teaching, administrative, research and other capabilities as our business further
develops. Although we will evaluate the feasibility of each property purchase for the good of business operation, we are
likely to incur costs associated with these investments earlier than some of the anticipated benefits and the return on these
investments may be lower, or may develop more slowly, than we expect. We may not be able to recover our capital
expenditures or investments, in part or in full, or the recovery of these capital expenditures or investments may take longer
than expected. As a result, the carrying value of the related assets may be subject to an impairment charge, which could
adversely affect our profitability.
Our strategy of investments and acquiring complementary businesses and assets may fail.
As part of our business strategy, we have pursued, and intend to continue to pursue, selective strategic investments and
acquisitions of businesses and assets that complement our existing business. Investments and acquisitions involve
uncertainties and risks, including:
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potential ongoing financial obligations and unforeseen or hidden liabilities, including liability for infringement of
third-party copyrights or other intellectual property;
failure to achieve the intended objectives, benefits or revenue-enhancing opportunities;
costs and difficulties of integrating acquired businesses and managing a larger business;
potentially significant goodwill impairment charges;
high acquisition and financing costs;
possible loss of key employees of a target business;
potential claims or litigation regarding our board’s exercise of its duty of care and other duties required under
applicable law in connection with any of our significant acquisitions or investments approved by the board;
diversion of resources and management attention; and
in the case of acquisitions of businesses or assets outside of China, the need to integrate operations across
different business cultures and languages and to address the particular economic, currency, political, and
regulatory risks associated with specific countries.
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Any failure to address these risks successfully may have a material and adverse effect on our financial condition and results
of operations. Investments and acquisitions may require a significant amount of capital investment, which would decrease
the amount of cash available for working capital or capital expenditures. In addition, if we use our equity securities to pay
for investments and acquisitions, we may dilute the value of our ADSs and the underlying ordinary shares. If we borrow
funds to finance investments and acquisitions, such debt instruments may contain restrictive covenants that could, among
other things, restrict us from distributing dividends. Moreover, acquisitions may also generate significant amortization
expenses related to intangible assets. We may also incur impairment charges to earnings for investments and acquired
businesses and assets which are determined to be impaired, and recognize the proportional share of the net losses of the
investees to the extent of the amount of the investments for the equity method investments.
The geographic concentration of our learning centers may unfavorably impact our operations.
We derive a substantial portion of our net revenues from our entities in Beijing. Revenue derived from the entities in
Beijing accounted for 13.5%, 13.8% and 17.2% of our net revenues in 2018, 2019 and 2020, respectively. As a result of
this geographic concentration, our results of operations are significantly affected by economic conditions in Beijing.
Furthermore, any natural disaster or health epidemics affecting the Beijing regions could significantly impact our
operations. Although we have been and will be exploring opportunities of setting up additional learning centers in second
tier or third-tier cities, we expect that we will continue to derive a substantial portion of our net revenues from Beijing in
the near future. Deterioration in economic conditions and the professional services industries in these markets could
decrease the demand for our courses, which in turn could negatively impact our operations and business prospects.
Our historical financial and operating results may not be indicative of future performance.
Although we commenced operations in 2002, our significant business growth and expansion began in 2009, and certain of
our courses, especially our K-12 education courses, were only developed in recent years. Our business and our prospects
must be evaluated in light of the risks and uncertainties encountered by companies at a comparable stage of development.
In addition, the professional education services market in China is still at an early stage of development, which makes it
difficult to evaluate our business and future prospects. Furthermore, our results of operations may vary from period to
period in response to a variety of other factors, including general economic conditions and regulations, government actions
pertaining to the professional education services sector in China, changes in spending on professional education services,
our ability to control cost of revenues and operating expenses, and non-recurring charges incurred in connection with
acquisitions or other extraordinary transactions or under unexpected circumstances. Due to the above factors, some of
which are beyond our control, our historical financial and operating results may not be indicative of our future performance
and you should not rely on our past results or our historic growth rates as indicators of our future performance.
Uncertainty resulting from the non-binding proposal letter and other related matters may adversely affect our business.
On December 8, 2020, we received a preliminary non-binding proposal letter, or the Proposal Letter, from Mr. Shaoyun
Han, our founder and chairman of the board of directors, to acquire all of our outstanding Class A ordinary shares that are
not already owned by Mr. Han and his affiliates for a purchase price of $4.00 per ADS, or US$4.00 per Class A ordinary
share, in cash. On December 10, 2020, our board of directors formed a special committee consisting of two independent
directors, Mr. Arthur Lap Tat Wong, as the chairman of the special committee, and Mr. Hon Sang Lee, to evaluate and
consider the Proposal Letter. On December 30, 2020, we announced that the special committee has retained Duff & Phelps,
LLC as its independent financial advisor and Gibson, Dunn & Crutcher LLP as its U.S. legal counsel to assist it in this
process. As of the date of this annual report, no decisions have been made with respect to the Proposal Letter or any
alternative strategic option that we may pursue. There can be no assurance that any definitive offer will be received, that
any definitive agreement will be executed relating to the transaction contemplated by the Proposal Letter or that any other
transaction will be approved or consummated. Moreover, the proposal or any alternative strategic option, whether or not
consummated, presents a risk of diverting management focus, employee attention and resources from other strategic
opportunities and from operational matters. Also, certain events and developments relating to the proposal may increase the
volatility of the trading price of the ADSs. Furthermore, we could be subject to potential lawsuits in connection with the
proposed transaction.
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Our ability to broadcast our lectures live and to offer online learning modules on TTS depends upon the performance
and reliability of our systems and the internet infrastructure and telecommunications networks in China.
We deliver live broadcasts of our lectures via a dedicated network provided by China Telecom and China Unicom to
terminals located in selected learning centers with high student enrollment and via public internet infrastructure to other
learning centers. Any unscheduled service interruption of the internet infrastructure and telecommunications networks in
China could cause us to be unable to deliver these live broadcasts, forcing us to resort to using pre-recorded lectures in the
event of such service interruptions. Our inability to broadcast live lectures during service interruptions may damage the
quality of our education and student experience, which may hurt our reputation and negatively impact our financial
condition and results of operations. Furthermore, our gross profit and net income could be adversely affected if the prices
that we pay for telecommunications and internet services rise significantly.
Our ability to offer online learning modules also depends on the performance and reliability of the internet infrastructure in
China. Disruptions to the internet infrastructure of China may deny our students access to the learning functionalities on
our TTS or TMOOC.cn, which may hinder students from effectively learning our education contents. Furthermore,
increases in the traffic on TTS or TMOOC.cn could also strain the capacity of our existing computer systems, which could
lead to slower response times or system failures. This would cause a disruption or suspension in our course offerings,
which would hurt our brands and reputation and negatively affect our revenue growth. We may need to incur additional
costs to improve our systems in order to accommodate increased demand if we anticipate that our systems cannot handle
higher traffic volume in the future.
We have limited insurance coverage for our operations in China.
Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies do
in more developed economies. We have determined that the risks of disruption or liability from our business, the loss or
damage to our fixed assets, including our equipment and office furniture, the cost of insuring for these risks, and the
difficulties associated with acquiring such insurance on commercially reasonable terms render it commercially impractical
for us to have such insurance. We maintain property insurance policy covering two of our buildings in Yizhuang, Beijing
for losses due to disasters, including fire, earthquake, flood. we do not have any other business interruption, litigation or
property insurance coverage for our operations in China. Any uninsured occurrence of personal injury, loss or damage to
fixed assets, or litigation or business disruption may result in the incurrence of substantial costs and the diversion of
resources, which could have an adverse effect on our operating results.
Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter to
quarter. This may result in volatility in and adversely affect the price of our ADSs.
We have experienced, and expect to continue to experience, seasonal fluctuations in our net revenues and results of
operations, primarily due to seasonal changes in student enrollment. Historically, our courses tend to have the largest
student enrollment, cash collection and net revenues in the third and fourth quarters. We generally generate less tuition fees
in the first quarter of each year due to the Chinese New Year holiday. Our expenses, however, do not necessarily
correspond to changes in our student enrollment and net revenues. We make investments in marketing and promotion,
instructor recruitment and training and course development throughout the year. We expect quarterly fluctuations in our net
revenues and results of operations to continue. These fluctuations could result in volatility and adversely affect the price of
our ADSs. As our net revenues grow, these seasonal fluctuations may become more pronounced.
Higher labor costs and inflation in China may adversely affect our business and our profitability.
Labor costs in China have risen in recent years. We employed 10,181 employees in China as of December 31, 2020. The
increases in labor cost may erode our profitability and materially harm our business, financial condition and results of
operations. In addition, PRC government have promulgated some new laws and regulations to enhance labor protection in
recent years, such as the Labor Contract Law and the Social Insurance Law, which are also expected to cause our labor
costs to increase. As the interpretation and implementation of these new laws and regulations are still evolving, our
employment practice may not be at all times be deemed in compliance with the new laws and regulations. If we are subject
to severe penalties or incur significant liabilities in connection with labor disputes or investigation, our business and
profitability may be adversely affected.
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Although we have not in the past been materially affected by inflation since our inception, we can provide no assurance
that we will not be affected in the future by higher rates of inflation in China.
We have granted share-based awards and may grant more share-based awards in the future, which may materially
reduce our net income.
We adopted a share plan in 2008, or the 2008 Plan, that permits granting of options to purchase our ordinary shares,
restricted shares (or share appreciation rights or other similar awards) and rights to purchase restricted shares. Under the
2008 Plan, the maximum aggregate number of ordinary shares that may be issued pursuant to all awards under our share
plan is 8,184,990 shares. In February 2014, we adopted a 2014 share incentive plan, or the 2014 Plan. Pursuant to the 2014
Plan, we may issue options, restricted shares and restricted share units to our qualified employees, directors and consultants
on a regular basis. The maximum aggregate number of shares which may be issued pursuant to all awards under the 2014
Plan, or the Award Pool, is 1,833,696, provided that the shares reserved in the Award Pool shall be increased on the first
day of each calendar year, commencing with January 1, 2015, if the unissued shares reserved in the Award Pool on such
day account for less than 2% of the total number of shares issued and outstanding on a fully-diluted basis on December 31
of the immediately preceding calendar year, as a result of which increase the shares unissued and reserved in the Award
Pool immediately after each such increase shall equal 2% of the total number of shares issued and outstanding on a fully-
diluted basis on December 31 of the immediately preceding calendar year. As a result of grants and potential future grants
under the 2008 Plan and the 2014 Plan, we have incurred and will continue to incur share-based compensation expenses.
As of December 31, 2020, the unrecognized compensation cost related to unvested options and non-vested shares
amounted to RMB13.4 million and RMB14.8 million, respectively, which will be recognized over a weighted average
period of 1.42 years and 2.63 years, respectively. Expenses associated with share-based compensation awards granted
under our share plan may materially reduce our future net income. However, if we limit the size of grants under our share
plan to minimize share-based compensation expenses, we may not be able to attract or retain key personnel.
Any natural catastrophes, severe weather conditions, health epidemics and other extraordinary events could severely
disrupt our business operations.
The occurrence of natural catastrophes such as earthquakes, floods, typhoons, tsunamis or any acts of terrorism may result
in significant property damages as well as loss of revenues due to interruptions in our business operations. In addition to
COVID-19, health epidemics such as outbreaks, Zika, Ebola, avian influenza, severe acute respiratory syndrome (SARS)
or the influenza A (H1N1), and severe weather conditions such as snow storm and hazardous air pollution, as well as the
government measures adopted in response to these events, could require the temporary closure of our offices and learning
centers and quarantines of our employees.
Furthermore, our ability to broadcast live lectures and provide our education services through TTS or TMOOC.cn depends
on the continuing operation of our technology system, which is vulnerable to damage or interruption from natural
catastrophes and other extraordinary events. Our disaster recovery planning cannot account for every conceivable
possibility. Any damage to or failure of our technology system could result in interruptions in our services, and our brands
could be damaged if students believe our systems are unreliable. Such disruptions could severely interfere with our
business operations and adversely affect our results of operations.
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Risks Relating to Our Corporate Structure
If the PRC government finds that the agreements that establish the structure for holding our ICP license do not comply
with applicable PRC laws and regulations, we could be subject to severe penalties.
Prior to 2012, we conducted a substantial portion of our operations through our consolidated VIEs and their subsidiaries
and schools. On January 30, 2012, the PRC Catalogue for the Guidance of Foreign Investment Industries (amended)
became effective, which listed professional education service as an industry for which foreign investments are
“encouraged” by the government. On April 10, 2015, the new PRC Catalogue for the Guidance of Foreign Investment
Industries (amended) became effective, which listed non-accredited professional education service as an industry for which
foreign investments are “encouraged” by the government. On July 28, 2017, the new PRC Catalogue for the Guidance of
Foreign Investment Industries (amended) became effective, which listed non-accredited professional education service as
an industry for which foreign investments are “encouraged” by the government. On January 27, 2021, the new Catalog of
Industries for Encouraged Foreign Investment (2020 Edition) became effective, which listed non-accredited professional
education service as an industry for which foreign investments are “encouraged” by the government. In light of such
change of law, starting from the second half of 2012, we began to transfer the operations, including related assets and
liabilities, of our consolidated VIEs to Tarena Technologies Inc., or Tarena Tech, and its subsidiaries and schools. All of
our learning center operations of VIEs had been transferred to Tarena Tech and its subsidiaries and schools before 2018,
while in 2019, 3 of our learning centers which provide online education services, were transferred back to our VIE for
business operation purpose and 3 schools were newly set up through our VIE.
In December 2016, we wound up Shanghai Tarena, one of our VIEs. Pursuant to the Provisions on Administration of
Foreign Invested Telecommunications Enterprises promulgated by the State Council on December 11, 2001, as amended
on September 10, 2008 and February 6, 2016, the ultimate foreign equity ownership in a value-added telecommunications
services provider may not exceed 50%. Moreover, 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 good track records and experience in operating value-added telecommunication
business overseas. Foreign investors that meet these requirements must obtain approvals from the Ministry of Industry and
Information Technology, or MIIT and the Ministry of Commerce, or the MOFCOM, or their authorized local counterparts,
which retain considerable discretion in granting approvals. Pursuant to publicly available information, the PRC government
has issued telecommunications business operating licenses to only a limited number of foreign-invested companies, all of
which are Sino-foreign joint ventures engaging in the value-added telecommunication business. Although the Special
Administrative Measures for Access of Foreign Investment (Negative List) (2020 Edition), or the Negative List, jointly
issued by the NDRC and the MOFCOM on June 23, 2020 and effective from July 23, 2020, and Circular 196 promulgated
by the MIIT in June 2015 allows a foreign investor to own up to 100% of the total equity interest in e-commerce business,
domestic multi-party communication, storage and forwarding classes and call centers, we have not engaged in any such
business. Due to the foreign ownership restriction on internet content and other value-added telecommunication services,
we operate our TMOOC.cn and goto211.com websites through our VIE, Beijing Tarena, and such two websites have been
included in the permitted operation scope under the ICP license held by Beijing Tarena. Beijing Tarena is 70% owned by
Mr. Shaoyun Han, our founder and chairman, and 30% owned by Mr. Jianguang Li, our independent director. Mr. Han and
Mr. Li are both PRC citizens. We entered into a series of contractual arrangements with Beijing Tarena and its
shareholders, which enable us to:
●
●
●
exercise effective financial control over Beijing Tarena;
receive substantially all of the economic benefits and bear the obligation to absorb substantially all of the losses
of Beijing Tarena; and
have an exclusive option to purchase all or part of the equity interests in Beijing Tarena when and to the extent
permitted by PRC law.
Because of these contractual arrangements, we are the primary beneficiary of Beijing Tarena and consolidate its financial
results in our consolidated financial statements in accordance with U.S. GAAP. For a detailed discussion of these
contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.”
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Han Kun Law Offices, our PRC legal counsel, is of the opinion that (i) the ownership structure of Beijing Tarena and
Tarena Tech will not result in any violation of PRC laws or regulations currently in effect; and (ii) the contractual
arrangements among Tarena Tech, Beijing Tarena and its shareholders governed by PRC law are valid, binding and
enforceable, and will not result in any violation of PRC laws or regulations currently in effect. There are, however,
substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations
concerning foreign investment in the PRC, and their application to and effect on the legality, binding effect and
enforceability of the contractual arrangements. In particular, we cannot rule out the possibility that PRC regulatory
authorities, courts or arbitral tribunals may in the future adopt a different or contrary interpretation or take a view that is
inconsistent with the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to
VIE will be adopted or if adopted, what they would provide. On March 15, 2019, the National People’s Congress approved
the Foreign Investment law, which came into effect on January 1, 2020. Under the Foreign Investment Law, “foreign
investment” refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other
entities in China. Although the PRC Foreign Investment Law does not explicitly classify contractual arrangements as a
form of foreign investment, there is no assurance that foreign investment via contractual arrangement would not be
interpreted as a type of indirect foreign investment activities under the definition of “foreign investment” in the future. See
“Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations on Value–Added
Telecommunications Services—The Foreign Investment Law” and “—Risks Relating to Doing Business in China—
Uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment
Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”
If we or Beijing Tarena is found to be in violation of any existing or future PRC laws or regulations, or such arrangement is
determined as illegal and invalid by the PRC court, arbitral tribunal or regulatory authorities, or fail to obtain, maintain or
renew any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take
action in dealing with such violations or failures, including:
●
●
●
●
revoking the business and operating licenses of our PRC subsidiaries and Beijing Tarena;
discontinuing or restricting the conduct of any transactions between our PRC subsidiaries and Beijing Tarena;
imposing fines, confiscating the income from Beijing Tarena, or imposing other requirements with which we or
Beijing Tarena may not be able to comply; or
requiring us to restructure our ownership structure or operations, including terminating the contractual
arrangements with Beijing Tarena and deregistering the equity pledges of Beijing Tarena.
We launched our TMOOC.cn online learning platform in March 2015 to cover a broader customer base. TMOOC.cn
features sample lecture videos and class materials covering our course subjects. We offer our part-time class students the
opportunity to complete a portion of lessons online using TMOOC.cn. TMOOC.cn is also important for our marketing
efforts. Therefore, the imposition of any of these penalties could result in a material and adverse effect on our ability to
provide online education services and conduct our marketing and promotional activities through TMOOC.cn. Beijing
Tarena has added our TMOOC.cn website under its ICP license.
If the relevant PRC authorities determine that we can no longer own and operate certain of our learning centers
through our PRC subsidiaries, we may need to restructure the ownership and operation of these learning centers
(including possibly transferring these learning centers to our consolidated VIE), our business may be disrupted and we
may be exposed to increased risks associated with the contractual arrangements relating to our consolidated VIE.
Prior to 2012, we operated a substantial portion of our learning centers through our consolidated VIE and their subsidiaries
and schools. After the PRC Catalogue for the Guidance of Foreign Investment Industries became effective on January 30,
2012, amended in 2015 and 2017 and replaced by the new Catalog of Industries for Encouraged Foreign Investment (2020
Edition) on January 27, 2021, non-accredited foreign investment in professional education services is now “encouraged” in
China and there is no limitation with respect to maximum percentage of foreign ownership in a company conducting
business in this area.
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In light of such change of law, starting from the second half of 2012, we began to transfer the operations, including related
assets and liabilities, of our consolidated VIEs to our wholly-owned subsidiary, Tarena Tech, and its subsidiaries. All of our
learning center operations of VIEs had been transferred to Tarena Tech and its subsidiaries and schools before 2018, while
in 2018, one of our learning centers was transferred back to our VIE for business operation purpose; while in 2019, 3 of our
learning centers which provide online education services, were transferred back to our VIE for business operation purpose
and 3 schools were newly set up through our VIE. As of December 31, 2020, we operated 48 of our learning centers
through private schools owned by subsidiaries of Tarena Tech. These 48 learning centers in the aggregate accounted for
35.1% of our adult student enrollments and accounted for 4.2% of our K-12 student enrollments in 2020, respectively.
However, there are still uncertainties under current PRC laws as to whether a wholly foreign-owned enterprise (such as
Tarena Tech) is allowed to indirectly invest in and own private schools through its PRC subsidiaries. On the one hand, the
Catalog of Industries for Encouraged Foreign Investment (2020 Edition) encourages and permit 100% foreign ownership
of non-accredited professional training business in China and the Private Education Law does not expressly prohibit a
subsidiary of a foreign-invested enterprise from investing in private schools. On the other hand, according to the Private
Education Law, Chinese-foreign cooperation in operating schools is specifically governed by the Regulations on Operating
Chinese-foreign Schools and its implementing rules, which requires specific approvals from those governmental authorities
in charge of either human resources and social security or education and requires any foreign party to such Chinese-foreign
cooperation in operating schools to be an educational institution with relevant experience in providing educational services
outside of China. In addition, the Regulations on Operating Chinese-foreign Schools prohibits foreign institutions or
individuals from independently establishing schools which provide educational services mainly for Chinese citizens in
China. In practice, different local authorities have different views and administrative policies on whether foreign
institutions or individuals are permitted to use their direct or indirect wholly-owned subsidiary incorporated in China to
establish a school under the Private Education Law without violating the Regulations on Operating Chinese-foreign
Schools. As of December 31, 2020, 45 private schools sponsored by our wholly-owned subsidiaries in China have obtained
private school operating permits, and based on the results of verbal inquiries with the relevant governmental authorities of
human resources and social security or education, we believe that the relevant government authorities have not challenged
and are unlikely to challenge the ownership structure of our schools. However, if the relevant PRC government authorities
determine in the future that we can no longer own and operate our schools and their related learning centers through our
PRC subsidiaries, which are considered ineligible to act as sponsors of private schools, we may need to transfer these
schools and the related learning centers to our consolidated VIE, which may severely disrupt our business and expose us to
increased risks associated with the contractual arrangements relating to our consolidated VIE. See “—Risks Relating to
Our Corporate Structure.” If we fail to restructure the ownership and operation of these schools or otherwise accommodate
requests from the relevant PRC human resources and social security or education regulatory authorities in a timely manner
or to their satisfaction, we may be subject to fines, the suspension or ceasing of our operations or other penalties, which
may materially and adversely affect our business and results of operations.
Any failure by Beijing Tarena or its shareholders to perform their obligations under our contractual arrangements with
them would have an adverse effect on our business.
If Beijing Tarena or its shareholders fail to perform their obligations under their contractual arrangements with us, we may
have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on
legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which
we cannot assure you will be effective. For example, if the shareholders of Beijing Tarena were to refuse to transfer their
equity interest in Beijing Tarena to us or our designee if we exercise the exclusive option agreements pursuant to these
contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to
compel them to perform their contractual obligations.
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All the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes
through arbitration in China. 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
in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our
ability to enforce these contractual arrangements. Under PRC law, if the losing parties fail to carry out the arbitration
awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through
arbitration award recognition proceedings, which would require additional expenses and delay. In the event we are unable
to enforce these contractual arrangements, we may not be able to exert effective financial control over Beijing Tarena, and
our ability to conduct our business may be negatively affected.
If we had direct ownership of Beijing Tarena, we would be able to exercise our rights as a shareholder to effect changes in
the board of directors of Beijing Tarena, which in turn could effect changes, subject to any applicable fiduciary obligations,
at the management level. However, under the current contractual arrangements, we rely on the performance by Beijing
Tarena and its shareholders of their obligations under the contracts to exercise control over Beijing Tarena. Therefore, our
contractual arrangements with Beijing Tarena may not be as effective in ensuring our control over the relevant portion of
our business operations as direct ownership would be.
The shareholders of Beijing Tarena may have potential conflicts of interest with us, which may materially and adversely
affect our business and financial condition.
We have designated individuals who are PRC nationals to be the shareholders of Beijing Tarena. The equity interests of
Beijing Tarena are held by Mr. Shaoyun Han and Mr. Jianguang Li. The interests of these individuals as the shareholders of
Beijing Tarena may differ from the interests of our company as a whole. These shareholders may breach, or cause Beijing
Tarena to breach, or refuse to renew, the existing contractual arrangements we have with them and Beijing Tarena, which
would have a material and adverse effect on our ability to effectively control Beijing Tarena. We cannot assure you that
when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or such
conflicts will be resolved in our favor.
Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our
company, except that we could exercise our purchase option under the purchase option agreement with these shareholders
to request him to transfer all of his equity ownership in Beijing Tarena to a PRC entity or individual designated by us. We
rely on Mr. Shaoyun Han and Mr. Jianguang Li, who are both our directors and who owe a fiduciary duty to our company,
to comply with the terms and conditions of the contractual arrangements. Such fiduciary duty requires directors to act in
good faith and in the best interests of the company and not to use their positions for personal gains. If we cannot resolve
any conflict of interest or dispute between us and the shareholders of Beijing Tarena, we would have to rely on legal
proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of
any such legal proceedings.
Our contractual arrangements with our consolidated VIE may be subject to scrutiny by the PRC tax authorities, and a
finding that we owe additional taxes could substantially reduce our consolidated net income and the value of your
investment.
Under PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge
by the PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that
the contractual arrangements among Tarena Tech and our consolidated VIE did not represent an arms-length price and
adjust our consolidated VIE’ income in the form of a transfer pricing adjustment. A transfer pricing adjustment could,
among other things, result in a reduction, for PRC tax purposes, of expense deductions recorded by our consolidated VIE,
which could in turn increase their tax liabilities without reducing our tax liabilities. In addition, the PRC tax authorities
may impose late payment fees and other penalties to our consolidated VIE for under-paid taxes. Our consolidated net
income may be materially and adversely affected if our tax liabilities increase or if we are found to be subject to late
payment fees or other penalties.
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If Beijing Tarena becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and
enjoy its assets, which could materially and adversely affect our business.
Due to foreign ownership restrictions in the online value-added telecommunications business, we hold our ICP license
through contractual arrangements with Beijing Tarena as well as its shareholders. As part of these arrangements, Beijing
Tarena holds assets that are important to the operation of our business, including the domain name and ICP license for our
goto211.com, 61it.cn and TMOOC.cn websites.
We do not have priority pledges and liens against Beijing Tarena’s assets. As a contractual and property right matter, this
lack of priority pledges and liens has remote risks. If Beijing Tarena undergoes an involuntary liquidation proceeding,
third-party creditors may claim rights to some or all of its assets and we may not have priority against such third-party
creditors on Beijing Tarena’s assets. If Beijing Tarena liquidates, we may take part in the liquidation procedures as a
general creditor under the PRC Enterprise Bankruptcy Law and recover any outstanding liabilities owed by Beijing Tarena
to Tarena Tech under the applicable service agreements. To ameliorate the risks of an involuntary liquidation proceeding
initiated by a third-party creditor, we closely monitor the operations and finances of Beijing Tarena through carefully
designed budgetary and internal controls to ensure that Beijing Tarena is well capitalized and is highly unlikely to trigger
any third party monetary claims in excess of its assets and cash resources. Furthermore, Tarena Tech has the ability, if
necessary, to provide financial support to Beijing Tarena to prevent such an involuntary liquidation.
If the shareholders of Beijing Tarena were to attempt to voluntarily dissolve or liquidate Beijing Tarena without obtaining
our prior consent, we could effectively prevent such unauthorized voluntary liquidation by exercising our right to request
Beijing Tarena’s shareholders to transfer all of their equity ownership interest to a PRC entity or individual designated by
us in accordance with the exclusive option agreements with the shareholders of Beijing Tarena. In the event that the
shareholders of Beijing Tarena initiate a voluntary liquidation proceeding without our authorization or attempts to
distribute the retained earnings or assets of Beijing Tarena without our prior consent, we may need to resort to legal
proceedings to enforce the terms of the contractual agreements. Any such legal proceeding may be costly and may divert
our management’s time and attention away from the operation of our business, and the outcome of such legal proceeding
would be uncertain. The uncertainties in legal proceedings to enforce the terms of the contractual agreements are mainly
caused by PRC laws that prohibit domestic companies holding ICP licenses from assisting foreign investors in conducting
value-added telecommunications business in China. Under the MIIT Circular, a domestic company that holds an ICP
license is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing
any assistance, including providing resources, sites or facilities, to foreign investors that conduct value-added
telecommunications business illegally in China.
If the custodians or authorized users of our controlling non-tangible assets, including chops and seals, fail to fulfill
their responsibilities, or misappropriate or misuse these assets, our business and operations could be materially and
adversely affected.
In China, legal documents for corporate transactions, including agreements and contracts such as the leases and sales
contracts that our business relies on, are typically executed using the chop or seal of the signing entity or with the signature
of a legal representative whose designation is registered and filed with the relevant local branch of the SAMR. We
generally execute legal documents by affixing chops or seals, rather than having the designated legal representatives sign
the documents.
We have three major types of chops—corporate chops, contract chops and finance chops. We use corporate chops generally
for documents to be submitted to government agencies, such as applications for changing business scope, directors or
company name, and for legal letters. We use contract chops for executing leases and commercial contracts. We use finance
chops generally for making and collecting payments, including but not limited to issuing invoices. Use of corporate chops
and contract chops must be approved by our legal department and administrative department, and use of finance chops
must be approved by our finance department. The chops of our subsidiaries and our consolidated VIE are generally held by
the relevant entities so that documents can be executed locally. Although we usually utilize chops to execute contracts, the
registered legal representatives of our PRC subsidiaries and our consolidated VIE have the apparent authority to enter into
contracts on behalf of such entities without chops, unless such contracts set forth otherwise. All designated legal
representatives of our PRC subsidiaries and our consolidated VIE have signed employment agreements with us under
which they agree to abide by duties they owe to us.
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In order to maintain the physical security of our chops, we generally store them in secured locations accessible only to the
department heads of the legal, administrative or finance departments. Our designated legal representatives generally do not
have access to the chops. Although we monitor our employees, including the designated legal representatives of our PRC
subsidiaries and our consolidated VIE, the procedures may not be sufficient to prevent all instances of abuse or negligence.
There is a risk that our employees or designated legal representatives could abuse their authority, for example, by binding
the relevant subsidiary or consolidated VIE with contracts against our interests, as we would be obligated to honor these
contracts if the other contracting party acts in good faith in reliance on the apparent authority of our chops or signatures of
our legal representatives. If any designated legal representative obtains control of the chop in an effort to obtain control
over the relevant entity, we would need to have a shareholder or board resolution to designate a new legal representative
and to take legal action to seek the return of the chop, apply for a new chop with the relevant authorities, or otherwise seek
legal remedies for the legal representative’s misconduct. If any of the designated legal representatives obtains and misuses
or misappropriates our chops and seals or other controlling intangible assets for whatever reason, we could experience
disruption to our normal business operations. We may have to take corporate or legal action, which could involve
significant time and resources to resolve while distracting management from our operations.
Risks Relating to Doing Business in China
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections
available to you and us.
The PRC legal system is based on written statutes. Unlike common law systems, it is a system in which legal cases have
limited value as precedents. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws
and regulations governing economic matters. The overall effect of legislation over the past three decades has significantly
increased the protections afforded to various forms of foreign or private-sector investment in China. Our PRC subsidiaries
are subject to various PRC laws and regulations generally applicable to companies in China. However, since these laws and
regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws,
regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However,
since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory 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. Furthermore, the PRC legal system is based in part on government policies
and internal rules (some of which are not published in a timely manner or at all) some of which may have retroactive effect.
As a result, we may not be aware of our violation of these policies and rules until some time after the violation. Such
uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property)
and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and
adversely affect our business and impede our ability to continue our operations.
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect
on our business and operations.
Substantially all of our business operations are conducted in China. Accordingly, our business, financial condition, results
of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China
generally and by continued economic growth in China as a whole.
China’s economy differs from the economies of most developed countries in many respects, including the level of
government involvement, level of development, growth rate, control of foreign exchange and allocation of resources.
Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces
for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate
governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC
government. In addition, the PRC government continues to play a significant role in regulating industry development by
imposing industrial policies. The PRC government also exercises significant control over the PRC economic growth
through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy,
and providing preferential treatment to particular industries or companies.
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While China’s economy has experienced significant growth over the past decades, growth has been uneven, both
geographically and among various sectors of the economy, and the rate of growth has been slowing. Some of the
government measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our
financial condition and results of operations may be adversely affected by government control over capital investments or
changes in tax regulations. Any stimulus measures designed to boost the Chinese economy may contribute to higher
inflation, which could adversely affect our results of operations and financial condition.
COVID-19 had a severe and negative impact on the Chinese and the global economy in 2020. Whether this will lead to a
prolonged downturn in the economy is still unknown. Even before the outbreak of COVID-19, the global macroeconomic
environment was facing numerous challenges. The growth rate of the Chinese economy has gradually slowed in recent
years and the trend may continue. There is considerable uncertainty over the long-term effects of the expansionary
monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world’s
leading economies, including the United States and China, even before 2020. Unrest, terrorist threats and the potential for
war in the Middle East and elsewhere may increase market volatility across the globe. There have also been concerns about
the relationship between China and other countries, including the surrounding Asian countries, which may potentially have
economic effects. In particular, there is significant uncertainty about the future relationship between the United States and
China with respect to trade policies, treaties, government regulations and tariffs. Economic conditions in China are
sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or
perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy
may materially and adversely affect our business, results of operations and financial condition.
Affected under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise” for PRC
enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our
non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.
Under the PRC Enterprise Income Tax Law, or the EIT Law, that became effective on January 1, 2008, as amended on
February 24, 2017 and December 29, 2018, an enterprise established outside the PRC with “de facto management bodies”
within the PRC is considered a PRC “resident enterprise” for PRC enterprise income tax purposes and is generally subject
to a uniform 25% enterprise income tax rate on its worldwide income. Under the Implementation Rules to the EIT Law, a
“de facto management body” is defined as a body that has material and overall management and control over the
manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In
addition, a circular, known as Circular 82, issued in April 2009, as amended in January 2014 and December 2017, by the
State Administration of Taxation, or the SAT, specifies that certain offshore incorporated enterprises controlled by PRC
enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident
in the PRC: 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. Circular 82 also 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 recognized by
shareholders that are non-PRC resident enterprises. Further to Circular 82, the SAT issued a bulletin, known as Bulletin 45,
which took effect on September 1, 2011, to provide more guidance on the implementation of Circular 82 and clarify the
reporting and filing obligations of such “Chinese-controlled offshore-incorporated resident enterprises.” Bulletin 45
provides procedures and administrative details for the determination of PRC resident enterprise status and administration
on post-determination matters. Although both Circular 82 and Bulletin 45 only apply to offshore enterprises controlled by
PRC enterprises and there are currently no further rules or precedents governing the procedures and specific criteria for
determining “de facto management body” for a company like ours, or PRC enterprise groups, not those controlled by PRC
individuals or foreign individuals like us, the determining criteria set forth in Circular 82 and Bulletin 45 may reflect the
SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident
enterprise status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise
groups or by PRC or foreign individuals.
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We do not believe that Tarena International, Inc. meets all of the conditions above and thus we do not believe that Tarena
International, Inc. is a PRC resident enterprise, despite the fact that all of the members of our management team as well as
the management team of our offshore holding company are located in China. However, if the PRC tax authorities
determine that Tarena International, Inc. is a PRC resident enterprise for PRC enterprise income tax purposes, a number of
unfavorable PRC tax consequences could follow. First, we will be subject to the uniform 25% enterprise income tax on our
worldwide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise
income tax reporting obligations. Second, although dividends paid by one PRC tax resident to another PRC tax resident
should qualify as “tax-exempt income” under the EIT Law, we cannot assure you that such dividends will not be subject to
a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax on dividends,
and the PRC tax authorities have not yet issued guidance with respect to the processing of outbound remittances to entities
that are not controlled by any PRC enterprise or enterprise group and treated as resident enterprises for PRC enterprise
income tax purposes.
Finally, dividends we pay to our non-PRC enterprise shareholders and gains derived by our non-PRC shareholders from the
sale of our shares may become subject to a 10% PRC withholding tax. In addition, future guidance may extend the
withholding tax to dividends we pay to our non-PRC individual shareholders and gains derived by such shareholders from
transferring our shares. 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. If PRC income tax were imposed on
gains realized through the transfer of our ADSs or ordinary shares or on dividends paid to our non-resident investors, the
value of the investment in our ADSs or ordinary shares may be materially and adversely affected. Furthermore, our ADS
holders whose jurisdictions of residence have tax treaties or arrangements with China may not qualify for benefits under
such tax treaties or arrangements.
We face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of our
operating company’s equity interests. Enhanced scrutiny over acquisition transactions by the PRC tax authorities may
have a negative impact on potential acquisitions we may pursue in the future.
In connection with the EIT Law, the Ministry of Finance and the SAT jointly issued a Circular 59 in April 2009, and the
SAT issued a Circular 698 in December 2009. Both Circular 59 and Circular 698 became effective retroactively on
January 1, 2008.
On February 3, 2015, the SAT issued a Public Notice 2015 No.7, or Public Notice 7, to supersede the existing tax rules in
relation to the Indirect Transfer under Circular 698. Under Public Notice 7, where a non-resident enterprise conducts an
“indirect transfer” by transferring the equity interests in a PRC “resident enterprise” or other taxable assets indirectly by
disposing of the equity interests in an overseas holding company, the non-resident enterprise, being the transferor, may be
subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure
without reasonable commercial purposes. In addition, Public Notice 7 provides clear criteria on how to assess reasonable
commercial purposes and introduces safe harbor scenarios applicable to internal group restructurings. However, it also
brings challenges to both the foreign transferor and transferee of the Indirect Transfer as they have to make self-assessment
on whether the transaction should be subject to PRC tax and to file or withhold the PRC tax accordingly. Since Public
Notice 7 was recently promulgated and it is unclear how this set of measures, and any future implementation rules thereof,
will be interpreted, amended and implemented by the relevant governmental authorities. Where non-resident investors were
involved in our private equity financing, if such transactions were determined by the tax authorities to lack reasonable
commercial purpose, we and our non-resident investors may become at risk of being taxed under Public Notice 7 and may
be required to expend valuable resources to comply with Public Notice 7 or to establish that we should not be taxed under
Public Notice 7, which may have a material adverse effect on our financial condition and results of operations or the non-
resident investors’ investments in us.
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In October 2017, the SAT promulgated the Announcement of the State Administration of Taxation on Matters Concerning
Withholding of Income Tax of Non-resident Enterprises at Source, or SAT Circular 37, which provides certain changes to
the current withholding regime, repeals and replaces all other provisions under Circular 698 and amends certain provisions
in Public Notice 7. For example, SAT Circular 37 requires that the transferor shall declare to the competent tax authority
for payment of tax within seven (7) days after the tax payment obligation comes into being if the withholding agent fails to
withhold the tax due or withhold the tax due in full. However, according to SAT Circular 37, if the withholding agent fails
to withhold and remit the income tax payable, or is unable to perform its obligation in this regard, as long as the non-
resident enterprise that earns the income voluntarily declares and pays the tax payable before the tax authority orders it to
do so within required time limits, it shall be deemed that such enterprise has paid the tax in time.
By promulgating and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or
indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. The PRC tax authorities have
the discretion under Circular 59, Public Notice 7 and SAT Circular 37 to make adjustments to the taxable capital gains
based on the difference between the fair value of the equity interests transferred and the cost of investment. We may pursue
acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise
under the EIT Law and if the PRC tax authorities make adjustments under Circular 59 or Public Notice 7 or SAT Circular
37, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on
our financial condition and results of operations.
In addition, the State Administration of Taxation promulgated Administrative Measures on the General Anti-Avoidance
Rule (Trial), or GAAR Measures, on December 12, 2014, which shows the authority’s intention to fight against tax
avoidance scheme that is adopted to obtain unwarranted tax benefit without reasonable commercial purpose. A press
release, made by the State Administration of Taxation to clarify certain issues relating to the application of the GAAR
Measures, stated that the GAAR Measures may be applicable if any general tax-avoidance scheme exists in the offshore
indirect transfer of equity interests. Since GAAR Measures was recently promulgated and it is unclear how this set of
measures, and any future implementation rules thereof, will be interpreted, amended and implemented by the relevant
governmental authorities, we cannot predict how these regulations will affect our business operation, future acquisitions or
strategy.
We face risks and uncertainties with respect to the licensing requirement for internet audio-video programs, radio or
television programs production and operation, internet publication, human resources intermediary service and filling
requirement for commercial franchise.
In December 2007, the State Administration of Press Publication Radio Film and Television, or SAPPRFT, the predecessor
of Administration of Radio and Television newly established in April 2018, and the MIIT, issued the Administrative
Measures Regarding Internet Audio-Video Program Services, or the Internet Audio-Video Program Measures, which
became effective on January 31, 2008. Among other things, the Internet Audio-Video Program Measures stipulate that no
entities or individuals may provide internet audio-video program services without a “License for Disseminating Audio-
Video Programs through Information Network” issued by SAPPRFT or its local bureaus or completing the relevant
registration with SAPPRFT or its local bureaus, and only entities wholly owned or controlled by the PRC government may
engage in the production, editing, integration or consolidation, and transmission to the public through the internet, of
audio-video programs, or the provision of audio-video program uploading and transmission services. In February 2008,
SAPPRFT and MIIT jointly held a press conference in response to inquiries related to the Internet Audio-Video Program
Measures, during which SAPPRFT and MIIT officials indicated that providers of audio-video program services established
prior to the promulgation date of the Internet Audio-Video Program Measures that do not have any regulatory non-
compliance records can re-register with the relevant government authorities to continue their current business operations.
After the conference, the two authorities published a press release that confirmed the above guidelines. There are still
significant uncertainties relating to the interpretation and implementation of the Internet Audio-Video Program Measures,
in particular, the scope of “Internet Audio-Video Programs.”
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Furthermore, on April 1, 2010, SAPPRFT promulgated the Test Implementation of the Tentative Categories of Internet
Audio-Visual Program Services, or the Categories, which clarified the scope of internet audio-video programs services.
According to the Categories, there are four categories of internet audio-visual program services which are further divided
into seventeen sub-categories. The third sub-category to the second category covers the making and editing of certain
specialized audio-video programs concerning, among other things, educational content, and broadcasting such content to
the general public online.
We transmit our audio-video educational programs through our TTS system and TMOOC.cn to enrolled course
participants. In addition, we provide audio-video program uploading and transmission services. As a result, we may be
subject to the Internet Audio-Video Program Measures. If the governmental authorities determine that our provision of
lecture videos on TTS and/or TMOOC.cn falls within the Internet Audio-Video Program Measures, we may not be able to
obtain the License for Disseminating Audio-Video Programs through Information Network. If this occurs, we may become
subject to significant penalties, fines, legal sanctions or an order to suspend our use of audio-video content, all of which
could have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, a
producer or operator of radio or television programs is required to obtain a Radio and Television Program Production and
Operation License under the PRC laws and regulations. We have obtained a Radio and Television Program Production and
Operation License on June 27, 2019 for the audio-video educational programs on our TTS system, which is held by Beijing
Tarena.
Furthermore, we offer videos of lectures on our website of TMOOC.cn. Governmental authorities may determine our
online content services fall within the scope of “internet publishing,” and therefore require us to apply for an Internet
Publishing License, which we have not obtained from SAPPRFT. We may not be able to obtain such a license if we are
requested to obtain one in the future, and we may therefore become subject to penalties, fines, legal sanctions or be ordered
to suspend the video content on the website, all of which could have a material adverse effect on our business, financial
condition, results of operations and prospects.
Pursuant to the Provisions on the Administration of Human Resources Markets issued by SAIC in 2001 and as amended in
2005, 2015 and 2019, respectively, a human resources service intermediary refers to any entity which provides
intermediary services for employers and any potential employees, and no entity may provide such services without a
License for Human Resources Service. Any internet information service provider which provides intermediary services for
employers and any potential employees via internet shall obtain such license. In addition, the Interim Regulations for the
Human Resources Market, or the Interim Regulations, issued by the State Council in June 2018 further clarifies the
requirements of human resources service licensing and filing. In accordance with the Interim Regulations, any commercial
human resources service provider engaging in employment introduction information services or internet human resources
information services for employers and individuals shall obtain a License for Human Resources Service and any
commercial human resources service provider engaging in collection and release of human resources information shall
complete the necessary filing with competent human resources and social security authorities.
In January 2015, we launched a self-developed job search website called Job Show (www.jobshow.cn), which serves as a
dedicated open platform for our students and other job-seeking candidates to connect with corporate employers more
effectively. Although we have not entered into any agreement with corporate employers or any job-seeking candidates, we
source and list job opportunities from both IT and non-IT employers in China through the website, which may be deemed
as a human resources service intermediary. If the relevant PRC government authorities determine that we shall obtain a
License for Human Resources Services for the operation of Job Show and we fail to obtain such license, they may order us
to cease such activities and if there is any illegal income, we may be subject confiscation of the illegal income and a fine of
more than RMB10,000 and less than RMB50,000. If the relevant PRC government authorities determine that we shall filed
with the competent authority for engaging in human resources services activities and we fail to complete such filings on
time, the competent authority shall order us to correct, or we may be subject a fine more than RMB5,000 and less than
RMB10,000 if such correction is not made. Shanxi Zhimujiang Human Resource Management Co., Ltd., a wholly-owned
subsidiary of Tarena Tech, has obtained a License for Human Resources Services on April 29, 2019 for the job
intermediary activities, and we are going to engaging in job intermediary activities through this company.
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In addition, The State Council promulgated the Administrative Regulations on Commercial Franchise, or Franchise
Regulations, on February 6, 2007. The MOFCOM promulgated the Administrative Measures on Filing of Commercial
Franchise, or the Franchise Filling Measures, on April 30, 2007, as amended on December 12, 2011. Under these
regulations, “franchise operations” refer to a license by an enterprise owner of registered trademarks, enterprise logos,
patents, proprietary technologies or other business resources, or franchisor, to another business operator, the franchisee, to
use such business resources owned by the franchisor through a contractual arrangement, where the franchisee operates the
business according to a uniform business model stipulated under the contract and pay the franchisor franchising fees. A
franchisor shall file with the MOFCOM or its local office within 15 days from the date of entering into a franchise contract
with a franchisee for the first time. We have 45 franchisees for K-12 education program and 2 franchisees for adult
professional education program in 2020. However, we have not filed with MOFCOM or its local office for the franchise
operations regarding adult education program as of the date of this annual report, and we have been communicating, and
will continue to communicate with the competent authority to complete such filling. If we fail to complete such filing, the
competent authority may order us to complete such filling within a stipulated period and we may be subject to a fine
between RMB10,000 and RMB50,000. If we still fail to complete such filing within a stipulated period, we may be subject
to a fine between RMB50,000 and RMB100,000, and a public announcement may be issued against us.
PRC regulations establish complex approval procedures for some acquisitions of PRC companies by foreign investors,
which could make it more difficult for us to pursue growth through acquisitions in China. The transfers of our learning
centers from our consolidated VIE to our wholly-owned subsidiaries in China may be subject to such approval
procedures, in which case we may need to restructure the ownership and operation of the affected learning centers, and
as a result we may be exposed to increased risks associated with the contractual arrangements relating to our
consolidated VIE.
Six PRC regulatory agencies promulgated regulations effective in September 2006 and amended in June 2009 that are
commonly referred to as the M&A Rules. The M&A Rules establish procedures and requirements that could make some
acquisitions of PRC companies by foreign investors more time-consuming and complex, including requirements in some
instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes
control of a PRC domestic enterprise. In addition, national security review rules issued by the PRC governmental
authorities in 2011 require acquisitions by foreign investors of domestic companies engaged in military-related or certain
other industries that are crucial to national security to be subject to prior security review. Moreover, the Anti-Monopoly
Law requires that the MOFCOM shall be notified in advance of any concentration of undertaking if certain thresholds are
triggered. We may expand our business in part by acquiring complementary businesses. Complying with the requirements
of the M&A Rules, security review rules and other PRC regulations to complete such transactions could be time-
consuming, and any required approval processes, including obtaining approval from the MOFCOM, may delay or inhibit
our ability to complete such transactions, which could affect our ability to expand our business or maintain our market
share.
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In addition, in accordance with the M&A Rules, approval of the MOFCOM is required for acquisitions of PRC domestic
enterprises by foreign companies that are established or controlled by PRC domestic companies, enterprises or individuals
related to the target PRC domestic enterprises, or “Related Party Acquisitions,” and the parties are not allowed to evade
such requirements through investment by foreign investment enterprises in China or other ways. Although M&A Rules
have become effective since September 2006, we are not aware of any precedent of approval by the MOFCOM of any
Related Party Acquisition conducted by PRC domestic individuals. Starting from the second half of 2012, we began to
transfer our operations, including related assets and liabilities, of our consolidated VIEs to our wholly-owned subsidiary,
Tarena Tech, and its subsidiaries, either through transferring the companies that operate learning centers or that sponsor the
schools, or through changing the schools’ sponsors. All of our learning center operations of VIEs had been transferred to
Tarena Tech and its subsidiaries and schools before 2018, while in 2018, one of our learning centers was transferred back
to our VIE for business operation purpose; while in 2019, 3 of our learning centers which provide online education
services, were transferred back to our VIE for business operation purpose and 3 schools were newly set up through our
VIE. As Mr. Shaoyun Han is a shareholder of both Tarena and our consolidated VIEs, even though the transfers of the
companies from our consolidated VIEs to our wholly-owned subsidiaries in China are not “acquisitions by foreign
investors of PRC domestic enterprises” under the M&A Rules, and Tarena Tech, our wholly foreign invested enterprise in
PRC, was converted into a wholly foreign invested enterprise before the effective date of M&A Rules, the requirement for
an approval from the MOFCOM may still be required for such transfers because of the above anti-evasion clause.
Furthermore, it is unclear whether our transfers of the schools, which are not enterprises, from subsidiaries of our
consolidated VIEs to our wholly-owned subsidiaries, could be regarded as Related Party Transactions under the M&A
Rules. If the MOFCOM determines that our previous transfers of learning centers from our consolidated VIEs to our
wholly-owned subsidiaries are Related Party Transactions under the M&A Rules and we fail to obtain the MOFCOM’s
approvals on such transfers, the effectiveness of such transfers may be challenged and we may need to transfer these
companies and schools, including the related learning centers, back to our consolidated VIE. Under such circumstances,
our business may be disrupted and we may be exposed to increased risks associated with the contractual arrangements
relating to our consolidated VIE. See “—Risks Relating to Our Corporate Structure.”
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to
increase their registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or
otherwise expose us to liability and penalties under PRC law.
The PRC State Administration of Foreign Exchange, or the SAFE, has promulgated regulations, including the Notice on
Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip Investment through Special
Purpose Vehicles, or SAFE Circular No. 37, effective on July 4, 2014, and its appendixes, that require PRC residents,
including PRC institutions and individuals, to register with local branch of SAFE in connection with their direct
establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC
residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in
SAFE Circular No. 37 as a “special purpose vehicle.” SAFE Circular No. 37 further requires an amendment to the
registration in the event of any significant changes with respect to the special purpose vehicle, such as an increase or
decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material events. In
the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE
registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the
offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle
may be restricted in their ability to contribute additional capital into its PRC subsidiary. Further, failure to comply with the
various SAFE registration requirements described above could result in liability under PRC law for foreign exchange
evasion, including (i) the requirement by SAFE to return the foreign exchange remitted overseas within a period specified
by SAFE, with a fine of up to 30% of the total amount of foreign exchange remitted overseas and deemed to have been
evasive and (ii) in circumstances involving serious violations, a fine of no less than 30% of and up to the total amount of
remitted foreign exchange deemed evasive. Furthermore, the persons-in-charge and other persons at our PRC subsidiaries
who are held directly liable for the violations may be subject to criminal sanctions. On February 28, 2015, SAFE
promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct
Investment, or SAFE Notice 13, which became effective on June 1, 2015. In accordance with SAFE Notice 13, entities and
individuals are required to apply for foreign exchange registration of foreign direct investment and overseas direct
investment, including those required under the SAFE Circular No. 37, with qualified banks, instead of SAFE. The qualified
banks, under the supervision of SAFE, directly examine the applications and conduct the registration.
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These regulations apply to our direct and indirect shareholders who are PRC residents and may apply to any offshore
acquisitions or share transfers that we make in the future if our shares are issued to PRC residents. We have requested PRC
residents who we know currently hold direct or indirect interests in our company to make the necessary applications,
filings and amendments as required under SAFE Circular No. 37 and other related rules.
We have used our best efforts to notify all of our shareholders who are PRC citizens and hold interests in us to register with
the local SAFE branch and/or qualified banks as required under SAFE Circular No. 37 and SAFE Notice 13. However, in
practice, different local SAFE branches and/or qualified banks may have different views and procedures on the application
and implementation of SAFE regulations. Therefore, we cannot assure you that they can successfully amend their foreign
exchange registrations with the local SAFE branch and/or qualified banks in full compliance with applicable laws. In
addition, we may not be informed of the identities of all the PRC residents holding direct or indirect interest in our
company, and we cannot provide any assurances that these PRC residents will comply with our request to make or obtain
any applicable registrations or comply with other requirements required by SAFE Circular No. 37, SAFE Notice 13 or
other related rules. A failure by any of our current or future shareholders or beneficial owners who are PRC residents to
comply with the SAFE regulations may subject us to fines or other legal sanctions, restrict our cross-border investment
activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure,
which could adversely affect our business and prospects.
Furthermore, 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, either we or the owners of such company, as the case may be,
may not 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.
Failure to comply with PRC regulations regarding the registration requirements for employee share ownership plans or
share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for
Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or the Stock Option
Rules. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock
incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branch and complete
certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent,
which could be a PRC subsidiary of the overseas publicly-listed company or another qualified institution selected by the
PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of
its participants. The participants must also retain an overseas entrusted institution to handle matters in connection with their
exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the
PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material
change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. See
“Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations on Stock
Incentive Plans.” We and our PRC employees who have been granted share options and restricted share units are subject to
these regulations and we have completed the registrations of our stock incentive plans, namely the 2008 Plan and the 2014
Plan, with the local SAFE as required by PRC law. Failure of our PRC share option holders or restricted shareholders to
complete their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit our
ability to contribute additional capital into our PRC subsidiaries, limited our PRC subsidiaries’ ability to distribute
dividends to us, or otherwise materially and adversely affect our business.
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PRC regulation of direct investment and loans by offshore holding companies to PRC entities and governmental control
of currency conversion may delay or limit us from using the proceeds of offshore offerings to make additional capital
contributions or loans to our PRC subsidiaries.
Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiaries are subject to PRC
regulations. Under PRC laws and regulations, we are permitted to utilize the proceeds from offshore offerings to fund our
existing PRC subsidiaries only through loans or capital contributions or to establish new PRC subsidiaries, subject to
applicable government registration and approval requirements. None of our loans to a PRC subsidiary can exceed the
difference between its total amount of investment and its registered capital approved under relevant PRC laws or two and a
half times of the net assets provided in the latest audited financial report of such PRC subsidiary, as applicable, and the
loans must be registered with the local branch of SAFE. Our capital contributions to our PRC subsidiaries or establishment
of new PRC subsidiaries shall be recorded with the MOFCOM or its local counterpart. We cannot assure you that we will
be able to complete the necessary registration or obtain the necessary approval on a timely basis, or at all. If we fail to
complete the necessary registration or obtain the necessary approval, our ability to make loans or equity contributions to
our PRC subsidiaries may be negatively affected, which could adversely affect our PRC subsidiaries’ liquidity and their
ability to fund their working capital and expansion projects and meet their obligations and commitments.
On March 30, 2015, the SAFE promulgated Circular 19, which expands a pilot reform of the administration of the
settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 allows all foreign-
invested enterprises established in the PRC to use their foreign exchange capitals to make equity investments and removes
certain other restrictions provided under previous laws and regulations promulgated by the SAFE for these enterprises.
However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using the Renminbi fund
converted from its foreign exchange capitals for expenditure beyond its business scope, and providing entrusted loans or
repaying loans between non-financial enterprises. On June 9, 2016, the SAFE promulgated Circular 16, the application
scope of which expands from only the capital of foreign-invested enterprises to the capital, foreign debt proceeds and
proceeds from overseas public offering. Furthermore, Circular 16 allows foreign-invested enterprises to use their foreign
exchange capitals under capital account to the extent permitted by the relevant laws and regulations, and removes certain
prohibitions on using the Renminbi fund converted from the foreign exchange capitals under Circular 19, such as
prohibitions on providing loans to the affiliated enterprises of such foreign-invested enterprises or repaying loans between
non-financial enterprises. Violations of SAFE Circular 19 and Circular 16 could result in severe monetary or other
penalties. On October 23, 2019, the SAFE issued the Notice of the State Administration of Foreign Exchange on Further
Facilitating Cross-border Trade and Investment, which, among other things, expanded the use of foreign exchange capital
to domestic equity investments. Non-investment foreign-funded enterprises are allowed to lawfully make domestic equity
investments by using capital funds on the premise without violation to prevailing special administrative measures for
access of foreign investments (negative list) and the authenticity and compliance with the regulations of domestic
investment projects.
Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may restrict
our ability to satisfy our liquidity requirements.
We are a holding company incorporated in the Cayman Islands. We may need dividends and other distributions on equity
from our PRC subsidiaries to satisfy our liquidity requirements. Current PRC regulations permit our PRC subsidiaries to
pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards
and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated
profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective
registered capital. Our PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting
standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends.
Furthermore, if our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may
restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our subsidiaries to
distribute dividends to us or may restrict our ability to satisfy our liquidity requirements.
In addition, the EIT Law, and its implementation rules provide that withholding tax rate of up to 10% will be applicable to
dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according
to treaties or arrangements between the PRC central government and governments of other countries or regions where the
non-PRC-resident enterprises are incorporated.
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We may not be able to obtain certain treaty benefits on dividends paid to us by our PRC subsidiary through our Hong
Kong Subsidiary.
Under the EIT Law and its implementation rules, dividends generated from retained earnings from a PRC company and
distributed to a foreign parent company are subject to a withholding tax rate of 10% unless the foreign parent’s jurisdiction
of incorporation has a tax treaty with China that provides for a preferential withholding arrangement. Pursuant to the
Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double
Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, or the Hong Kong Tax Treaty, which became
effective on December 8, 2006, a company incorporated in Hong Kong, such as Tarena HK, will be subject to withholding
income tax at a rate of 5% on dividends it receives from its PRC subsidiary if it holds a 25% or more interest in that
particular PRC subsidiary, or 10% if it holds less than a 25% interest in that subsidiary. Pursuant to the Notice of the SAT
on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81, the 5% withholding
tax rate does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the
Hong Kong enterprise must be the beneficial owner of the relevant dividends; and (b) the Hong Kong enterprise must
directly hold at least 25% share ownership in the PRC enterprise during the 12 consecutive months preceding its receipt of
the dividends. However, a transaction or arrangement entered into for the primary purpose of enjoying a preferential tax
treatment should not be a reason for the application of the preferential tax treatment under the Hong Kong Tax Treaty. If a
taxpayer inappropriately is entitled to such preferential tax treatment, the competent tax authority has the power to make
appropriate adjustments. According to the Circular on Several Issues regarding the “Beneficial Owner” in Tax Treaties,
which was issued on February 3, 2018 by the SAT and has taken effect from April 1, 2018, or Circular 9, when determining
the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends, interests or royalties
in the tax treaties, several factors, including without limitation whether the applicant is obligated to pay more than 50% of
his or her income in twelve months to residents in a third country or region, whether the business operated by the applicant
constitutes the actual business activities, and whether the counterparty country or region to the tax treaties levies any tax or
grants tax exemption on relevant incomes or levies tax at an extremely low rate, will be taken into account, and such
determination will be analyzed according to the actual circumstances of the specific cases. Circular 9 further provides that
applicants who intend to prove his or her status of the “beneficial owner” shall submit the relevant documents to the
relevant tax authority according to the Administrative Measures for Tax Convention Treatment for Non-resident Taxpayers,
or Circular 60, which was replaced and repealed by Administrative Measures for Non-Resident Taxpayers to Enjoy
Treatments under Tax Treaties, or Circular 35. Circular 60 provides that non-resident enterprises are not required to obtain
pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax rate. Instead, non-resident
enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy
the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting
documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax
authorities. Circular 35, which was issued in October 2019 by the SAT and became effective on January 1, 2020, sets forth
similar rules with Circular 60 that non-resident enterprises and their withholding agents shall enjoy treaty benefit by means
of “self-judgment of eligibility, declaration of entitlement, and retention of relevant materials for future reference.”
However, if a competent tax authority finds out that it is necessary to apply the general anti-tax avoidance rules, it may
start general investigation procedures for anti-tax avoidance and adopt corresponding measures for subsequent
administration. As a result, although our PRC subsidiary, Tarena Hangzhou, is currently wholly owned by our Hong Kong
subsidiary, Tarena HK, we cannot assure you that we would be entitled to the tax treaty benefits and enjoy the favorable
5% rate applicable under the Hong Kong Tax Treaty on dividends. If Tarena HK cannot be recognized as the beneficial
owner of the dividends to be paid by Tarena Hangzhou to us, such dividends will be subject to a normal withholding tax of
10% as provided by the EIT Law. Besides, according to Circular 81 and Circular 35, if the relevant tax authorities consider
the transactions or arrangements we have are for the primary purpose of enjoying a preferential tax treatment, the relevant
tax authorities may adjust the preferential withholding tax in the future.
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Discontinuation or revocation of any of the preferential tax treatments and government subsidies or imposition of any
additional taxes and surcharges could adversely affect our financial condition and results of operations.
Our PRC subsidiaries are incorporated in the PRC and governed by applicable PRC tax laws and regulations. The EIT
Law, which became effective on January 1, 2008 and as amended on December 29, 2018 and its Implementing Rules,
which became effective on January 1, 2008 and as amended on December 29, 2018 and April 23, 2019, respectively, have
adopted a uniform statutory enterprise income tax rate of 25% to all enterprises in China including foreign-invested
enterprises. The EIT Law and its implementation rules also permit qualified “high and new technology enterprises,” or
HNTEs, to enjoy a preferential enterprise income tax rate of 15% upon filing with relevant tax authorities. The
qualification as a HNTE generally has a valid term of three years and the renewal of such qualification is subject to review
by the relevant authorities in China. Tarena Tech obtained its HNTE certificate in 2009 and renewed its HNTE certificate
in 2012, 2015 and again in 2018, and is eligible to enjoy a preferential tax rate of 15% until the fourth quarter of 2021. If
Tarena Tech fails to maintain its HNTE qualification or renew its qualification when its current term expires, its applicable
enterprise income tax rate may increase to 25%, which could have an adverse effect on our financial condition and results
of operations. In addition, Tarena Hangzhou, one of our PRC subsidiaries, was established in 2013 and is qualified as a
“newly established software enterprise,” which entitles it to two years of full tax exemption followed by three years of 50%
tax exemption, commencing from the year in which its taxable income is greater than zero, which was 2014. Tarena
Hangzhou no longer has the 50% tax exemption since the beginning of 2019. Tarena Hangzhou has also received financial
subsidies from PRC local government authority in 2013, 2015 and 2016. In 2016, Tarena Hangzhou acquired Hanru
Education & Technology Co., Ltd., or Hanru Hangzhou, which was qualified as an eligible software enterprise and entitled
to a full tax exemption of two years followed by a 50% tax exemption of three years, commencing from 2016. In addition,
Hanru Hangzhou obtained its HNTE certificate in 2019 and has started to enjoy a preferential tax rate of 15% in 2021.
Preferential tax treatments and financial subsidies are subject to review and may be adjusted or revoked at any time in the
future. The discontinuation of any preferential tax treatments or financial subsidies or imposition of any additional taxes
could adversely affect our financial condition and results of operations.
It may be difficult for overseas regulators to conduct investigation or collect evidence within China.
Shareholder claims or regulatory investigations that are common in jurisdictions outside China are difficult to pursue as a
matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing
information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may
establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to
implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the
United States or other jurisdictions may not be efficient in the absence of a mutual and practical cooperation mechanism.
Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020,
no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the
territory of the PRC, and without the consent by the Chinese securities regulatory authorities and the other competent
governmental agencies, no entity or individual may provide documents or materials related to securities business to any
foreign party. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the
inability of an overseas securities regulator to directly conduct investigation or evidence collection activities within China
and the potential obstacles for information provision may further increase difficulties you face in protecting your interests.
See also “—Risks Related to Our ADSs—You may face difficulties in protecting your interests, and your ability to protect
your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law” for risks
associated with investing in us as a Cayman Islands company.
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Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your
investment.
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 PRC government changed its
decade-old policy of pegging the value of the RMB to the U.S. dollar in 2005. 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. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. In
August 2015, the People’s Bank of China changed the way it calculates the mid-point price of Renminbi against the U.S.
dollar, requiring the market-makers who submit for reference rates to consider the previous day’s closing spot rate, foreign-
exchange demand and supply as well as changes in major currency rates. On November 30, 2015, the Executive Board of
the International Monetary Fund (IMF) completed the regular five-year review of the basket of currencies that make up the
Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, Renminbi is determined to be a
freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the
Japanese yen and the British pound. In 2018, the RMB has depreciated significantly in the backdrop of a surging U.S.
dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards
interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further
changes to the exchange rate system and we cannot assure you that the Renminbi will not appreciate or depreciate
significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S.
government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.
Significant revaluation of the RMB may have a material and adverse effect on your investment. For example, to the extent
that we need to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes,
appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from
the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for
dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB
would have a negative effect on the U.S. dollar amount available to us. In addition, appreciation or depreciation in the
value of the RMB relative to U.S. dollars would affect the U.S. dollar equivalent of our earnings, regardless of any
underlying change in our business or results of operations.
In January 2016, we entered into a foreign currency forward contract with China Merchants Bank Co., Ltd. The notional
amounts of the foreign currency forward contracts were RMB564.1 million and the settlement date was on May 19, 2016.
We incurred a loss of RMB12.9 million as a result of such forward foreign currency contract in 2016. The contract expired
in May 2017, and we have not entered into any new foreign currency forward contract since then. Due to the fluctuation in
the exchange rate between U.S. dollars and RMB, we may decide to enter into additional foreign currency contract in the
future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our
exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that
restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchange rates may have a
material adverse effect on your investment.
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Uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment
Law and how it may impact the viability of our current corporate structure, corporate governance and business
operations.
On March 15, 2019, the National People’s Congress approved the PRC Foreign Investment Law, or the Foreign Investment
Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in
China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture
Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary
regulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment
regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal
requirements for both foreign and domestic investments. However, since it is relatively new, uncertainties still exist in
relation to its interpretation and implementation. For instance, under the Foreign Investment Law, “foreign investment”
refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in
China. Though the Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign
investment, there is no assurance that foreign investment via contractual arrangement would not be interpreted as a type of
indirect foreign investment activities under the definition of “foreign investment” in the future. In addition, the definition
contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws or
administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future
laws, administrative regulations or provisions promulgated by the State Council to provide for contractual arrangements as
a form of foreign investment. In any of these cases, it will be uncertain whether our contractual arrangements will be
deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations. In
addition, the Supreme People’s Court issued Certain Opinions Concerning the Application of the Foreign Investment Law
on December 16, 2019, or the Foreign Investment Law Judicial Interpretations, which provides that investment contract in
relation to the investment by foreign investor in a field which is prohibited from foreign investment under the Negative List
may be invalidated by the courts. Although we believe contractual arrangements would not be deemed as “investment
contract” under the Foreign Investment Law Judicial Interpretations, we cannot assure you that the PRC courts would take
the same view as ours. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council
mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face
substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and
appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely
affect our current corporate structure, corporate governance and business operations.
The tension in international trade and rising political tension, particularly between U.S. and China, may adversely
impact our business, financial condition, and results of operations.
Although cross-border business may not be an area of our focus, if we plan to expand our business internationally in the
future, any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the
demand for our products and services, impact our competitive position, or prevent us from being able to conduct business
in certain countries. If any new tariffs, legislation, or regulations are implemented, or if existing trade agreements are
renegotiated, such changes could adversely affect our business, financial condition, and results of operations. Recently,
there have been heightened tensions in international economic relations, such as the one between the United States and
China. The U.S. government has recently imposed, and has recently proposed to impose additional, new, or higher tariffs
on certain products imported from China to penalize China for what it characterizes as unfair trade practices. China has
responded by imposing, and proposing to impose additional, new, or higher tariffs on certain products imported from the
United States. Following mutual retaliatory actions for months, on January 15, 2020, the United States and China entered
into the Economic and Trade Agreement Between the United States of America and the People’s Republic of China as a
phase one trade deal, effective on February 14, 2020. It remains unclear what additional actions, if any, will be taken by the
U.S. or other governments with respect to international trade, tax policy related to international commerce, or other trade
matters.
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The situation is further complicated by the political tensions between the United States and China that escalated during the
COVID-19 pandemic and in the wake of the PRC National People’s Congress’ decision on Hong Kong national security
legislation, sanctions imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special
Administrative Region and the central government of the PRC and the executive orders issued by U.S. President in August
2020 that prohibit certain transactions with certain China-based companies and their respective subsidiaries. Against this
backdrop, China has implemented, and may further implement, measures in response to the changing trade policies,
treaties, tariffs and sanctions and restrictions against Chinese companies initiated by the U.S. government. Rising trade and
political tensions could reduce levels of trade, investments, technological exchanges and other economic activities between
China and other countries, which would have an adverse effect on global economic conditions, the stability of global
financial markets, and international trade policies.
Although the direct impact of the current international trade and political tension, and any escalation of such tension, on the
online retail industry in China is uncertain, the negative impact on general, economic, political and social conditions may
adversely impact our business, financial condition and results of operations.
Risks Relating to Our ADSs
The trading prices of our ADSs have fluctuated and may be volatile, which could result in substantial losses to
investors.
The trading prices of our ADSs have fluctuated since we first listed our ADSs. The trading prices of our ADSs may
continue to fluctuate and be volatile due to factors beyond our control. This may happen because of broad market and
industry factors, like the performance and fluctuation of the market prices of other companies with business operations
located mainly in China that have listed their securities in the United States. In recent years, the widespread negative
publicity of alleged fraudulent accounting practices and poor corporate governance of certain U.S. public companies with
operations in China were believed to have negatively affected investors’ perception and sentiment towards companies with
connection with China, which significantly and negatively affected the trading prices of some companies’ securities listed
in the U.S. Any similar negative publicity or sentiment may affect the performances of our ADSs. A number of PRC
companies have recently listed or are in the process of listing their securities on U.S. stock markets. The securities of some
of these companies have experienced significant volatility, including price declines in connection with their initial public
offerings. The trading performances of these PRC companies’ securities after their offerings may affect the attitudes of
investors toward PRC companies listed in the United States in general and consequently may impact the trading
performance of our ADSs, regardless of our actual operating performance. Furthermore, the stock market in general has
experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of companies like us. These broad market and industry factors may materially reduce the market price of our
ADSs, regardless of our operating performance.
In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors
specific to our own operations, including the following:
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the financial projections that we may choose to provide to the public, any changes in those projections or our
failure for any reason to meet those projections;
variations in our net revenues, net income and cash flow;
announcements of new investments, acquisitions, strategic partnerships, or joint ventures;
announcements of new services and expansions by us or our competitors;
changes in financial estimates by securities analysts;
additions or departures of key personnel;
release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity
securities;
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potential litigation, regulatory investigations or other legal proceedings involving us; and
detrimental negative publicity about us or our industry.
Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.
If securities or industry analysts do not publish research or reports about our business, or if they adversely change their
recommendations regarding our ADSs, the market price for our ADSs and trading volume could decline.
The trading market for our ADSs is influenced by research or reports that industry or securities analysts publish about our
business. If one or more analysts who cover us downgrade our ADSs or publish unfavorable research about us, the market
price for our ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading
volume for our ADSs to decline.
Our dual class share structure with different voting rights will limit your ability to influence corporate matters and
could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares
and ADSs may view as beneficial.
Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary
shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share, with
Class A and Class B ordinary shares voting together as one class on all matters subject to a shareholders’ vote. As of
February 28, 2021, our Class B ordinary shares represent 13% of our total outstanding ordinary shares on an as-converted
basis and entitle their holders to 59.8% of our total voting power.
As a result of the dual class share structure and the concentration of ownership, holders of our Class B ordinary shares have
substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or
substantially all of our assets, election of directors and other significant corporate actions. They may take actions that are
not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a
change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their
shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control will limit your
ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other
change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial. For more
information regarding our principal shareholders and their affiliated entities, see “Item 7. Major Shareholders and Related
Party Transactions.”
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 ability to raise capital through equity
offerings in the future. We cannot predict what effect, if any, market sales of securities held by our significant shareholders
or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs. In
addition, Talent Fortune Investment Limited, an affiliate of KKR & Co. L.P., is entitled to certain registration rights.
Registration of these shares under the Securities Act would result in these shares becoming freely tradable without
restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares
in the public market, or the perception that such sales could occur, could cause the price of our ADSs to decline.
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We may be classified as a passive foreign investment company, or PFIC, which could result in adverse U.S. federal
income tax consequences to U.S. Holders of our ADSs or Class A ordinary shares.
A non-U.S. corporation, such as our company, will be classified as a passive foreign investment company (a “PFIC”) for
U.S. federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists
of certain types of “passive” income, or (ii) 50% or more of the value of its assets (based on an average of the quarterly
values of the assets) during such year is attributable to assets that produce passive income or are held for the production of
passive income (the “asset test”). A separate determination must be made after the close of each taxable year as to whether
a non-U.S. corporation is a PFIC for that year. Passive income generally includes dividends, interest, royalties, rents,
annuities, net gains from the sale or exchange of property producing such income and net foreign currency gains. For this
purpose, cash and assets readily convertible into cash are categorized as passive assets and our unbooked intangibles
associated with active business activity are taken into account as non-passive assets.
In addition, a non-U.S. corporation will be treated as owning a proportionate share of the assets and earning a proportionate
share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.
Although the law in this regard is unclear, we treat our VIE as being beneficially owned by us for U.S. federal income tax
purposes because we control the entity’s management decisions, we are entitled to substantially all of the economic
benefits associated with the entity, and, as a result, we consolidate the entity’s results of operations in our U.S. GAAP
financial statements. If it was determined, however, that we are not the owner of the VIE for U.S. federal income tax
purposes, we may be treated as a PFIC for the current taxable year and any subsequent taxable year.
Based on the market price of our ADSs and outstanding Class A ordinary shares, the value of our assets and the
composition of our assets and income, we do not believe that we were a PFIC for our taxable year ended December 31,
2020 and we do not expect to be classified as a PFIC in the foreseeable future.
While we do not expect to become a PFIC, because the value of our assets for purposes of the asset test will generally be
determined by reference to the market price of our ADSs or Class A ordinary shares, fluctuations in the market price of our
ADSs or Class A ordinary shares may cause us to become a PFIC for the current or subsequent taxable years. The
determination of whether we will be or become a PFIC will also depend, in part, on the composition of our income and
assets, which will be affected by how, and how quickly, we use our liquid assets. Under circumstances where we determine
not to deploy significant amounts of cash for active purposes, our risk of being classified as a PFIC may substantially
increase. In addition, because there are uncertainties in the application of the relevant rules and because PFIC status is a
fact-intensive determination made on an annual basis, there can be no assurance that we will not be a PFIC for the current
or any future taxable year.
If we were treated as a PFIC for any taxable year during which a U.S. Holder (defined below) held an ADS or a Class A
ordinary share, certain adverse U.S. federal income tax consequences could apply to the U.S. Holder. See “Item 10.
Additional Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company
Considerations.”
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You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be
limited, because we are incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by
our memorandum and articles of association, the Companies Act, Cap 22 (Law 3 of 1961, as consolidated and revised) of
the Cayman Islands, 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 the common law of
England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands.
The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as
clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In
particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such
as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In
addition, Cayman Islands companies may not have the standing to initiate a shareholder derivative action in a federal court
of the United States.
The Cayman Islands courts are also unlikely:
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to recognize or enforce against us judgments of courts of the United States based on certain civil liability
provisions of U.S. securities laws; and
to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability
provisions of U.S. securities laws that are penal in nature.
There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of
the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of
competent jurisdiction without retrial on the merits.
As a result of all of the above, 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 company incorporated in the United States.
Judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company and almost all of our assets are located outside of the United States. Substantially all of
our current operations are conducted in China. In addition, most of our current directors and executive officers are
nationals and residents of countries other than the United States. As a result, it may be difficult or impossible for you to
bring an action against us or against these individuals in the United States in the event that you believe that your rights
have been infringed under the United States federal securities laws or otherwise. Even if you are successful in bringing an
action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our
assets or the assets of our directors and officers.
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The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to
exercise your right to vote your Class A ordinary shares.
As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying Class A ordinary
shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving
voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying
Class A ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote
with respect to the underlying shares unless you withdraw the shares. Under our amended and restated memorandum and
articles of association, the minimum notice period required for convening a general meeting is ten calendar days. When a
general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs
to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the
upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the
voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its
agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting
instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the
shares underlying your ADSs are not voted as you requested.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt
from certain provisions applicable to United States domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the
securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
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the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current
reports on Form 8-K;
the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a
security registered under the Exchange Act;
the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading
activities and liability for insiders who profit from trades made in a short period of time; and
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the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
The information we are required to file with or furnish to the SEC are less extensive and less timely as compared to that
required to be filed with the SEC by United States domestic issuers. As a Cayman Islands company listed on the NASDAQ
Global Select Market, we are subject to the NASDAQ Global Select Market corporate governance listing standards.
However, NASDAQ Global Select Market rules permit a foreign private issuer like us to follow the corporate governance
practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country,
may differ significantly from the NASDAQ Global Select Market corporate governance listing standards.
We relied on the exemption available to foreign private issuers for the requirement that it hold an annual general meeting of
shareholders no later than December 31, 2020 in 2020. In this respect, we elected to follow home country practice and did
not hold an annual general meeting of shareholders no later than December 31, 2020 in 2020. We may also continue to rely
on this and other exemptions available to foreign private issuers in the future, and to the extent that we choose to do so in
the future, our shareholders may be afforded less protection than they otherwise would under the NASDAQ Global Select
Market corporate governance listing standards applicable to U.S. domestic issuers. As a result, you may not be afforded the
same protections or information, which would be made available to you, were you investing in a United States domestic
issuer.
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You may not receive dividends or other distributions on our Class A ordinary shares and you may not receive any value
for them, if it is illegal or impractical to make them available to you.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives
on Class A ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You
will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the
depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of
ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require
registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from
registration. The depositary may also determine that it is not feasible to distribute certain property through the mail.
Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may
determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary
shares, rights or other securities received through such distributions. We also have no obligation to take any other action to
permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not
receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them
available to you. These restrictions may cause a material decline in the value of our ADSs.
You may not be able to participate in rights offerings and may experience dilution of your holdings.
We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit
agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the
securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders
of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to
sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an
exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with
respect to these rights or underlying securities or to endeavor to have a registration statement declared effective.
Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their
holdings as a result.
You may be subject to limitations on transfer of your ADSs.
Your ADSs 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 our share register or 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 of any
government or governmental body, or under any provision of the deposit agreement, or for any other reason.
We incur increased costs as a result of being a public company, and we cannot predict or estimate the amount of
additional future costs we may incur or the timing of such costs
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company,
including additional costs associated with our public company reporting obligations. The Sarbanes-Oxley Act of 2002, as
well as rules subsequently implemented by the SEC and NASDAQ Global Select Market, impose various requirements on
the corporate governance practices of public companies. Compliance with such rules and regulations have increased, and
we expect such compliance to continue to increase, our legal and financial compliance costs and to make certain corporate
activities more time-consuming and costly.
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In the past, shareholders of a public company often brought securities class action suits against the company following
periods of instability in the market price of that company’s securities. We have been investigated by several law firm in the
U.S. for potential securities claims in the past. As of the date of this annual report, we believe the previous investigations
did not substantiate or materialize into any lawsuits against us. In addition, we do not believe we are currently involved in
any other securities class action suits. If we were involved in a class action suit, it could divert a significant amount of our
management’s attention and other resources from our business and operations, which could harm our results of operations
and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could
harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against
us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition
and results of operations.
ITEM 4.
INFORMATION ON THE COMPANY
A.
History and Development of the Company
We began our operations in Beijing in September 2002 through Beijing Tarena Technology Co., Ltd. In November 2012,
we changed the name of Beijing Tarena Technology Co., Ltd. to Tarena Technologies Inc., or Tarena Tech. Tarena
International, Inc., an exempted company with limited liability, was incorporated in the Cayman Islands in October 2003
and became our ultimate holding company. We established Tarena Hong Kong Limited, or Tarena HK, as our wholly-
owned subsidiary in October 2012. Tarena HK wholly owns Tarena Software Technology (Hangzhou) Co., Ltd., or Tarena
Hangzhou, an entity that we established in January 2013.
On April 3, 2014, our ADSs began trading on the NASDAQ Global Select Market under the ticker symbol “TEDU.” We
and certain selling shareholders sold a total of 15,300,000 ADSs, representing 15,300,000 Class A ordinary shares, at an
initial offering price of $9.00 per ADS. Concurrently with our initial public offering, we also issued 1,500,000 Class A
ordinary shares at a price of US$9.00 per share to New Oriental Education & Technology Group Inc. Ltd. through a private
placement.
Prior to 2012, we conducted a substantial portion of our operations through our consolidated VIEs and their respective
subsidiaries and schools. On January 30, 2012, the PRC Catalogue for the Guidance of Foreign Investment Industries
(amended) became effective, which listed professional education service as an industry for which foreign investments are
“encouraged” by the government. On April 10, 2015, the new PRC Catalogue for the Guidance of Foreign Investment
Industries (amended) became effective, which listed non-accredited professional education service as an industry for which
foreign investments are “encouraged” by the government. On July 28, 2017, the new PRC Catalogue for the Guidance of
Foreign Investment Industries (amended) became effective, which listed non-accredited professional education service as
an industry for which foreign investments are “encouraged” by the government. In light of such change of law, starting
from the second half of 2012, we began to transfer the operations, including related assets and liabilities, of our
consolidated VIEs to Tarena Tech and its subsidiaries and schools. All of our learning center operations of VIEs had been
transferred to Tarena Tech and its subsidiaries and schools before 2018, while in 2018, one of our learning centers was
transferred back to our VIE for business operation purpose; while in 2019, 3 of our learning centers which provide online
education services, were transferred back to our VIE for business operation purpose and 3 schools were newly set up
through our VIE. In December 2016, we wound up Shanghai Tarena, one of our VIEs. We expect to continue to control and
consolidate Beijing Tarena, which holds an Internet Content Provider license, or ICP license. Beijing Tarena has added our
TMOOC.cn website under the ICP license held by Beijing Tarena. For a description of the risks relating to our corporate
structure and the contractual arrangements we have entered into with our VIE, see “Item 3. Key Information—D. Risk
Factors—Risks Relating to Our Corporate Structure.”
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In 2015, we invested RMB24.0 million in five PRC companies which are engaged in the provision of educational products
and services. In 2016, we invested RMB12.8 million in three companies which are mainly engaged in the provision of
educational products and services. In 2017, we invested RMB50.5 million in three companies which are mainly engaged in
the provision of IT, educational products and services. In 2018, we invested RMB18.5 million in three companies which
are mainly engaged in the provision of IT and educational products and services. In 2018, we acquired Wuhan Haoxiaozi
Robot Technology Co., Ltd. (or “RTEC”), one of the largest K-12 robotics programming education service providers in
Hunan and Hubei provinces in China. In 2019, we invested RMB10.0 million in one PRC company which is mainly
engaged in investment management businesses.
The table below sets forth the respective revenues and assets of Tarena and our wholly-owned subsidiaries and our
consolidated VIE as of the dates and for the periods indicated:
For the year
ended
December
31,
2018
Net Revenues(1)
For the year
ended
December
31,
2019
Total
Assets(1)
For the year
ended
December
31,
2020
As of
December
31,
2020
100 %
0.0 %(2)
98.4 %
1.6 %(2)
100.0 %
100.0 %
6.7 %
93.3 %
100.0 %
8.9 %
91.1 %
100.0 %
Tarena and its wholly-owned subsidiaries
Consolidated VIE
Total
Notes:
(1) The percentages exclude the inter-company transactions and balances between Tarena and wholly-owned subsidiaries
and the consolidated VIEs.
(2) The net revenues from consolidated VIEs are immaterial and accounted for 0.0% due to rounding.
We have dual headquarters in China. Our principal executive offices in Beijing are located at 6/F, No. 1 Andingmenwai
Street, Litchi Tower, Chaoyang District, Beijing 100011, China, People’s Republic of China. Our telephone number at this
address is +86 10 6213 5687. Our principal executive offices in Hangzhou are located at 1/F, Block A, Training Building,
65 Kejiyuan Road, Baiyang Jie Dao, Economic Development District, Hangzhou 310000, People’s Republic of China. Our
telephone number at this address is +86 571 5602 0827. Our registered office in the Cayman Islands is located at the
offices of Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman
KY1-1111, Cayman Islands.
On December 8, 2020, we received a preliminary non-binding proposal letter, or the Proposal Letter, from Mr. Shaoyun
Han, our founder and chairman of the board of directors, to acquire all of the outstanding Class A ordinary shares of the
Company that are not already owned by Mr. Han and his affiliates for a purchase price of $4.00 per American Depositary
Share, or US$4.00 per Class A ordinary share, in cash. On December 10, 2020, our board of directors formed a special
committee (the “Special Committee”) consisting of two independent directors, Mr. Arthur Lap Tat Wong, as the chairman
of the Special Committee, and Mr. Hon Sang Lee, to evaluate and consider the Proposal Letter. On December 30, 2020, we
announced that the Special Committee has retained Duff & Phelps, LLC as its independent financial advisor and Gibson,
Dunn & Crutcher LLP as its U.S. legal counsel to assist it in this process. As of the date of this annual report, no decisions
have been made with respect to the Proposal or any alternative strategic option that the Company may pursue.
SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC on www.sec.gov. You can also find information on our website
https://ir.tedu.cn. The information contained on our website is not a part of this annual report.
B.
Business Overview
We provide professional education and K-12 education services in China. Our core strength is in IT professional education
services. We currently offer courses in 7 IT subjects, 3 non-IT subjects and 7 K-12 education programs.
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For our adult students, our education platform combines live distance instruction, classroom-based tutoring and online
learning modules. We deliver professional education lectures through a group of experienced and passionate instructors
based in Beijing to a nationwide network of 104 directly managed learning centers in 45 cities in China as of December 31,
2020. For each class, instructors deliver lectures from one classroom in Beijing to students in the same classroom as well as
to students at our learning centers across China via simultaneous webcast. To facilitate a disciplined and focused learning
environment, we staff each classroom at our learning centers with one or two on-site teaching assistants to tutor and
supervise students. We complement the live instruction and tutoring with our proprietary learning management system
TTS. TTS has five core functions, featuring course content, examinations, student and teaching staff interaction tools,
student management tools and an online student community. Through this education platform, we provide job-oriented
education with measurable outcomes, as demonstrated by our high job placement rates and students’ academic
performance. In addition to our TTS platform, we launched TMOOC.cn in March 2015, which offers not only regular
teaching video contents, but also continuing education courses and job placement training courses, in order to cover a
broader customer base. We offer our part-time class students the opportunity to complete a portion of lessons online using
TMOOC.cn. TMOOC.cn is also important for our marketing efforts.
In December 2015, we launched new training programs TongchengTongmei featuring IT training courses and non-IT
training courses for minors. In March 2016, we rolled out K-12 robotics programming courses. In 2017, we launched
coding mathematics to further diversify our course offerings in K-12 education. These new programs target and contain
curriculum that is customized for pre-school, primary to secondary school students aged between three and eighteen.
Similar to programs designed for adult students, our courses for preschool, primary to high school students also adopted
dual-teaching model. Students are taught by either live distance instructors or pre-recorded videos, with teaching assistants
face-to-face in classrooms. In order to build a more vivid and concentrated learning environment, students will watch a
series of interesting courseware videos step by step, led by on-site teaching assistants. These programs are partly delivered
through the facilities of existing learning centers to improve the utilization of the facilities. Since 2016, we also set up
standalone centers for K-12 education programs, which have further improved our brand recognition and teaching facilities
and brought better learning experience for our students. As of December 31, 2020, there were 236 TongchengTongmei
standalone learning centers covering 53 cities in China.
We have a strong commitment to career services for our adult training business. We had 504 career counselors as of
December 31, 2020, who advise students through mandatory job skill seminars, one-on-one interview workshops and
systematic career assessment and planning. We had 122 employer cooperation representatives as of December 31, 2020,
who liaise closely with employers, alumni, human resources websites and other employment recruiters to maximize job
opportunities for our students. In January 2015, we launched a self-developed job search website called Job Show
(www.jobshow.cn), which serves as a dedicated open platform for our students and other job-seeking candidates to connect
with corporate employers more effectively. Through Job Show, we source and list job opportunities from both IT and non-
IT employers in China. We have a track record of producing qualified, job-ready candidates for many corporate employers
in China, including Global Fortune 500 companies and leading technology companies.
We are a holding company with no material operations of our own. We conduct our operations primarily through our
wholly-owned subsidiaries in China. We also control and consolidate a VIE, Beijing Tarena. Beijing Tarena has added our
TMOOC.cn and 61it.cn website under the ICP license for goto211.com held by Beijing Tarena. Our wholly-owned
subsidiaries in China are currently not eligible as wholly-owned foreign-invested enterprises to hold ICP licenses.
Our Education Platform
Our education platform combines three key components: live distance instruction, classroom-based tutoring and online
learning modules.
Live distance instruction
From our headquarters in Beijing, our instructors deliver live courses primarily via live webcast to our learning centers
across China. Students attending class watch live audio-video broadcasts of lectures delivered using streaming media and
other internet-based technologies. Our full-time adult students typically watch live lectures for approximately five hours a
day and work on practice exercises assigned by instructors for approximately two hours every day during the classroom
sessions, which generally last from 9:00 a.m. to 6:00 p.m. five days a week.
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Our live broadcast method of lecture delivery ensures consistency in teaching quality across all our centers. All of our
instructors to deliver the lecture through webcasting system are located in Beijing, where we centralize our training
support. Our headquarter-level quality control department monitors the performance of each lecturer on a daily basis. We
typically have multiple instructors for each course, with each instructor focusing on separate topic areas. We believe this
allows our instructors to focus, and offer more in-depth teaching, on their specific areas of expertise within a subject.
Classroom-based tutoring
Our students are generally required to physically attend classes at our learning centers. We believe physical attendance is
important as it creates a disciplined and focused learning environment for students to effectively master the course content.
Requiring students to physically attend classes also facilitates the delivery of personalized and systematic tutoring and job
placement services to our students.
In terms of professional education programs, our classrooms are equipped with computers for each student, as well as
projectors and other equipment necessary for the live broadcast of our lectures. Our classroom technology infrastructure
allows students to interact with instructors online to receive help on course materials and to use online modules in TTS to
take notes and conduct practice exercises.
Our learning centers function both as classrooms for delivering lectures and self-study rooms after class hours. As of
December 31, 2020, we directly managed a total of 104 adult education learning centers in 45 major cities across China.
Our learning centers for adults vary in terms of size, typically having between 7 and 15 classrooms, with each classroom
typically able to host between 20 and 40 students. Learning centers for K-12 students vary in terms of size, ranging
between approximately 300 and 700 square meters. The number of students vary according to different courses, with
typically around 8 students in small classrooms and 15 students in large classrooms. In addition to the learning centers that
we operate directly, we also have 45 franchisees for K-12 education program and 2 franchisees for adult education program
in 2020. The franchise fee from such learning centers was immaterial in 2020.
Meanwhile, we have been actively establishing new learning centers to support the fast expansion of our K-12 education
business. As of December 31, 2020, we directly managed a total of 236 learning centers in 53 cities across China solely for
our K-12 education business.
In 2020, adult learning centers are distributed in 45 cities, and K-12 learning centers are distributed in 53 cities, with 57
cities in total, and the student enrollments of adult education and K-12 education were approximately 83,400 and 141,600,
respectively. Approximately 56% of the adult students were from the following cities: Beijing, Shenzhen, Shanghai,
Guanghzou, Chengdu, Hangzhou, Wuhan, Nanjing, Zhengzhou and Kunming. Approximately 51% of the K-12 students
were from the following cities: Beijing, Changsha, Guangzhou, Shenzhen, Kunming, Tianjin, Zhengzhou, Wuhan,
Shanghai and Chengdu.
Online learning modules
Our live distance instruction and classroom-based tutoring are supplemented by our proprietary online learning modules
featured on our TTS platform. TTS has the following five core functions:
● Course content. TTS contains lecture slides, key lecture video recordings, case studies, practice exercises and
supplemental reading materials. In addition to recordings of past lectures, TTS also features exclusive online
videos on key course materials. Students may view lecture videos using the computers at our learning centers. To
foster effective learning of our course lecture materials, especially theoretical knowledge points, TTS features
software development case studies and practice exercises. TTS contains supplemental reading materials on areas
in which we have historically received frequent questions from students. TTS also allows students to download
coding materials and study notes that they have prepared for reference in their future jobs.
●
Self-assessment examinations. TTS features daily and weekly interactive mock examinations to measure learning
outcomes. Students use the mock exams to assess their learning results and gauge their grasp of course content.
After students complete a self-assessment examination, TTS automatically provides students with detailed
explanations on each of the exam questions.
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●
●
Student and teaching staff interaction. TTS allows students to interact with instructors and teaching assistants. In
class, students may raise questions for instructors and teaching assistants using the messaging tools on TTS. After
class, students can post questions to the teaching assistants through the online question and answer board in TTS.
To ensure the accuracy of responses and to identify questions of common interest, our instructors also actively
review questions posted on TTS and regularly provide answers. Students are given the opportunity to provide
feedback for each answer or tutorial service provided by teaching assistants using the evaluation functions on
TTS.
Student management tools. TTS allows instructors to receive daily ratings and feedback from students. Instructors
may then adjust their lecture pace and coverage of course materials each day. TTS enables teaching assistants to
evaluate each student’s academic performance. The teaching assistant interface of TTS contains each
student’s monthly performance test scores, as well as each student’s ranking within the class and nationally.
Teaching assistants are required to follow-up with underperforming students regarding their academic status and
to adopt concrete action plans with such students to improve their future performance. TTS also allows teaching
assistants to monitor each student’s attendance and to log their daily tutoring activities.
● Online student community. TTS serves as an online student community that fosters academic collaboration
among students. We encourage students to post course-related articles and comments sharing their study
experiences on the bulletin board forum.
In addition to our TTS platform, we launched TMOOC.cn in March 2015 to cover a broader customer base. TMOOC.cn
offers two types of online learning products: continuing education courses and job placement training courses. Continuing
education courses, composed of a library of video clips that focus on on-the-job practical skills, target working
professionals and others with continuing education needs. Job placement training courses are full-length programs that
target job seekers. These recruitment-oriented courses are carefully chosen from existing courses at our learning centers
and redesigned to be more suitable for the online learning environment. Users who finish all modules in a job placement
training course and pass the relevant Tarena certification examination will receive the same job placement services that we
offer to students at learning centers. We also offer our part-time class students the opportunity to complete a portion of
lessons online using TMOOC.cn.
Our Course Offerings
Our courses provide students with practical education to prepare them for jobs in industries with significant growth
potential and strong hiring demand. We also provide K-12 students with STEAM education to help them develop their
logical thinking ability as well as their practical skills. We currently offer courses in 7 IT subjects, 3 non-IT subjects and 7
K-12 education programs.
For adult students we generally offer the following two types of classes in order to accommodate the different scheduling
and training needs of our students:
●
●
Full-time class. The term for a full-time class is typically four months and includes approximately 580 learning
hours. Full-time classes are conducted in our learning centers. In 2020, approximately 61% of our enrolled
students attended our full-time classes.
Part-time class. Part-time classes typically have terms of six to eight months. We offer a more flexible course
schedule for our part-time class students given they typically have full time jobs. We offer our part-time class
students the opportunity to complete a portion of lessons online by watching videos available on TTS through
TMOOC.cn. In 2020, approximately 39% of our enrolled students attended our part-time classes.
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We have adopted stringent quality control procedures to ensure that we produce high-quality graduates. We use entrance
exams to assess the level of our students. Prospective full-time students with low entrance exam scores are recommended
to enroll in preparatory training camps. We have a total of four monthly closed-book performance tests to evaluate the
learning status of our students. For underperforming students who have failed the first monthly performance test, we offer
them the opportunity to re-take the first month classes at no extra cost. We believe physical class attendance is important,
and students with low attendance rates are generally not given graduation certificates and job opportunities referrals at the
end of our program.
Our full-time classes also include short-term, project-based training programs designed for college students to gain
practical IT experience, which are not material for our business as a whole.
IT education courses
We offer education courses covering the following IT subjects:
Subject
Java
Software testing
Linux and network engineering
Big Data
Web front-end development
Python
Network engineer
Year of
Launch
2002
2009
2013
2015
2015
2017
2018
Focus of Course Content
Programming for Windows and Linux-based desktop software and
web-based software
Practical software testing and quality assurance training
Linux operating system and network management technology
Hadoop, HBase, Hive, Zookeeper
HTML5, CSS3, JavaScript, jQuery, AJAX, Bootstrap, AngularJS, Web
APP
Python and AI full stack of software development
Designing, modeling, and implementing computer networks for
reliability, performance, and security
Graduates of our IT education courses receive Tarena Certified Software Developer certificates, or TCSD certificates.
Holders of TCSD certificates are qualified to obtain the intermediate-advanced software engineer certificate issued by the
MIIT, for their respective field of study, subject to such graduates passing our internal examination. Graduates of our Java
courses are granted ORACLE Certified Java Programmer certificates by ORACLE Corporation after passing the relevant
exams. Our Linux and network engineering course graduates may sign up and take Red Hat certification exams directly at
our learning centers. Graduates of our Network Engineer course are granted HUAIWEI Certifications after passing the
relevant exams.
Non-IT education courses
We began offering courses in non-IT subjects in 2013. We launched our digital art course in February 2013, our online
sales and marketing course in November 2013, our Computer-based design course in 2018 and our Visual effects-VFX
course in 2019. The following table describes the non-IT courses that we currently offer:
Subject
Digital art
Online sales and marketing
Computer-based design*
Visual effects-VFX
Year of
Launch
2013
2013
2018
2019
Focus of Course Content
interface design
technology
for graphic,
Latest Adobe user
webpage and mobile sites design
Search engine marketing, search engine optimization, and other
internet based marketing, including microblog marketing
Comprehensive design courses, including main case design, deepening
design, display design, furnishing design, hand-drawn CAD and
professional CAD
Professional film and television Visual effects
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Note:
*
Inactive in 2020. We plan to offer our computer-based design course again in 2021 after we adjust and refine our
course offerings.
K-12 Education Programs
In December 2015, we launched new training programs under the brand name TongchengTongmei featuring IT training
courses and non-IT training courses for K-12 students. In March 2016, we rolled out K-12 robotics programming courses.
In 2017, we launched Graphical Intelligent Programming and NOI Informatics Olympiad to further diversify our course
offerings in K-12 education. In 2018, we further adjusted our course offering of our TongchengTongmei programs. In 2018,
we launched Python Artificial Intelligence and in 2019 we launched High level hardware programming for secondary
school and Soft and hard programming enlightenment. In 2020, we launched the Creative Programming Starter course and
STEAM education which can help children to develop their logical thinking skills and practical skills. We treat the
TongchengTongmei programs as our main effort to enter into the K-12 STEAM education market, and a significantly
growing part of our operation.
Subject
Robotics programming
Year of
Launch
2016
Graphical Intelligent
Programming
2017
NOI Informatics Olympiad
2017
Python Artificial Intelligence
2018
High level hardware
2019
programming for secondary
school
Soft and hard programming
2019
enlightenment
Creative Programming Starter
2020
Focus of Course Content
Using LEGO WeDo2.0, EV3 teaching aids, taking into account
engineering machinery and programming knowledge, design a variety of
physical works close to life, combined with the standard teaching process,
scientific teaching methods, so that children are exposed to technology
from an early age
Suitable for students from Kindergarten to elementary school students of
grade 3, the progressive course consists of 3 Levels, using the Scratch
programming platform to implement situational story programming,
game animation programming and smart application programming.
Suitable for elementary school students from grade 4 onwards and
secondary school students, the course implements data structures and
algorithms using the C++ language.
Suitable for elementary school students from grade 3 onwards as well as
secondary school students, the advanced course consists of 7 Levels,
using Python language, JavaScript language to implement fun game
programming, intelligent scene programming, web programming, server
programming, AI algorithm programming, and APP programming.
the
Software and hardware programming class using python as
programming language. The software part uses PyQt5 to create the PC-
side upper computer software: the hardware part uses STM32 self-
developed main control board to control the deformable robot and a
variety of hardware sensors through programming; the software and
hardware are integrated to realize the interactive application.
Combined by LEGO WeDo 2.0 and Scratch programming, software and
hardware, virtual and reality are perfectly integrated. In the course,
through scene animation, game design and other vivid contents, children
can fully grasp the foundation of artificial intelligence technology.
Using the building blocks and physical programming modules that
children are interested in as carriers, with the goal of developing
children’s understanding, application and re-creation abilities, using the
building blocks to construct scenes and the physical programming
modules to complete the task challenges, through the deep integration of
building and programming, to achieve a true hand-brain combination, to
comprehensively train children’s hands and brains to solve practical
problems and help them acquire the ability to face the future society.
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Compared with the curriculum for adult students, the IT and non-IT courses offered under the TongchengTongmei
programs feature materials that are customized for young children. All of our K-12 education programs target and contain
curriculum that is customized for pre-school, primary to high school students aged between three and eighteen. Similar to
programs designed for adult students, our courses for preschool, primary to high school students also adopted dual-teaching
model. Students are taught by either live distance instructors or pre-recorded videos, with teaching assistants face-to-face in
classrooms. In order to build a more vivid and concentrated learning environment, students will watch a series of
interesting courseware videos step by step, led by on-site teaching assistants.
Courses under TongchengTongmei programs typically have multiple levels, with each level consisting of 64 to 120 learning
hours per year. Each session usually takes two to three hours depending on different level applicable. Depending on the age
group, it generally takes approximately one year to complete each level. In 2020, our TongchengTongmei programs were
offered in 53 cities in China. The revenue of online course and offline course in TongchengTongmei programs accounts for
14.2% and 85.8%, respectively. Online learning in small groups model is also available for election, of which the current
enrollment is insignificant.
Our Teaching Staff
Our instructors
As of December 31, 2020, we employed 2,689 full-time instructors for both adult education and K-12 education. Most of
our instructors for IT education courses have industry backgrounds in global and domestic technology companies.
Instructors for non-IT education courses are typically experts or veterans in their respective specialized fields. Our
instructors also provide us with unique access to a large pool of experts on industry trends that is especially valuable in our
decision-making and development process for new courses. We believe we attract highly qualified instructors by virtue of
our respected brands, our well-established teaching infrastructure and sales team and our competitive compensation.
We believe that developing and maintaining highly capable and motivated instructors is critical to our success. We seek
qualified instructor candidates who have extensive industry experience or come from other professional education service
providers. These candidates are subject to multiple rounds of interviews conducted by our director of teaching, vice-
president for teaching and the chief executive officer. All instructors are required to undergo training in teaching skills and
techniques. We require our instructors to regularly update their course materials to remain current with evolving employer
needs, industry developments and other key trends necessary to teach effectively. We typically have a backup instructor
assigned to each course to meet any emergency needs.
To align incentives, instructors receive bonuses based on students’ ratings and the number of class sessions taught, in
addition to their base compensation.
Our teaching assistants
We believe that our dedicated teaching assistants are essential to the success of our education model. Our teaching
assistants interact with and tutor our students on a daily basis, and are instrumental in facilitating a disciplined and focused
learning environment. Each classroom is staffed with one or two teaching assistants, who attend lectures together with
students. Teaching assistants are available during class hours to answer student questions in person, and after class hours to
address inquiries online via TTS or on-site until 8:30 p.m. Teaching assistants are also responsible for offering focused
tutoring services to underperforming students and continuously monitoring their academic results. Our teaching assistants
are also one of the key factors of the operation of our K-12 education programs as we need our teaching assistants to guide
our students throughout the course. We have adopted a comprehensive set of key performance indicators, or KPIs, to
evaluate the performance of our teaching assistants. Such KPIs include student satisfaction, exam scores of students
on monthly performance tests, the improvement of underperforming students and employment results after graduation,
among other indicators.
We primarily seek teaching assistant candidates from our graduates who have demonstrated strong command of materials
in the relevant subject areas. We provide necessary training to newly hired teaching assistants to tutor effectively. Our
teaching assistants are frequently evaluated by students on the quality of their assistance. We had a total of 459 teaching
assistants as of December 31, 2020.
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Course Content Development
In addition to teaching, our instructors also develop the course content in their respective subject areas. We regularly
update our existing courses, typically every six months, to stay abreast of the latest technology developments and industry
trends. Our instructors are also responsible for producing practice exercises and exam questions for monthly performance
tests to evaluate the effectiveness of our student self-assessment tests in TTS. We regularly engage in new course
development in order to capture demands created by evolving job market and industry trends. We have a set of procedures
for new course development. Prior to developing a new course, we gather market intelligence by collecting job market
demand information to ensure that we are developing relevant and up-to-date courses. We conduct a series of surveys, each
with clear parameters, to determine various aspects of the proposed new course. Once we gather enough market
intelligence, we recruit, or identify from within Tarena, instructors with the appropriate industry and academic background
to form a course-specific development task team. The development of our K-12 education program courses is mostly
programming centered. In addition, we focus on leveraging our experience in IT courses, especially programming courses,
to develop coding- and programming-based courses for our K-12 education programs.
All of our new courses are pilot tested in selected learning centers for student satisfaction, training practicality and
employment outcomes. In 2018, we launched network engineer course. In 2019, we launched Visual effects-VFX course.
In 2020, we launched Creative Programming Initiation course.
Our software research and development department is tasked with improving the technical performance and user
experience of TTS.
Our Students
The majority of our students of our adult IT and non-IT education courses are college students and graduates. In 2020, 66%
of our enrolled students of such courses were either studying towards, or already held, a post-secondary degree. Our
student enrollment in professional education courses reached approximately 83,400 in 2020, and our student enrollment in
K-12 education programs reached approximately 141,600 in 2020.
Student recruitment
We rely primarily on internet-based marketing to attract students and increase enrollments. We advertise on the internet
using search engine keywords on leading search engines. We also use banners and other advertising placements on targeted
sites, such as education portals, career sites and industry-specific websites. We actively monitor the effectiveness of our
advertising and adjust marketing spending accordingly. Our learning centers also host seminars, information sessions and
preparatory training camps for prospective students.
When a prospective student responds to our advertisements, an enrollment advisor generates a prospective student profile
and advises the candidate, through online, telephone or a face-to-face meeting, on various aspects of our courses and
educational experience.
To promote brand awareness, we place advertisements in industry trade publications and present at industry trade seminars
and conventions. We also began to host our annual Tarena-Discovery Cup Chinese University Students Software Design
Competition in April 2012. In 2015, we changed our logo from “Tarena Technology” to “Tarena Education” to better
showcase our professional image in education.
We also encourage our students at schools to introduce their friends or classmates who are interested in taking professional
education courses. Student referral has become one of the key channels we access to new students.
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In addition to our marketing efforts and student referrals, we recruit a significant portion of our students directly from
universities and colleges. As of December 31, 2020, we have cooperated with over 665 universities and colleges in China
under one of the two following modes of cooperation:
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●
Joint-majors. We cooperate with 87 universities and colleges in China to offer joint-major degree programs in
accordance with the higher education reform policies of each province. Our in-depth cooperation with these
universities and colleges involve the recruitment services, management of students, course instruction and
placement, so as to achieve the purpose of improving the course quality, placement rate and teaching quality of
the universities and colleges, which integrate our selected courses into their standard undergraduate curriculum
for students enrolled in such joint-major programs. Students can attend part of the courses in our established on-
campus learning sites and part of the courses at our learning centers. By working with universities on such joint-
majors programs, we have developed a strong bond with such partners, from which we believe we can benefit for
recruitment and brand promotion.
Enrollment cooperation. We currently have enrollment cooperation with 665 universities and colleges in China.
These universities and colleges allow us to organize marketing and promotional events on campus in order to
attract students. We have also entered into framework agreements with certain of such universities to launch
courses to be chosen by students on voluntary basis to enhance our brand awareness, and our university partners
will also make recommendations of our professional education courses to senior students. Starting in 2018, we
also collaborate with some of such universities to roll out our featured programs, providing students with the
option to choose our courses embedded in their school curriculum in their first and second school years, while by
gradation in their third or fourth year, students can decide if they will attend our full time courses and make
payments separately.
We had a total of 236 university cooperation representatives as of December 31, 2020. Our university cooperation
representatives are responsible for establishing new and maintaining current cooperative relationships between us and
universities in China.
Student job placement services
We have an effective job placement program for our adult students. Each learning center retains full-time career counselors
who meet with students on the first day of class to discuss their career goals and to build an employment profile for each
student. Our career counselors host a series of mandatory career development seminars for students throughout the term.
During the final weeks of each course, our career counselors meet with students one-on-one to offer training on interview
and résumé preparation. In addition to the scheduled career service activities, our career counselors are generally available
to meet with students one-on-one during office hours. Our career counselors also monitor the employment results of our
students and actively offer personalized assistance to students facing difficulties in securing job offers. We had a total of
507 career counselors as of December 31, 2020.
Each learning center offering courses for adult students also retains full-time employer cooperation representatives who
routinely collaborate with employers, alumni, human resources websites and other employment recruiters to maximize
opportunities for job placements. We had a total of 124 employer cooperation representatives as of December 31, 2020. We
invite corporate employers to host recruiting events and interviews at our learning centers and offer students with interview
opportunities across the country.
In January 2015, we launched a self-developed job search website called Job Show (www.jobshow.cn), which serves as a
dedicated open platform for our students and other job-seeking candidates to connect with corporate employers more
effectively. Through Job Show, we source and list job opportunities from both IT and non-IT employers in China.
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We gather data on post-course job placement rates by conducting surveys of our graduates. Based on the survey responses,
we calculate the six-month post-course job placement rates for a month by dividing (i) the number of job-seeking students
enrolled in such month who (A) successfully graduated from our programs with graduation certificates awarded and (B)
indicated that they had received employment offers within six months of graduation, by (ii) the total number of job-seeking
students enrolled in such month who later successfully graduated from our programs with graduation certificates awarded.
We calculate the annual average six-month post-course job placement rate by averaging the rate of each month. Our
average six-month post-course job placement rate for each of 2018, 2019 and 2020 was about 90%. When calculating such
job placement rates for 2018, 2019 and 2020, a majority of the employment reported by relevant students was full-time
employment, and a majority of the employment reported by relevant students was in the fields of their studies with us. All
of the students enrolled in 2017, 2018 and 2019 who later successfully graduated from our programs with graduation
certificates awarded and who were job-seeking, have filled out our surveys. Among the students enrolled in 2017, 2018 and
2019, 86%, 88% and 96% of such students, respectively, graduated from our programs with graduation certificates
awarded. Among the students enrolled in 2018, 2019 and 2020 who later successfully graduated from our programs with
graduation certificates awarded, 76%, 75% and 65% of such students, respectively, were deemed to be job-seeking
students.
Our Network of Employers
We have a track record of producing job-ready and highly qualified candidates for many corporate employers. Our network
of potential employers for our students include Global Fortune 500 companies, and leading technology, IT services and
internet companies in China.
We offer the following recruiting services to corporate employers:
● General recruiting services. We offer corporate employers candidate referral services and other recruitment-
related services. Once an employer communicates its hiring needs to us, we direct the relevant learning centers to
produce a list of student candidates that meet the hiring criteria of such employer, and refer such candidates to the
employer for interviews and assessments. We also offer space at our learning centers for employers to host
recruiting events targeting our students and to conduct interviews.
● Customized courses. We offer customized courses targeting specific employers with large demands for trained
professionals. Prospective students for our customized courses generally undergo interviews conducted by the
employers before the start of classes. In addition to our standard curriculum, students enrolled in customized
courses must participate in additional training provided by employers at our learning centers. Such additional
training is tailored according to the particular skill requirements of the employers. Successful graduates of our
customized courses who have passed the relevant qualifying exams are granted job offers by the employers.
While we currently do not generate any material revenue from any of our recruiting services for corporate employers, we
believe such services enhance our brand recognition and are instrumental in our ability to help students achieve high job
placement rates.
Tuition Fees
For our full-time classes for adult students, our standard tuition fees generally range from RMB20,800 to RMB23,800 per
course. For our K-12 education programs, our standard tuition fees are between RMB8,000 and RMB19,200. Courses
under K-12 education program typically are composed of multiple levels, with each level consisting of 64 to 120 learning
hours in one year.
We primarily offer two payment options for our adult students, including one-time full payment upon enrollment and
multiple payments within two months of enrollment. We also offer an option whereby qualified adult students can pay our
tuition fees within a period of time after graduation. For students recruited through our joint-majors with universities and
colleges, they pay tuition fees for their degrees directly to the universities and colleges, and we share a portion of such fees
with the universities and colleges as tuition for our courses.
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To assist our students in paying our tuition fees, we mainly offered the following three credit sources, namely Baidu Small
Loan Co., Ltd., Bank of China Consumer Finance Co., Ltd. and Beijing Ronglian Shiji Information Technology Co., Ltd.,
to provide financing services for our students to make one-time, up-front tuition payments in 2020.
15% of our students enrolled in 2020 obtained financing from one of the 3 abovementioned sources. Such financing
arrangements are bilateral in nature, and are carried out between our students and the respective financing institution
directly.
Technology
Building a reliable, scalable and secure technology infrastructure is crucial to our ability to support our live lecture
broadcasts, online TTS, TMOOC.cn and the various services that we provide to our students. We manage our lecture
delivery system, TTS and TMOOC.cn using a combination of commercially available software and hardware systems.
Since 2006, we have established a powerful online platform that enables thousands of students to simultaneously log onto
our TTS and participate in activities online.
All of our servers and routers, including backup servers, are currently hosted at our learning centers or by third-party
service providers in multiple cities in China. We regularly back up our databases. Our network administration department
regularly monitors the performance of our websites and infrastructure to enable us to respond quickly to potential
problems. We deliver live broadcast of audio and video of the lectures given in Beijing via the dedicated network of China
Telecom and China Unicom to terminals located in selected learning centers with high student enrollment, and via public
internet infrastructure to our other learning centers.
Seasonality
Seasonal fluctuations have affected, and are likely to continue to affect, our business. Historically, we typically generate the
highest net revenues in the third and fourth quarters because of the increased student enrollments during summer vacation.
We generally generate less tuition fees in the first quarter of each year due to the Chinese New Year holiday.
Intellectual Property
Our trademarks, copyrights, domain names, trade secrets and other intellectual property rights distinguish our courses and
services from those of our competitors and contribute to our ability to compete in our target markets. We rely on a
combination of copyright and trademark law, trade secret protection and confidentiality agreements with senior executive
officers and most other employees, to protect our intellectual property rights. In addition, we require certain of our senior
executive officers and other employees to enter into agreements with us under which they acknowledge that all inventions,
utility models, designs, know-how, copyrights and other forms of intellectual property made by them within the scope of
their employment with us, pursuant to job assignments or using our materials and technology, or during the two years after
their employment that relates to their employment with us, are our property and they should assign the same to us if we so
require. We also regularly monitor any infringement or misappropriation of our intellectual property rights.
As of December 31, 2020, we had registered 89 domain names relating to our business, including our www.tedu.cn,
TMOOC.cn, jobshow.cn, www.IT61.cn and www.art61.cn websites, with the Internet Corporation for Assigned Names and
Numbers and China Internet Network Information Center . Tarena Tech held 151 registered software copyrights and 112
trademarks.
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Competition
The professional education services market in China is fragmented, rapidly evolving and highly competitive. We face
competition in our offered courses and in many of the geographic markets in which we operate. For our IT training courses,
we face competition from IT professional education providers that offer specialized training programs targeting certain
niche job markets in the IT industry. In the future, we may also face competition from new entrants into the Chinese IT
professional education market. For our non-IT training courses, we face competition for student enrollment from existing
online and offline providers of professional education services, as well as smaller regional professional education services
providers in China. As we enter the K-12 education services market, we also face competition from other national and
regional providers of K-12 education services. Our student enrollment rate could be impacted by the operations of
academic K-12 education and tutoring service providers, given our target students have limited time and energy and they
need to choose among different courses and programs.
We believe that the principal competitive factors in our markets include the following:
●
●
●
●
●
●
scope and quality of course offerings and services;
student placement and employer satisfaction with our graduates;
brand recognition;
ability to effectively market course offerings and services to a broad base of prospective students;
cost effectiveness of the education; and
ability to align course offerings and services to specific needs of students and employers.
Some of our current or future competitors may have longer operating histories, greater brand recognition, richer experience
or greater financial, technical or marketing resources than we do. For a discussion of risks relating to competition, see
“Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business—We may lose market share and our
profitability may be materially and adversely affected, if we fail to compete effectively with our present and future
competitors or to adjust effectively to changing market conditions and trends.”
Insurance
We do not maintain any property insurance policies covering students, equipment and facilities for injuries, death or losses
due to fire, earthquake, flood or any other disaster, other than property insurance we maintained for two of our buildings in
Yizhuang, Beijing. Consistent with customary industry practice in China, we do not maintain business interruption
insurance, nor do we maintain key-man life insurance. We maintain accident injury insurance and accident injury medical
insurance for our employees based in our headquarters in Beijing, and we maintain liability insurance and travel insurance
for our K-12 students and teachers participating in our camp or event-related travel. Uninsured injury or death to our
students or staff, or damage to any of our equipment or buildings could have a material adverse effect on our results of
operations. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business—We have limited insurance
coverage for our operations in China.”
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Government Regulations
Regulations on Private Education
Education Law of the PRC
On March 18, 1995, the National People’s Congress, or the NPC, promulgated the Education Law of the PRC, or the
Education Law. Pursuant to the Education Law, enterprises, social organizations and individuals are generally encouraged
to operate schools and other types of educational organizations in accordance with PRC laws and regulations. It is provided
in the Education Law that no organization or individual may establish or operate a school or any other educational
institution for commercial purposes. However, private schools may be operated for “reasonable returns” as described in
more detail below. On December 27, 2015, the Standing Committee of the NPC released the Amendment to the Education
Law of the PRC, taking into effect on June 1, 2016, pursuant to which the Standing Committee of the NPC narrowed the
provision prohibiting the establishment or operation of schools or other educational institutions for commercial purposes to
only restricting a school or other educational institution founded with governmental funds or donated assets.
Regulations on Professional Education
On May 15, 1996, the Standing Committee of the NPC promulgated the Professional Education Law of the PRC, or the
Professional Education Law, which became effective on September 1, 1996. Pursuant to the Professional Education Law,
professional training includes training pre-employment, training for military personnel transferring to civil positions,
training for apprentices, on-the-job training, job-transfer training and other professional training. Professional training may
be classified as junior, middle or senior level according to the actual situations. It shall be conducted by either professional
training institutions or professional schools, which may develop various professional training to satisfy the needs of the
society. The PRC government encourages institutional organizations, social organizations, other social groups and citizens
to establish professional schools and professional training institutions, and the financial allocation for professional schools
and professional training institutions from the governments at various levels shall be gradually increased. The PRC
government also encourages financial institutions to support and develop professional education by means of credit
facilities.
On August 3, 2007, the Standing Committee of the NPC promulgated the Employment Promotion Law of the PRC, or the
Employment Promotion Law, which became effective on January 1, 2008 and was amended on April 24, 2015. Pursuant to
the Employment Promotion Law, the PRC government at and above the county level shall encourage and support
professional schools, professional training institutions and corporations to carry out pre-employment training, employment
training, re-employment training and entrepreneurship training, and encourage workers to attend various types of training
programs. Corporations in China are requested to set aside financial resources for the training and continued education of
their employees.
The Law for Promoting Private Education and its Implementation Rules
On December 28, 2002, the Standing Committee of the NPC promulgated the Law for Promoting Private Education, or the
Private Education Law, which became effective on September 1, 2003 and was amended on December 29, 2018. On
March 5, 2004, the PRC State Council promulgated the Implementation Rules for the Law for Promoting Private
Education, or the Private Education Implementation Rules, which became effective on April 1, 2004. Under the Private
Education Law and the Private Education Law Implementation Rules, “private schools” are defined as schools established
by social organizations or individuals using non-government funds. Private schools providing certifications, pre-school
education, education for self-study aid and other academic education shall be subject to approval by the education
authorities, while private schools engaging in professional qualification training and professional education training shall
be subject to approvals from the authorities in charge of human resources and social security.
Under the above regulations, the operations of a private school are highly regulated. For example, the types and amounts of
fees charged by a private school providing certifications shall be approved by the governmental pricing authority and be
publicly disclosed. A private school that does not provide certifications shall file its pricing information with the
governmental pricing authority and publicly disclose such information. A private school shall file its advertisement and
school enrollment brochure with the relevant governmental authorities of human resources and social security or education.
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According to the Private Education Law and the Private Education Implementation Rules, entities and individuals who
establish private schools are commonly referred to as “sponsors” rather than “owners” or “shareholders.” The economic
substance of “sponsorship interest” that a sponsor holds in a private school is, for all other practical purposes, substantially
equivalent under PRC law and practice to the “equity interest” a shareholder holds in a company. A sponsor of a private
school has the obligation to make capital contributions to the school in a timely manner. The contributed capital can be in
the form of tangible or non-tangible assets such as materials in kind, land use rights or intellectual property rights. The
capital contributed by the sponsor becomes assets of the school and the school has independent legal person status. In
addition, the sponsor of a private school has the right to exercise ultimate control over the school by becoming the member
of and controlling the composition of the school’s decision making body. Specifically, the sponsor has control over the
private school’s constitutional documents and has the right to elect and replace the private school’s decision making bodies,
such as the school’s board of directors, and therefore controls the private school’s business and affairs. Nevertheless, before
the Standing Committee of the NPC promulgated the Decision on Amending the Law for Promoting Private Education of
the PRC on November 7, 2016 which came into force on September 1, 2017 and was further amended on December 29,
2018, or the Amendment to the Private Education Law, sponsors of a private school may choose to require “reasonable
returns” from the annual net balance of the school after deduction of costs for school operations, donations received,
government subsidies (if any), the reserved development fund and other expenses as required by the regulations. However,
none of the current PRC laws and regulations provides a formula or guidelines for determining “reasonable returns.”
Private schools whose sponsor does not require reasonable returns shall be entitled to the same preferential tax treatment as
public schools, while the preferential tax treatment policies applicable to private schools whose sponsor require reasonable
returns shall be formulated by the finance authority, taxation authority and other authorities under the State Council. To
date, however, no regulations have been promulgated by such authorities in this regard.
As for private training institutions, the Private Education Law provides that the regulations applicable to private training
institutions registered with the SAMR and its local counterparts shall be formulated by the State Council separately. On
July 29, 2010, the PRC central government promulgated the Outline of China’s National Plan for Medium- and Long-Term
Education Reform and Development (2010-2020), which announced the policy that the government will implement a
reform to divide private schools into two categories: (i) for-profit private schools and (ii) not-for-profit private schools. On
October 24, 2010, the General Office of the State Council issued the Notices on the National Education System Innovation
Pilot, pursuant to which the PRC government plans to implement a for-profit and non-profit classified management system
for the private schools in Shanghai, Zhejiang, Shenzhen and Jilin Huaqiao Foreign Language School.
The Amendment to the Private Education Law has followed the principles and spirits of the above outline and the pilot
program, which establishes a new classification system for private schools to be classified by whether they are established
and operated for profit-making purposes. Under the Amendment to the Private Education Law, sponsors of private schools
may choose to establish non-profit or for-profit private schools at their own discretion. Nonetheless, school sponsors are
not allowed to establish for-profit private schools that are engaged in compulsory education. In other words, the schools
engaged in compulsory education should retain their non-profit status after the Amendment to the Private Education Law
comes into force.
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According to the Amendment to the Private Education Law, there are certain key features of the aforesaid new
classification system for private schools, including but not limited to: (1) sponsors of for-profit private schools are entitled
to retain the profits and proceeds from the schools, and the operation surplus may be allocated to the sponsors pursuant to
the PRC Company Law and other relevant laws and regulations. But sponsors of non-profit private schools are not entitled
to the distribution of profits or proceeds from the non-profit schools and all operation surplus of non-profit schools shall be
used for the operation of the schools; (2) for-profit private schools are entitled to set their own tuition fees and other
miscellaneous fees without the need to seek prior approvals from or report to the relevant government authorities. The
collection of fees by non-profit private schools, on the other hand, shall be regulated by the provincial, autonomous
regional or municipal governments; (3) private schools (for-profit and non-profit) may enjoy preferential tax treatments.
Non-profit private schools will be entitled to the same tax benefits as public schools. Taxation policies for for-profit private
schools after the Amendment to the Private Education Law taking effect are still unclear as more specific provisions are yet
to be introduced; (4) where there is construction or expansion of a non-profit private school, the school may acquire the
required land use rights in the form of allocation by the government as a preferential treatment. Where there is construction
or expansion of a for-profit private school, the school may acquire the required land use rights by purchasing them from the
government; (5) the remaining assets of non-profit private schools after liquidation shall continue to be used for the
operation of non-profit schools. The remaining assets of for-profit private schools shall be distributed to the sponsors in
accordance with the PRC Company Law; and (6) the people’s governments at or above the county level may support
private schools by subscribing to their services, provision of student loans and scholarships, and leases or transfers of
unused state assets. The governments may further take such measures as government subsidies, bonus funds and incentives
for donation in support of non-profit private schools.
On December 29, 2016, the State Council issued the Several Opinions of the State Council on Encouraging the Operation
of Education by Social Forces and Promoting the Healthy Development of Private Education, or the State Council
Opinions, which require to ease the access to the operation of private schools and encourages social forces to enter the
education industry. The State Council Opinions also provide that each level of the people’s governments shall increase their
support to the private schools in terms of financial investment, financial support, autonomy policies, preferential tax
treatments, land policies, fee policies, autonomy operation, protecting the rights of teachers and students etc. Further, the
State Council Opinions require each level of the people’s governments to improve its local policies on government support
to for-profit and non-profit private schools by ways of preferential tax treatments etc. In addition, under the State Council
Opinions, private schools shall strengthen its construction of organizations of the Chinese Communist Party, or the CCP,
and further the theoretical system of Socialism with Chinese Characteristics by introducing such system into textbooks and
teaching programs. The construction of the CCP’s organizations by the private schools as well as the CCP’s leadership to
private schools shall constitute an important part of such schools annual inspections.
On December 30, 2016, the Implementation Rules for Private School Classification Registration was issued by the MOE,
the Ministry of Human Resources and Social Welfare and other relevant authorities, which requires all private schools,
including non-profit private schools and for-profit private schools, to obtain “school permits.” Existing private schools
established before promulgation of the Amendment to the Private Education Law which choose to register as for-profit
private schools should apply for new school permits and complete the re-registration process. If such private schools
choose to register as non-profit schools, they shall amend their articles of association, continue their operation and
complete the new registration process. The Regulatory Implementation Rules for Profitable Private School issued by the
MOE, the Ministry of Human Resources and Social Welfare and other relevant authorities further provide that the
establishment, division, merger and other material changes of a for-profit private school shall first be approved by the
education authorities or the authorities in charge of human resources and social welfare, and then be registered with the
competent branch of SAMR. In addition, for-profit private training institutions shall also be regulated and governed with
reference to such rules.
On August 31, 2017, the Notice on the Work concerning the Administration of the Name Registration for For-profit Private
Schools was issued by the SAMR and the MOE, which requires that for-profit private schools shall, in accordance with the
relevant provisions of the PRC Company Law and the Private Education Law, be registered as limited liability companies
or joint stock limited companies, and their names shall comply with the provisions of relevant laws and regulations on
company registration administration and education.
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Besides the Amendment to the Private Education Law and the above regulations, the details of the operation requirement of
non-profit schools and for-profit schools will further be provided in implementation regulations which may include the
Amendment to the Private Education Implementation Rules, the local regulations relating to legal person registration of for-
profit and non-profit private schools, and the specific measure to be formulated and promulgated by the competent
authorities responsible for the administration of private schools, including but not limited to the specific measures for
registration of pre-existing private schools, the specific requirements for authenticating various parties’ property rights and
payment of taxes and fees of for-profit private schools, taxation policies for for-profit private schools, measure for the
collection of non-profit private schools’ fee.
As of the date of this annual report, certain local governments, such as Shanghai, Beijing and Jiangsu province, Hebei
province, Sha’anxi province, and Qionghai of Hainan province have promulgated their local regulations relating to legal
person registration and administration for private schools. However, the implementation of regulations at the national level
and most provinces relating to the regulation regarding the private schools in the PRC are yet to be introduced.
On April 20, 2018, the MOE issued the Implementation Rules for the Law for Promoting Private Education (Revised
Draft) (Draft for Public Comment), or the Revised Private Education Implementation Rules Draft. Among other things, the
Revised Private Education Implementation Rules Draft clarifies the types of different private training institutions and the
corresponding regulatory principles: (i) the private training institutions which provide school education related courses or
courses for the purpose of entrance exams facing children and teenagers in pre-school education or basic education stage,
shall be regulated as “private education training institutions” which are required to obtain a school permit to be issued by
the education authorities; (ii) the private training institutions which provide cultural education training, non-diploma
continuing education or the training courses for the personal promotion purposes such as the course of language, art, sports,
science or technology etc. facing adults, do not need to obtain a school permit and could directly apply for registration as a
legal person, provided that such training institutions could not provide school education related courses or courses for the
purpose of entrance exams facing children and teenagers in pre-school education or basic education stage; and (iii) the
private training institutions which provide school education related courses or courses for the purpose of entrance exams
facing children and teenagers in pre-school education or basic education stage, or the training for professional qualification
and skills, through the internet, shall obtain a school permit to be issued by the provincial education authorities or the
human resources and social security authorities, as the case maybe. However, it is uncertain when the Revised Private
Education Implementation Rules Draft would be signed into law and whether the final version would have any substantial
changes to the draft.
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On August 10, 2018, the Ministry of Justice published Draft Amendment to Private Education Promotion Regulations to
seek public comments. The Draft Amendment to Private Education Promotion Regulations clarifies the types of different
private schools or private training institutions and the corresponding regulatory principles: (i) the private schools which
provide school education related courses or courses for the preparation of entrance exams facing children, teenagers and
adults in pre-school education, basic education stage and higher academic education, shall be regulated as “private
education schools” which are required to obtain school permits to be issued by the education authorities, (ii) the private
training institutions which provide trainings for professional qualifications or skills, shall obtain school permits to be issued
by the human resources and social security authorities and make filing with the education authorities, (iii) the private
training institutions which enroll children and teenagers of kindergarten, primary school or middle and high school age and
implementing activities related to cultural and educational courses at school, or examination-related and further education-
related tutoring and other cultural and educational activities, shall subject to the examination and approval of the education
authorities at or above the county level, and (iv) the private training institutions which provide activities aiming at quality
promotion, personality development in the areas of linguistic competence, arts, physical activities, technology, as well as
activities targeting at the cultural education for adults and non-degree continuing education, are allowed to be registered as
a legal person directly. The Draft Amendment to Private Education Promotion Regulations further stipulates that, (i) the
private school which uses internet technology to provide education for academic credentials online shall obtain a private
school operating permit of similar academic education institution at the same level as well as an internet operating permit;
(ii) the institution that uses the internet technology to conduct training and educational activities, training for professional
qualifications and skills, or providing an internet technology service platform for the aforementioned activities, shall obtain
the corresponding internet operating permit and make filing with the education authorities and the human resources and
social security authorities at the provincial level where the institution is domiciled, provided such institutions shall not
implement educational and teaching activities which requires the private school operating permit; and (iii) the internet
technology service platform for the training and educational activities shall examine and register the identity information of
institutions or individuals applying for access to the platform. However, it is uncertain when the Draft Amendment to
Private Education Promotion Regulations would be signed into law and whether the final version would have any
substantial changes to the draft.
Regulations on Off-Campus Training for K-12 Students
The General Office of the State Council promulgated the Circular 80 on August 6, 2018. Circular 80 requires that after-
school education institutions shall obtain school operation permits and business licenses. For courses of school academic
subjects such as Chinese, mathematics, English, physics, chemistry and biology, the key information of such courses,
including the specific subjects, course schedules, and course syllabi, shall be filed with the local education authorities and
made public, and the course progress shall not surpass the same-period progress of local primary schools and secondary
schools. Circular 80 further provides that after-school education institutions shall obtain approvals from local education
authorities for opening new branches or learning centers.
In addition, the Notice on Effectively Reducing Extracurricular Burdens of Primary and Middle School Students and
Conducting Special Administrative Actions for Off-campus Training Institutions promulgated by the MOE and other
relevant authorities on February 13, 2018, the Notice on Effectively Conducting Special Administrative Actions for Off-
campus Training Institutions promulgated by the MOE on August 31, 2018, the Notice on Perfecting the Working System
of Conducting Special Administrative Actions for Off-campus Training Institutions promulgated by the MOE and other
relevant authorities on November 20, 2018 and the Notice on Measures to Reduce the Burden on Primary and Secondary
School Students promulgated by the MOE and other relevant authorities on December 28, 2018, also provide after-school
education institutions shall obtain school operation permits and business licenses, and for courses of school academic
subjects, the key information of such courses, including the specific subjects, course schedules, and course syllabi, shall be
filed with the local education authorities, and the course progress shall not surpass the same-period progress of local
primary schools and secondary schools.
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The MOE, jointly with certain other PRC government authorities, promulgated the Online After-School Training Opinions,
effective on July 12, 2019. The Online After-School Training Opinions are intended to regulate academic after-school
training involving internet technology provided to students in primary and secondary schools. Among other things, the
Online After-School Training Opinions require that online after-school training institutions should file with the competent
provincial education regulatory authorities before October 31, 2019 and that such education regulatory authorities should,
jointly with other provincial government authorities, review such filings and the qualification of the online after-school
training institutions submitting such filings. With respect to the filing requirements, the Online After-School Training
Opinions provided, among others: (i) an online after-school training institution should file with the competent provincial
education regulatory authorities at the place of its domicile after it has obtained the ICP License and the certificate and the
grade evaluation report for the graded protection of cyber security, and furthermore, should file before October 31, 2019 if
it has already conducted online after-school training; (ii) the online after-school training institutions should file, among
others, (x) the materials related to the institution itself, including the information on their respective ICP License and other
relevant licenses and the materials related to certain management systems regarding the protection of personal information
and cyber security, (y) the materials related to the training content, and (z) the materials related to the training personnel;
and (iii) the competent provincial education regulatory authorities should promulgate local implementing rules about the
filing requirements, focusing on the training institutions, training content and training personnel. The Online After-School
Training Opinions further provided that the competent provincial education regulatory authorities should, jointly with other
provincial government authorities, review such filings and the qualification of the online after-school training institutions
submitting such filings before the end of December 2019, focusing on the following matters: (i) the training content should
not include online games or other content or links irrelevant with the training, and should not be beyond the relevant
national school syllabus. No illegal publications may be published, printed, reproduced or distributed, and no infringement
or piracy activities may be conducted during the training. And the training content and data should be stored for more than
one year and the live streaming teaching videos should be stored for more than 60 days; (ii) each course should not last
longer than 40 minutes and should be taken at intervals of not less than 10 minutes, and the training time should not
conflict with the teaching time of primary and secondary schools. Each live-streaming course provided to students
receiving compulsory education should not end later than 9:00 p.m., and should not leave homework for primary school
students in Grade 1 and Grade 2. The online after-school training platforms should have eye protection and parental
supervision functions; (iii) the online after-school training institutions should not hire any teacher who is currently working
at primary or secondary schools. Training personnel of academic subjects were required to obtain necessary teacher
qualification licenses. The online after-school training Institutions’ training platforms and course interfaces should
publicize the names, photos and teacher qualification licenses of training personnel, and the learning, working and teaching
experiences of foreign training personnel; (iv) with the consent of students and their respective parents, online afterschool
training institutions should verify the identification information of each student, and should not illegally sell or provide
such information to third parties. User behavior log must be kept for more than one year; (v) the charge items and standard
and refund policy should be specifically publicized on the training platforms. The prepaid fees can only be used for
education and training purpose, and should not be used for other investment activities; where fees are charged based on the
number of classes, fees were not allowed to be collected in a lump sum for more than 60 classes, and where fees are
charged based on the length of the course, the fees should not be collected for a course length of more than three months;
and (vi) the online after-school training institutions found to have problems after reviewing by the competent provincial
education regulatory authorities should complete the rectification before the end of June 2020, and will be subject to fines,
regulatory order to suspend operations or other regulatory and disciplinary sanctions if they fail to complete the
rectification in time.
On October 9, 2019, Beijing Municipal Education Commission, one of our competent regulatory bodies, issued the trial
implementation rules with respect to the filing requirements in relation to the Online After-School Training Opinions,
which require, among others, that online after-school training institutions that (i) are registered or have its ICP filing in
Beijing; and (ii) provide online after-school training to students in primary or secondary schools using internet technology
on academic subjects such as Chinese, mathematics, English, physics, chemistry, politics, history, geography, biology, etc.,
to submit filing materials required under the Online After-School Training Opinions before October 31, 2019 via an official
filing platform nationwide.
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Regulations on Educational Apps
The MOE, jointly with certain other PRC government authorities, issued the Opinions on Educational Apps, which require,
among others, mobile apps that provide services for school teaching and management, student learning and student life, or
home-school interactions, with school faculty, students or parents as the main users, and with education or learning as the
main application scenarios (the “Educational Apps”), be filed with competent provincial regulatory authorities for
education before the end of 2019. The MOE expects to further promulgate implementation rules with respect to such filing
requirements. The Opinions on Educational Apps also requires, among others, that: (i) before filing, the Educational App’s
provider obtain the ICP License or complete the ICP filing and obtain the certificate of the grade evaluation report for
graded protection of cybersecurity; (ii) Educational Apps whose main users are under the age of 18 limit the use time,
specify the range of suitable ages, and strictly monitor their content; (iii) before an Educational App is introduced as a
mandatory app to students, such Educational App be approved by the applicable school through its collective decision-
making process and be filed with the competent education authority; and (iv) Educational Apps adopted by education
authorities and schools as their uniformly used teaching or management tools not charge the students or parents any fee,
and not offer any commercial advertisements or games.
Regulations on Chinese-Foreign Cooperation in Operating Schools
Chinese-foreign cooperation in operating schools or training programs is specifically governed by the Regulations on
Operating Chinese-foreign Schools, promulgated by the State Council in 2003 and amended in 2019 in accordance with the
Education Law, the Occupational Education Law and the Private Education Law. The Implementing Rules for the
Regulations on Operating Chinese-foreign Schools, or the Implementing Rules, were issued by the MOE in 2004. The
Regulations on Chinese-Foreign Cooperation in Operating Schools and its Implementing Rules encourage substantive
cooperation between overseas educational organizations with relevant qualifications and experience in providing high-
quality education and Chinese educational organizations to jointly operate various types of schools in the PRC.
Cooperation in the areas of higher education and occupational/professional education is especially encouraged. Chinese-
foreign cooperative schools are not permitted, however, to engage in compulsory education or military, police, political and
other kinds of education that are of a special nature in China. The Regulations on Operating Chinese-foreign Schools
prohibits foreign institutions or individuals from independently establishing schools in China, which provide educational
services mainly for Chinese citizens.
The Ministry of Human Resources and Social Security (formerly known as Ministry of Labor and Social Security) also
promulgated the Regulations on Operation Chinese-foreign Cooperation School in Professional Education Training to
implement the Regulations on Operating Chinese-foreign Schools on July 26, 2006, which took effect on October 1, 2006
and was amended on April 30, 2015. The Regulations on Operation Chinese-foreign Cooperation School in Professional
Education Training prohibits foreign institutions or individuals from independently establishing professional education
training institutions in China, which provide educational services mainly for Chinese citizens.
We have not operated or applied for any Chinese-foreign schools. Prior to 2012, we operated a substantial portion of our
learning centers through subsidiaries of our consolidated VIEs and schools to which our consolidated VIEs or their
respective subsidiaries are sponsors. Starting from the second half of 2012, we began to transfer our operations to our
wholly-owned subsidiary, Tarena Tech, and its subsidiaries. All of our learning center operations of VIEs had been
transferred to Tarena Tech and its subsidiaries and schools before 2018, while 2018, one of our learning centers was
transferred back to our VIE for business operation purpose; while in 2019, 3 of our learning centers which provide online
education services, were transferred back to our VIE for business operation purpose and 3 schools were newly set up
through our VIE. As of December 31, 2020, we operated 68 of our learning centers through adult student enrollments by
subsidiaries of Tarena Tech. However, there are still uncertainties under the current PRC laws as to whether a wholly
foreign owned enterprise (such as Tarena Tech) is allowed to indirectly invest in and own private schools through its PRC
subsidiaries. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business—If the relevant PRC
authorities determine that we can no longer own and operate certain of our learning centers through our PRC subsidiaries,
we may need to restructure the ownership and operation of these learning centers (including possibly transferring these
learning centers to our consolidated VIE), our business may be disrupted and we may be exposed to increased risks
associated with the contractual arrangements relating to our consolidated VIE.”
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Foreign Investments in Professional Education Services
The PRC Catalogue for the Guidance of Foreign Investment Industries, or the Catalogue, as promulgated and amended
from time to time by the MOFCOM and the National Development and Reform Commission, or the NDRC, is the
principal guide to foreign investors’ investment activities in the PRC. The most updated version of the Catalogue, which
was promulgated in March 2017 and became effective in July 2017, divides the industries into three categories:
encouraged, restricted and prohibited. On June 30, 2019, the NDRC and the MOFCOM jointly issued Special
Administrative Measures for Access of Foreign Investment (Negative List), or the Negative List, which became effective on
July 30, 2019. Industries not listed in the Catalogue or the Negative List are generally open to foreign investment unless
specifically restricted or prohibited. A wholly foreign-owned enterprise is generally permitted for encouraged industries
and industries not listed in the Catalogue or industries not listed in the Negative List, while there are some limitations to the
ownership and/or corporate structure of the foreign-invested companies that operate in restricted industries, such as the
maximum shareholding threshold and special senior manager requirements. Industries in the prohibited category are not
open to foreign investors. According to the Catalogue and the Negative List, foreign investment is encouraged in non-
accredited professional education services and there is no limitation with respect to the maximum percentage of foreign
ownership in a company conducting business in professional education services. Foreign investment is restricted to
establishing Sino-foreign cooperative joint venture operations led by Chinese parties in pre-school education institutions,
ordinary senior high schools and institutions of higher learning. Foreign Investment is prohibited in compulsory education
institutions.
Regulations on Online and Distance Education
Pursuant to the Administrative Regulations on Educational Websites and Online and Distance Education Schools issued by
the MOE on July 5, 2000, educational websites and online education schools may provide educational services in relation
to higher education, elementary education, pre-school education, teaching education, occupational/professional education,
adult education, other education and public educational information services. “Educational websites” refer to organizations
providing education or education-related information services to website visitors by means of a database or online
education platform connected via the internet or an educational television station through an Internet Service Provider, or
ISP. “Online education schools” refer to education websites providing academic education services or training services
with the issuance of various certificates.
Setting up education websites and online education schools is subject to approval from relevant education authorities,
depending on the specific types of education. Any education website and online education school shall, upon the receipt of
approval, indicate on its website such approval information as well as the approval date and file number.
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, pursuant to which the administrative
license for “online education schools” was retained, while the administrative license for “educational websites” was not
retained. Accordingly, Beijing Tarena, our consolidated VIE engaging in online education-related services, is not required
to obtain approval to operate “educational websites” from the MOE. On January 28, 2014, the State Council promulgated
the Decision on Abolishing and Delegating Certain Administrative Examination and Approval Items, pursuant to which the
administrative approval for “online education schools” of higher education was abolished.
Notwithstanding these decisions formulated by the State Council, as the Administrative Regulations on Educational
Websites and Online Education Schools were not explicitly abolished, in practice, certain local authorities continue to
implement the approval requirement for setting up education websites and online education schools until February 3, 2016,
when the State Council promulgated the Decision on Cancelling the Second Batch of 152 Items Subject to Administrative
Examination and Approval by Local Governments Designated by the Central Government, explicitly withdrew the
approval requirements for operating educational websites and online education schools as provided by the Administrative
Regulations on Educational Websites and Online Education Schools, and reiterated the principle that administrative
approval requirements may only be imposed in accordance with the PRC Administrative Licensing Law.
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In December 2017, Shanghai Municipal Government promulgated the Management Methods of Classified Registration of
Private Schools, the Setting Standards for Private Training Institutions of Shanghai, that became effective on January 1,
2018, and the Management Measures for the For-profit Private Training Institutions of Shanghai, and the Management
Methods for the Non-Profit Private Training Institutions of Shanghai, pursuant to which, any management measures and
regulations applied to the institutions that provides training services only through the internet will be further promulgated
separately. On November 9, 2018, Beijing Municipal Government promulgated the Operation Standards for Private
Education Training Institutions in Beijing (For Trial) that became effective on the same date, which provides that the
setting up standards for the institutions that provide training services only through the internet will be promulgated
separately. On November 26, 2018, Beijing Municipal Government further promulgated the Methods of Classified
Registration of Private School in Beijing and the Measures for the Supervision and Administration for the For-profit
Private School in Beijing that became effective on the same date, which kept silent on such standards for the institutions
that provides training services only through the internet. On February 24, 2020, Shanghai Municipal Education
Commission and other competent authorities jointly promulgated the Shanghai Off-campus Online Training Registration
Rules, which only applies to off-campus online training activities for cultural subjects, such as mathematics and English,
for elementary and middle school students. As of the date of this annual report, no other provisions related to online and
distance education have been further promulgated in Shanghai or Beijing.
Interim Measures for the Management of the Collection of Private Education Fees
Pursuant to the Interim Measures for the Management of the Collection of Private Education Fees, which was promulgated
by the NDRC, the MOE and the Ministry of Human Resources and Social Security on March 2, 2005, and was repealed
and annulled by the NDRC on March 12, 2020, private schools may charge the students for tuition (or training expenses)
and may also charge the students accommodating at school for an accommodation fee. The charging standards of the
private schools that provides academic qualifications education shall be examined by the education authorities or the
human resources and social security authorities and be approved by the competent pricing authority. The private schools
that provide non-academic qualifications education may determine its own charging standards and file the standards with
the competent pricing authority.
According to the Notice on the Cancellation of the Fee Charge Permit System and Strengthening Supervision, which was
issued jointly by the NDRC and the Ministry of Finance on January 9, 2015, the Fee Charge Permit certificate issuance and
annual review system was cancelled nationwide from January 1, 2016.
On October 12, 2015, the State Council and the Central Committee of the Communist Party of China jointly issued the
Several Opinion of the Central Committee of the Communist Party of China and the State Council on Promoting the Price
Mechanism Reform, which allows for-profit private schools to determine their prices on their own, while the tuition-
collecting policies of non-profit private schools shall be determined by the provincial governments in a market-oriented
manner and based on the local conditions.
Regulations on Internet Publications
On February 4, 2016, the SAPPRFT and the MIIT jointly promulgated the Internet Publishing Service Administrative
Measures, or the Internet Publishing Measures, which took effect on March 10, 2016 and replaced the Tentative Internet
Publishing Administrative Measures jointly promulgated by the General Administration of Press and Publication and MIIT
on June 27, 2002. The Internet Publishing Measures require entities that engage in internet publishing to obtain an Internet
Publishing License for engaging in internet publishing from the SAPPRFT. Pursuant to the Internet Publishing Measures,
the definition of “internet publishing” is broad and refers to the act of online spreading of articles, whereby the internet
information service providers select, edit and process works created by themselves or others and subsequently post such
works on the internet or transmit such works to the users’ end through internet for the public to browse. These works
include contents from books, newspapers, periodicals, audio-video products, electronic publications that have already been
formally published or works that have been made public in other media. See also “Item 3. Key Information—D. Risk
Factors—Risks Relating to Doing Business in China—We face risks and uncertainties with respect to the licensing
requirement for internet audio-video programs, radio or television programs, internet publication and human resources
intermediary service.”
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Regulations on Production and Operation of Radio/Television Programs
On July 19, 2004, the SARFT promulgated the Administrative Measures on the Production and Operation of Radio and
Television Programs, or the Radio and Television Program Production Measures, which came into effect on August 20,
2004 and was amended on August 28, 2015 and October 29, 2020, respectively. The Radio and Television Program
Production Measures provides that any business operator that produces or operates radio or television programs must first
obtain a Radio and Television Program Production and Operation License. Entities holding such licenses shall conduct
their business within the permitted scope as provided in their licenses. See also “Item 3. Key Information—D. Risk Factors
—Risks Relating to Doing Business in China—We face risks and uncertainties with respect to the licensing requirement for
internet audio-video programs, radio or television programs, internet publication and human resources intermediary
service.”
Regulation on Broadcasting Audio-Video Programs through the Internet or Other Information Network
The SAPPRFT promulgated the Rules for Administration of Broadcasting of Audio-Video 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, integration, transmission, downloading of audio-video programs
with computers, televisions or mobile phones as the main terminals and through various types of information networks.
Pursuant to the Broadcasting Rules, a Permit for Broadcasting Audio-video 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 that relate to cultural matters, which prohibits private investments in businesses relating
to the dissemination of audio-video programs through information networks.
On December 20, 2007, the SAPPRFT and MIIT issued the Internet Audio-Video Program Measures, which became
effective on January 31, 2008 and was amended on August 28, 2015. Among other things, the Internet Audio-Video
Program Measures stipulate that no entities or individuals may provide internet audio-video program services without a
Permit for Broadcasting Audio-video Programs via Information Network issued by the SAPPRFT or its local counterparts
and only entities wholly owned or controlled by the PRC government may engage in the production, editing, integration or
consolidation, and transfer to the public through the internet, of audio-video programs, and the provision of audio-video
program uploading and transmission services. On September 15, 2009, SAPPRFT promulgated the Notice on Several
Issues regarding the Permit for Broadcasting Audio-video Programs via Information Network. The Notice restates the
necessity of applying for such license and sets forth the legal liabilities for those providing internet audio-video program
services without the license.
On April 1, 2010, SAPPRFT promulgated the Test Implementation of the Tentative Categories of Internet Audio-Visual
Program Services, which was amended on March 10, 2017, or the Tentative Categories, which clarified the scope of
internet audio-video programs services. According to the Tentative Categories, there are four categories of internet audio-
visual program services which are further divided into seventeen sub-categories. The third sub-category to the second
category covers the making and editing of certain specialized audio-video programs concerning, among other things,
educational content, and broadcasting such content to the general public online.
On April 25, 2016, the SAPPRFT issued the Provisions on the Administration of Private Network and Targeted
Communication Audiovisual Program Services, or Targeted Communication Rules, which replaced the Broadcasting
Rules issued in 2004. The Target Communication Rules mainly focus on networks and services such as IPTV and private
network mobile TV.
In the course of offering our lecture videos, we transmit our audio-video educational programs live through the internet to
enrolled course participants. If the governmental authorities determine that our provision of lecture videos falls within the
Internet Audio-Video Program Measures and demand us to apply for the license, we may not be able to obtain the License
for Disseminating Audio-Video Programs through Information Network. If this occurs, we may become subject to
significant penalties, fines, legal sanctions or an order to suspend our use of audio-video content.
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Regulations on Value-Added Telecommunications Services
Licenses for Value-Added Telecommunication Services
On September 25, 2000, the Telecommunications Regulations of the People’s Republic of China, or the Telecom
Regulations, were issued by the PRC State Council as the primary governing law on telecommunication services, which
were subsequently amended in 2014 and 2016. The Telecom Regulations set out the general framework for the provision of
telecommunication services by PRC companies. Under
that
telecommunications service providers procure operating licenses prior to their commencement of operations. The Telecom
Regulations draw a distinction between “basic telecommunications services” and “value-added telecommunications
services.” A “Catalog of Telecommunications Business” was issued as an attachment to the Telecom Regulations to
categorize telecommunications services as basic or value-added. The Catalog was most recently updated in
December 2015, and the information services are classified as value-added telecommunications services.
the Telecom Regulations,
is a requirement
it
On March 5, 2009, the MIIT issued the Administrative Measures for Telecommunications Business Operating Permit, or
the Telecom Permit Measures, which took effect on April 10, 2009 and was amended on July 3, 2017. The Telecom Permit
Measures confirm that there are two types of telecom operating licenses for operators in China, namely, licenses for basic
telecommunications services and licenses for value-added telecommunications services. The operation scope of the license
will detail the permitted activities of the enterprise to which it was granted. An approved telecommunication services
operator shall conduct its business in accordance with the specifications recorded on its value-added telecommunications
services operating license, or VATS License. In addition, a VATS License’s holder is required to obtain approval from the
original permit-issuing authority prior to any change to its shareholders.
On September 25, 2000, the State Council promulgated the Administrative Measures on Internet Information Services, or
the Internet Measures, which was amended in January 2011. Under the Internet Measures, commercial internet information
services operators shall obtain an ICP license from the relevant government authorities before engaging in any commercial
internet information services operations within the PRC. The ICP license has a term of five years and shall be renewed
within 90 days before expiration. Our consolidated VIE, Beijing Tarena, obtained an ICP license for the
website goto211.com issued by Beijing Communications Administration on March 1, 2012, which will expire on
September 26, 2022. Beijing Tarena has added TMOOC.cn and 61it.cn to such ICP license.
Foreign Investment in Value-Added Telecommunication Services
Pursuant to the Provisions on Administration of Foreign Invested Telecommunications Enterprises promulgated by the
State Council on December 11, 2001 and amended respectively on September 10, 2008 and February 6, 2016, the ultimate
foreign equity ownership in a value-added telecommunications services provider (except E-Commerce) may not exceed
50%. The Negative List allows a foreign investor to own up to 100% of the total equity interest in an E-Commerce
business. Moreover, 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
good track records and experience in operating value-added telecommunication business overseas. Foreign investors that
meet these requirements must obtain approvals from the MIIT or its authorized local counterparts, which retain
considerable discretion in granting approvals. Pursuant to publicly available information, the PRC government has issued
telecommunications business operating licenses to only a limited number of foreign-invested companies, all of which are
Sino-foreign joint ventures engaging in the value-added telecommunication business.
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The MIIT Circular issued by the MIIT in July 2006 reiterated the regulations on foreign investment in telecommunications
businesses, which require foreign investors to set up foreign-invested enterprises and obtain an ICP license to conduct any
value-added telecommunications business in China. Under the MIIT Circular, a domestic company that holds an ICP
license is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing
any assistance, including providing resources, sites or facilities, to foreign investors that conduct value-added
telecommunications business illegally in China. Furthermore, the relevant trademarks and domain names that are used in
the value-added telecommunications business must be owned by the local ICP license holder or its shareholder. The MIIT
Circular further requires each ICP license holder to have the necessary facilities for its approved business operations and to
maintain such facilities in the regions covered by its license. Currently, Beijing Tarena, our consolidated VIE, owns the
domain names goto211.com and TMOOC.cn and holds the ICP license necessary to operate our goto211.com and
TMOOC.cn websites in China, while the trademarks relating to our operations are held by Tarena Tech, our WFOE. If the
relevant PRC government authorities determine in the future that the current ownership of our trademarks do not comply
with the relevant regulations and the trademarks relating to our operations must be held by our VIE, we may need to
transfer the trademarks to our VIE, which may severely disrupt our business. The Internet Electronic Bulletin Board
Service Administrative Measures promulgated by the MIIT in October 2000 require ICP operators to obtain specific
approvals before providing BBS services. BBS services include electronic bulletin boards, electronic forums, message
boards and chat rooms. On July 4, 2010, the approval requirement for operating BBS services was terminated by a decision
issued by the PRC State Council and on September 23, 2014, and the foregoing measures were repealed and annulled.
However, in practice, the competent authorities in Beijing may still require the relevant operating companies to obtain such
approval for the operation of BBS services which we have not obtained.
In light of the aforesaid restrictions, we rely on Beijing Tarena, our consolidated VIE in China, to hold and maintain the
licenses necessary to provide online education and other value-added telecommunications services in China. We operate
our goto211.com and TMOOC.cn websites and value-added telecommunications services through Beijing Tarena. Beijing
Tarena, our consolidated VIE in China, holds an ICP license that is valid until September 26, 2022 for the operation of
goto211.com and TMOOC.cn.
Regulations on Human Resources Service
Human resources services in China are mainly regulated by the Ministry of Human Resources and Social Security. The
principal regulation applicable to human resources services is the Regulations on Administration of Human Resources
Markets, jointly promulgated by the Ministry of Human Resources and Social Security and the SAIC in September 11,
2001, as amended in March 22, 2005, April 30, 2015 and December 9, 2019 respectively. Under the Administration of
Human Resources Markets, a human resources service intermediary refers to any entity which provides intermediary
services for employers and any potential employees, and no entity may provide such services without a License for Human
Resources Service. Any internet information service provider which provides intermediary services for employers and any
potential employees via internet shall obtain such license.
On May 2, 2018, the State Council promulgated the Interim Regulations for the Human Resources Market, or the Interim
Regulations, which came into effect on October 1, 2018. The Interim Regulation further clarifies the requirements of
human resources service licensing and filing. In accordance with the Interim Regulations, commercial human resources
service providers intending to conduct employment agency activities are required to obtain a License for Human
Resources, and any commercial human resources service providers engaging in the collection and release of human
resources supply and demand information, employment and entrepreneurship guidance, human resources management
consulting, human resources assessment, human resources training, or other human resources services activities, it should
register with the competent authority within 15 days of the date on which it opens such activities. In addition, if any entity
engages in commercial human resources service without a License for Human Resources Service, the competent authority
shall order cessation of such activities, and if there is any illegal income, the illegal income will be confiscated and a fine
of more than RMB10,000 and less than RMB50,000 imposed; if any commercial human resources service providers
engaging in human resources services activities fail to register with the competent authority on time, the competent
authority shall order correction, or a fine more than RMB5,000 and less than RMB10,000 shall be imposed if such
correction is not made. See also “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China
—We face risks and uncertainties with respect to the licensing requirement for internet audio-video programs, radio or
television programs, internet publication and human resources intermediary service.”
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The Foreign Investment Law
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which came into effect on
January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign
Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-
invested Enterprise Law, together with their implementation rules and ancillary regulations. Meanwhile, the Regulations
for the Implementation of the Foreign Investment Law came into effect as of January 1, 2020, which clarified and
elaborated the relevant provisions of the Foreign Investment Law. The organization form, organization and activities of
foreign-invested enterprises shall be governed, among others, by the PRC Company Law and the PRC Partnership
Enterprise Law. Foreign-invested enterprises established before the implementation of the Foreign Investment Law may
retain the original business organization and so on within five years after the implementation of the Foreign Investment
Law.
The Foreign Investment Law is formulated to further expand the opening-up, vigorously promote foreign investment and
protect the legitimate rights and interests of foreign investors. According to the Foreign Investment Law, foreign
investments are entitled to pre-entry national treatment and are subject to negative list management system. The pre-entry
national treatment means that the treatment given to foreign investors and their investments at the stage of investment
access shall not be less favorable than that of domestic investors and their investments. The negative list management
system means that the state implements special administrative measures for access of foreign investment in specific fields.
The Foreign Investment Law does not mention the relevant concept and regulatory regime of VIE structures. However,
since it is relatively new, uncertainties still exist in relation to its interpretation and implementation. See “Risks Relating to
Doing Business in China—Uncertainties exist with respect to the interpretation and implementation of the newly enacted
PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance
and business operations.”
Foreign investors’ investment, earnings and other legitimate rights and interests within the territory of China shall be
protected in accordance with the law, and all national policies on supporting the development of enterprises shall equally
apply to foreign-invested enterprises. Among others, the state guarantees that foreign-invested enterprises participate in the
formulation of standards in an equal manner and that foreign-invested enterprises participate in government procurement
activities through fair competition in accordance with the law. Further, the state shall not expropriate any foreign
investment except under special circumstances, under which the state may levy or expropriate the investment of foreign
investors in accordance with the law for the needs of the public interest. The expropriation and requisition shall be
conducted in accordance with legal procedures and timely and reasonable compensation shall be given. In carrying out
business activities, foreign-invested enterprises shall comply with relevant provisions on labor protection.
Regulations on Intellectual Property Rights
Copyright and Software Products
The NPC adopted the Copyright Law in 1990 and amended it in 2001 and 2010, respectively. The amended Copyright Law
extends copyright protection to internet activities, products disseminated over the internet and software products. In
addition, there is a voluntary registration system administered by the China Copyright Protection Center. The amended
Copyright Law also requires registration of a copyright pledge.
To address the problem of copyright infringement related to the content posted or transmitted over the internet, the National
Copyright Administration and the MIIT jointly promulgated the Measures for Administrative Protection of Copyright
Related to Internet on April 29, 2005. This measure became effective on May 30, 2005.
In order to further implement the Computer Software Protection Regulations promulgated by the State Council on
December 20, 2001 and amended on January 30, 2013, the State Copyright Bureau issued the Computer Software
Copyright Registration Procedures on February 20, 2002, amended in June 2004, which apply to software copyright
registration, license contract registration and transfer contract registration. In compliance with, and in order to take
advantage of the above rules, as of December 31, 2020, we had registered 151 software copyrights in China.
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Trademarks
Trademarks are protected by the PRC Trademark Law which was adopted in 1982 and subsequently amended in 1993,
2001, 2013 and 2019 as well as the Implementation Regulation of the PRC Trademark Law most recently adopted by the
State Council in 2014. The Trademark Office under the SAMR handles trademark registrations and grants a term of
ten years to registered trademarks which may be renewed for consecutive ten-year periods upon request by the trademark
owner. Trademark license agreements must be filed with the Trademark Office for record. The PRC Trademark Law has
adopted a “first-to-file” principle with respect to trademark registration. Where a trademark for which a registration has
been made is identical or similar to another trademark which has already been registered or been subject to a preliminary
examination and approval for use on the same kind of or similar commodities or services, the application for registration of
such trademark may be rejected. Any person applying for the registration of a trademark may not prejudice the existing
right first obtained by others, nor may any person register in advance a trademark that has already been used by another
party and has already gained a “sufficient degree of reputation” through such party’s use. We have registered 112
trademarks in China as of December 31, 2020.
Regulations on Foreign Currency Exchange
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration
Regulations, or the Foreign Exchange Regulations, as amended on August 5, 2008. Under the Foreign Exchange
Regulations, Renminbi is freely convertible for current account items, including the distribution of dividends, interest
payments, trade and service-related foreign exchange transactions, but not for capital account items, such as direct
investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of
the SAFE is obtained and prior registration with the SAFE is made. Though there are restrictions on the convertibility of
Renminbi for capital account transactions, which principally include investments and loans, we generally follow the
regulations and apply to obtain the approval of the SAFE and other relevant PRC governmental authorities.
On March 30, 2015, SAFE promulgated Circular 19, which expands a pilot reform of the administration of the settlement
of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 allows all foreign-invested
enterprises established in the PRC to use their foreign exchange capitals to make equity investments and removes certain
other restrictions provided under previous laws and regulations promulgated by the SAFE for these enterprises. However,
Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using the Renminbi fund converted
from its foreign exchange capitals for expenditure beyond its business scope, and providing entrusted loans or repaying
loans between non-financial enterprises.
On June 9, 2016, SAFE promulgated Circular 16, which expands the application scope from only the capital of foreign-
invested enterprises to the capital, foreign debt proceeds and proceeds from overseas public offering. Furthermore, Circular
16 allows foreign-invested enterprises to use their foreign exchange capitals under capital account to the extent permitted
by the relevant laws and regulations and removes certain prohibitions on using the Renminbi fund converted from the
foreign exchange capitals under Circular 19, such as prohibitions on providing loans to the affiliated enterprises of such
foreign-invested enterprises or repaying loans between non-financial enterprises.
On October 23, 2019, SAFE issued the Circular of the State Administration of Foreign Exchange on Further Facilitating
Cross-border Trade and Investment, or Circular 28, which, among other things, expanded the use of foreign exchange
capital to domestic equity investments. Non-investment foreign-funded enterprises are allowed to lawfully make domestic
equity investments by using capital funds on the premise without violation to prevailing special administrative measures
for access of foreign investments (negative list) and the authenticity and compliance with the regulations of domestic
investment projects.
These circulars may delay or limit us from using the proceeds of offshore offerings to make additional capital contributions
or loans to our PRC subsidiaries and violations of these circulars could result in severe monetary or other penalties. See
also “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—PRC regulation of direct
investment and loans by offshore holding companies to PRC entities and governmental control of currency conversion may
delay or limit us from using the proceeds of offshore offering to make additional capital contributions or loans to our PRC
subsidiaries.”
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Regulations on Dividend Distribution
Under our current corporate structure, our Cayman Islands holding company primarily relies on dividend payments from
Tarena Tech, which is a wholly foreign-owned enterprise incorporated in the PRC, to fund any cash and financing
requirements we may have. The principal regulations governing the distribution of dividends of foreign-invested
enterprises include the Company Law, as amended respectively on 2004, 2005, 2013 and 2018, and the Foreign Investment
Law, which has come into effect on January 1, 2020.
Under these laws and regulations, wholly foreign-owned enterprises in China may pay dividends only out of their
accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. In addition,
wholly foreign-owned enterprises in China are required to allocate at least 10% of their respective accumulated profits
each year, if any, to fund certain reserve funds until these reserves have reached 50% of the registered capital of the
enterprises. Wholly foreign-owned companies may, at their discretion, allocate a portion of their after-tax profits based on
PRC accounting standards to staff welfare and bonus funds.
Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents
Pursuant to SAFE’s Notice on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip
Investment through Special Purpose Vehicles, or SAFE Circular No. 37, issued and effective on July 4, 2014, and its
appendixes, PRC residents, including PRC institutions and individuals, must register with local branch of SAFE in
connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment
and financing, with such PRC residents’ legally owned assets or equity interest in domestic enterprises or offshore assets or
interests, referred to in SAFE Circular No. 37 as a “special purpose vehicle.” SAFE Circular No. 37 further requires an
amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as an
increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other
material events.
On February 13, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange
Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. In accordance
with SAFE Notice 13, entities and individuals are required to apply for foreign exchange registration of foreign direct
investment and overseas direct investment, including those required under the SAFE Circular No. 37, with qualified banks,
instead of SAFE. The qualified banks, under the supervision of SAFE, directly examine the applications and conduct the
registration.
In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE
registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making distributions of profit to
the offshore parent and from carrying out subsequent cross-border foreign exchange activities and the special purpose
vehicle may be restricted in their ability to contribute additional capital into its PRC subsidiary. Further, failure to comply
with the various SAFE registration requirements described above could result in liability under PRC law for foreign
exchange evasion. These regulations apply to our direct and indirect shareholders who are PRC residents and may apply to
any offshore acquisitions and share transfer that we make in the future if our shares are issued to PRC residents. We have
requested PRC residents currently holding direct or indirect interests in our company to our knowledge to make the
necessary applications, filings and amendments as required under SAFE Circular No. 37 and other related rules. We have
used our best efforts to notify all of our shareholders who are PRC citizens and hold interests in us, to register with the
local SAFE branch and/or qualified banks as required under SAFE Circular No. 37 and SAFE Notice 13. See “Item 3. Key
Information—D. Risk Factors—Risks Relating to Doing Business in China—PRC regulations relating to offshore
investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or
distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability and
penalties under PRC law.”
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Regulations on Stock Incentive Plans
In February 2012, SAFE promulgated the Stock Option Rules. Under the Stock Option Rules and other relevant rules and
regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to
register with SAFE or its local branch and complete certain other procedures. Participants of a stock incentive plan who are
PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company
or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with
respect to the stock incentive plan on behalf of its participants. The participants must also retain an overseas entrusted
institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding
stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to
the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted
institution or other material changes. The PRC agents must, on behalf of the PRC residents who have the right to exercise
the employee share options, apply to SAFE or its local branch for an annual quota for the payment of foreign currencies in
connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the
PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas
listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such
PRC residents.
We adopted two share incentive plans, namely the 2008 Plan and the 2014 Plan. Pursuant to the 2008 Plan, we may issue
options, restricted shares (or share appreciation rights or other similar awards) and rights to purchase restricted shares to
our qualified employees and directors and consultants on a regular basis. Pursuant to the 2014 Plan, we may issue options,
restricted shares and restricted share units to our qualified employees, directors and consultants on a regular basis. We have
advised our employees and directors participating in the employee stock option plan to handle foreign exchange matters in
accordance with the Stock Option Rules, and we have completed the registrations of our stock incentive plans with the
local SAFE as required by PRC law.
In addition, the State Administration for Taxation has issued circulars concerning employee share options, under which our
employees working in the PRC who exercise share options will be subject to PRC individual income tax. Our PRC
subsidiaries have obligations to file documents related to employee share options with relevant tax authorities and to
withhold individual income taxes of those employees who exercise their share options. If our employees fail to pay or if we
fail to withhold their income taxes as required by relevant laws and regulations, we may face sanctions imposed by the
PRC tax authorities or other PRC government authorities.
Regulation on Tax
PRC Enterprise Income Tax Law
On March 16, 2007, the NPC enacted the EIT Law, which was amended on February 24, 2017 and on December 29, 2018.
Under the EIT Law and its Implementing Rules, which was enacted on December 6, 2007 by the State Council, and
amended on April 23, 2019, enterprises are classified as PRC resident enterprises and non-PRC-resident enterprises. PRC
resident enterprises typically pay an enterprise income tax at the rate of 25%. An enterprise established outside of the PRC
with its “de facto management bodies” located within the PRC is considered a PRC “resident enterprise,” meaning that it
shall be treated in a manner similar to a PRC resident enterprise for enterprise income tax purposes. The Implementing
Rules to the EIT Law defines “de facto management body” as a managing body that in practice exercises “substantial and
overall management and control over the production and operations, personnel, accounting, and properties” of an
enterprise.
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The SAT issued Circular 82 on April 22, 2009, as amended in December 2017. Circular 82 provides certain specific criteria
for determining whether the “de facto management body” of a PRC-controlled and offshore-incorporated enterprise is
located in China, which include all of the following conditions: (a) the location where senior management members
responsible for an enterprise’s daily operations discharge their duties; (b) the location where financial and human resource
decisions are made or approved by organizations or persons; (c) the location where the major assets and corporate
documents are kept; and (d) the location where more than half (inclusive) of all directors with voting rights or senior
management have their habitual residence. In addition, the SAT issued a bulletin on July 27, 2011, effective from
September 1, 2011 and amended respectively in 2015, 2016 and 2018, or Bulletin 45, providing more guidance on the
implementation of Circular 82. Bulletin 45 clarifies matters including PRC resident enterprise status determination, post-
determination administration and competent tax authorities etc. Although both Circular 82 and Bulletin 45 only apply to
offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or
foreign individuals like us, the determining criteria set forth in Circular 82 and Bulletin 45 may reflect the SAT’s general
position on how the “de facto management body” test should be applied in determining the PRC tax resident enterprise
status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by
PRC or foreign individuals.
We do not believe that Tarena International, Inc. meets all of the conditions above, and thus we do not believe that Tarena
International, Inc. is a PRC resident enterprise despite the fact that all members of our management team as well as the
management team of our offshore holding company are located in China. However, if the PRC tax authorities determine
that Tarena International, Inc. is a PRC resident enterprise for PRC enterprise income tax purposes, a number of
unfavorable PRC tax consequences could follow. See “Item 3. Key Information—D. Risk Factors—Risks Relating to
Doing Business in China—Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident
enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax
consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the
value of your investment.”
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Pursuant to the Hong Kong Tax Treaty, and other applicable PRC regulations, if a Hong Kong resident enterprise is
determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Hong
Kong Tax Treaty and other applicable regulations, the 10% withholding tax on the dividends the Hong Kong resident
enterprise receives from a PRC resident enterprise may be reduced to 5% upon receiving approval from in-charge tax
authority. However, based on Circular 81, the 5% withholding tax rate does not automatically apply and certain
requirements must be satisfied, including without limitation that (a) the Hong Kong enterprise must be the beneficial owner
of the relevant dividends; and (b) the Hong Kong enterprise must directly hold at least 25% share ownership in the PRC
enterprise during the 12 consecutive months preceding its receipt of the dividends. However, a transaction or arrangement
entered into for the primary purpose of enjoying a preferential tax treatment should not be a reason for the application of
the preferential tax treatment under the Hong Kong Tax Treaty. If a taxpayer inappropriately is entitled to such preferential
tax treatment, the competent tax authority has the power to make appropriate adjustments. According to the Circular 9,
effective from April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatments in
connection with dividends, interests or royalties in the tax treaties, several factors, including without limitation whether the
applicant is obligated to pay more than 50% of his or her income in twelve months to residents in a third country or region,
whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty
country or region to the tax treaties levies any tax or grants tax exemption on relevant incomes or levies tax at an extremely
low rate, will be taken into account, and such determination will be analyzed according to the actual circumstances of the
specific cases. Circular 9 further provides that applicants who intend to prove his or her status of the “beneficial owner”
shall submit the relevant documents to the relevant tax authority according to Circular 60. Based on Circular 60, non-
resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced
withholding tax rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on
confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax
rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax
filing examinations by the relevant tax authorities. On October 14, 2019, the State Administration of Taxation promulgated
a new Administrative Measures for Non-Resident Taxpayers to Enjoy Treaty Benefits, or Circular 35, which became
effective on January 1, 2020 and replaced and repealed Circular 60. Circular 35 sets forth similar rules that non-resident
enterprises and their withholding agents shall enjoy treaty benefit by means of “self-judgment of eligibility, declaration of
entitlement, and retention of relevant materials for future reference.” However, if a competent tax authority finds out that it
is necessary to apply the general anti-tax avoidance rules, it may start general investigation procedures for anti-tax
avoidance and adopt corresponding measures for subsequent administration. See “Item 3. Key Information—D. Risk
Factors—Risks Relating to Doing Business in China—We may not be able to obtain certain treaty benefits on dividends
paid to us by our PRC subsidiary through our Hong Kong Subsidiary.”
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In January 2009, the SAT promulgated the Provisional Measures for the Administration of Withholding of Enterprise
Income Tax for Non-resident Enterprises, or the Non-resident Enterprises Measures, pursuant to which, the entities which
have the direct obligation to make certain payments to a non-resident enterprise shall be the relevant tax withholders for
such non-resident enterprise. Further, the Non-resident Enterprises Measures provides that in case of an equity transfer
between two non-resident enterprises which occurs outside China, the non-resident enterprise which receives the equity
transfer payment shall, by itself or engage an agent to, file tax declaration with the PRC tax authority located at the place of
the PRC company whose equity has been transferred, and the PRC company whose equity has been transferred shall assist
the tax authorities to collect taxes from the relevant non-resident enterprise. On October 17, 2017, the SAT released
Announcement Regarding Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT
Circular 37, effect from December 1, 2017 and amended in June 2018, which replaced the Non-resident Enterprise
Measures. On April 30, 2009, the MOF and the SAT jointly issued the Notice on Issues Concerning Process of Enterprise
Income Tax in Enterprise Restructuring Business, or Circular 59. On December 10, 2009, the SAT issued the Notice on
Strengthening the Administration of the Enterprise Income Tax concerning Proceeds from Equity Transfers by Non-resident
Enterprises, or Circular 698. Both Circular 59 and Circular 698 became effective retroactively as of January 1, 2008. By
promulgating and implementing these two circulars, the PRC tax authorities have enhanced their scrutiny over the direct or
indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. On February 3, 2015, the SAT
issued a Public Notice 2015 No.7, or Public Notice 7, to supersede the existing tax rules in relation to the Indirect Transfer
as set forth in Circular 698. Under Public Notice 7, where a non-resident enterprise conducts an “indirect transfer” by
transferring the equity interests in a PRC “resident enterprise” or other taxable assets indirectly by disposing of the equity
interests in an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC
enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable
commercial purposes. In addition, Public Notice 7 provides clear criteria on how to assess reasonable commercial purposes
and introduces safe harbor scenarios applicable to internal group restructurings. However, it also brings challenges to both
the foreign transferor and transferee of the Indirect Transfer as they have to make self-assessment on whether the
transaction should be subject to PRC tax and to file or withhold the PRC tax accordingly. SAT Circular 37 provides certain
changes to the current withholding regime, repeals and replaces all other provisions under Circular 698 and amends certain
provisions in Public Notice 7. For example, SAT Circular 37 requires that the transferor shall declare to the competent tax
authority for payment of tax within seven (7) days after the tax payment obligation comes into being if the withholding
agent fails to withhold the tax due or withhold the tax due in full. However, according to SAT Circular 37, if the
withholding agent fails to withhold and remit the income tax payable, or is unable to perform its obligation in this regard,
as long as the non-resident enterprise that earns the income voluntarily declares and pays the tax payable before the tax
authority orders it to do so within required time limits, it shall be deemed that such enterprise has paid the tax in time.
There are little guidance and practical experience as to the application of Public Notice 7 or SAT Circular 37. Where non-
resident investors were involved in our private equity financing, if such transactions were determined by the tax authorities
to lack reasonable commercial purpose, we and our non-resident investors may become at risk of being taxed under Public
Notice 7 and may be required to expend valuable resources to comply with Public Notice 7 or SAT Circular 37 or to
establish that we should not be taxed under Public Notice 7 or SAT Circular 37. The PRC tax authorities have the
discretion under SAT Circular 59, Public Notice 7 or SAT Circular 37 to make adjustments to the taxable capital gains
based on the difference between the fair value of the equity interests transferred and the cost of investment.
The State Administration of Taxation promulgated Administrative Measures on the General Anti-Avoidance Rule (Trial), or
GAAR Measures, on December 2, 2014, which shows the authority’s intention to fight against tax avoidance scheme that is
adopted to obtain unwarranted tax benefit without reasonable commercial purpose. A press release, made by the State
Administration of Taxation to clarify certain issues relating to the application of the GAAR Measures, stated that the
GAAR Measures may be applicable if any general tax-avoidance scheme exists in the offshore indirect transfer of equity
interests. Since GAAR Measures was recently promulgated and it is unclear how this set of measures, and any future
implementation rules thereof, will be interpreted, amended and implemented by the relevant governmental authorities, we
cannot predict how these regulations will affect our business operation, future acquisitions or strategy.
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In addition, the EIT Law and its implementation rules permit certain “high and new technology enterprises strongly
supported by the state” that hold independent ownership of core intellectual property and simultaneously meet a list of
other criteria, financial or non-financial, as stipulated in the Implementation Rules and other regulations, to enjoy a reduced
15% enterprise income tax rate. The SAT, the Ministry of Science and Technology and the Ministry of Finance jointly
issued the Administrative Measures on the Recognition for High and New Technology Enterprise delineating the specific
criteria and procedures for the “high and new technology enterprises” certification in April 2008, which was amended in
January 2016. Enterprises recognized as “high and new technology enterprises,” or HNTEs, will enjoy a reduced 15%
enterprise income tax rate after they go through tax reduction application formalities with relevant tax authorities. Tarena
Tech renewed its HNTE certificate in 2012, 2015 and 2018, and is eligible to enjoy a preferential tax rate of 15% until the
end of 2021. Tarena Hangzhou was established in 2013 and is qualified as a “newly established software enterprise,” which
entitles it to two years of full tax exemption followed by three years of 50% tax exemption, commencing from the year in
which its taxable income is greater than zero, which was 2014. Tarena Hangzhou no longer has the 50% tax exemption
beginning from 2019. On January 25, 2016, we acquired 100% of the equity interests in Hangzhou Hanru Education
Technology Co., Ltd., which is qualified as a “newly established software enterprise” and entitles to two years of full tax
exemption followed by three years of 50% tax exemption, commencing from the year in which its taxable income is greater
than zero, which was 2016. In addition, Hanru Hangzhou obtained its HNTE certificate in 2019 and has started to enjoy a
preferential tax rate of 15% in 2021.
PRC Value-added Tax (“VAT”) in lieu of Business Tax (the “VAT Pilot Program”)
An enterprise or individual providing taxable service within the territory of China has been historically required to pay the
business tax at the rate of 3% or 5% on the revenues generated from provision of such services in accordance with
applicable PRC tax regulations. However, if the services provided are technical transfer or technical development, or
technical consulting and technical service related to technology transfer or technical development, business may be
exempted subject to approval by the relevant tax authorities.
In November 2011, the Ministry of Finance and the SAT promulgated the Notice on the Pilot Program in Shanghai
Replacing Business Tax with VAT in Transportation and Some Modern Service Sectors. Pursuant to this circular and other
relevant notices, VAT shall be imposed in lieu of business tax in transportation and some modern service sectors firstly in
Shanghai starting from January 1, 2012. On August 1, 2013, the VAT Pilot Program was implemented throughout China in
transportation and some modern services sectors. On April 29, 2014, the Ministry of Finance and the SAT issued the
Circular on the Inclusion of Telecommunications Industry in the Pilot Collection of Value-added Tax in Lieu of Business
Tax. On March 23, 2016, the Ministry of Finance and the SAT issued the Circular on Comprehensively Promoting the Pilot
Program of the Collection of Value-added Tax in Lieu of Business Tax. Effective from May 1, 2016, the PRC tax authorities
will collect VAT in lieu of Business Tax on a trial basis within the territory of China, and in industries such as construction
industries, real estate industries, financial industries, and living service industries. The VAT tax rates generally applicable
are simplified as 17%, 11%, 6% and 0%, and the VAT tax rate applicable to the small-scale taxpayers is 3%. The Notice of
the Ministry of Finance and the State Administration of Taxation on Adjusting Value-added Tax Rates, or the Notice, was
promulgated on April 4, 2018 and came into effect on May 1, 2018. According to the Notice, the VAT tax rates of 17% and
11% are changed to 16% and 10%, respectively. On March 20, 2019, the Ministry of Finance, State Taxation
Administration and General Administration of Customs jointly promulgated the Announcement on Policies for Deeping the
VAT Reform or Notice 39, which came into effect on April 1, 2019. Notice 39 further changes the VAT tax rates of 16% and
10% to 13% and 9%, respectively.
Local Surcharges
The city construction tax and education surcharge are local surcharges imposed as a certain percentage of PRC turnover
taxes (i.e., business tax, value-added tax and consumption tax). The city construction tax is charged at rates of 1%, 5% or
7% (the applicable city construction tax rate depends on the location of the taxpayer) of the turnover tax paid while the
education surcharge rate is currently at 3% of the turnover tax paid. Though in the past, foreign-invested enterprises,
foreign enterprises and foreign individuals were exempted from such surcharges, these entities were required to make such
payments from December 1, 2010 according to a notice issued by PRC State Council in October 2010.
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In addition to the city construction tax and the education surcharge, the China Ministry of Finance issued Circular Caizong
(2010) No. 98, or Circular 98, that requires all entities and individuals (including foreign-invested enterprises, foreign
enterprises and foreign individuals) to pay a local education surcharge, or LES, at 2% on turnover tax paid. Local
governments are required to report their implementation measures on LES to the Ministry of Finance. LES became
applicable to all entities and individuals in Beijing on January 1, 2012.
Employment Laws and Social Insurance
We are subject to laws and regulations governing our relationship with our employees, including wage and hour
requirements, working and safety conditions, and social insurance, housing funds and other welfare. The compliance with
these laws and regulations may require substantial resources.
China’s National Labor Law, which became effective on January 1, 1995 and was amended on August 27, 2009 and on
December 29, 2018, and China’s National Labor Contract Law, which became effective on January 1, 2008 and was
amended on December 28, 2012, permit workers in both state-owned and private enterprises in China to bargain
collectively. The National Labor Law and the National Labor Contract Law provide for collective contracts to be
developed through collaboration between the labor union (or worker representatives in the absence of a union) and
management that specify such matters as working conditions, wage scales, and hours of work. The laws also permit
workers and employers in all types of enterprises to sign individual contracts, which are to be drawn up in accordance with
the collective contract. The National Labor Contract Law has enhanced rights for the nation’s workers, including
permitting open-ended labor contracts and severance payments. The legislation requires employers to provide written
contracts to their workers, restricts the use of temporary labor and makes it harder for employers to lay off employees. It
also requires that employees with fixed-term contracts be entitled to an indefinite-term contract after a fixed-term contract
is renewed twice or the employee has worked for the employer for a consecutive ten-year period.
On October 28, 2010, the NPC promulgated the PRC Social Insurance Law, which became effective on July 1, 2011 and
was amended on December 29, 2018. In accordance with the PRC Social Insurance Law and other relevant laws and
regulations, China establishes a social insurance system including basic pension insurance, basic medical insurance, work-
related injury insurance, unemployment insurance and maternity insurance. An employer shall pay the social insurance for
its employees in accordance with the rates provided under relevant regulations and shall withhold the social insurance that
should be assumed by the employees. The authorities in charge of social insurance may request an employer’s compliance
and impose sanctions if such employer fails to pay and withhold social insurance in a timely manner. Under the
Regulations on the Administration of Housing Fund effective in 1999, as amended in 2002 and 2019, PRC companies must
register with applicable housing fund management centers and establish a special housing fund account in an entrusted
bank. Both PRC companies and their employees are required to contribute to the housing funds.
On September 18, 2018, the General Meeting of State Council announced that the policies for social insurance shall remain
unchanged until the reform has been completed for the transfer of the authority for social insurance from the Ministry of
Human Resources and Social Security to the SAT on January 1, 2019. On September 21, 2018, the Ministry of Human
Resources and Social Security released the Urgent Notice on Enforcing the Requirement of the General Meeting of the
State Council and Stabilization the Levy of Social Insurance Payment which requires that the policies for both the rate and
basis of social insurance contributions shall remain unchanged until the reform on the transfer of the authority for social
insurance has been completed. On November 16, 2018, the SAT released the Notice of Certain Measures on Further
Supporting and Serving the Development of Private Economy which provides that the policy for social insurance shall
remain stable and the SAT will pursue to lower the social insurance contribution rates with the relevant authorities, and
ensure the overall burden of social insurance contribution on enterprises will be lowered.
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C.
Organizational Structure
The following diagram illustrates our corporate structure, including our subsidiaries and consolidated VIE and its
subsidiaries, as of March 31, 2021:
(1) Mr. Shaoyun Han, our founder and chairman, owns 70% of the equity interest in Beijing Tarena. Mr. Jianguang Li, our
independent director, owns 30% of the equity interest in Beijing Tarena.
(2) Mr. Shaoyun Han is the principal of Weifang Tarena Professional Education School.
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(3) Beijing Tongcheng Technology Co. Ltd., which is a wholly owned subsidiary of Tarena Tech, wholly owns Wuhan
Good Boy Robot Technology Co., Ltd., which holds 100% of the sponsorship interest in Wuhan Jiang’an Good Boy
Robot Education and Training School and Changsha Kaifu District, The Science Kid Robot Education Training
School.
(4) Mr. Shaoyun Han is the principal of Shenyang Tarena Professional Education School, Jinan Tarena Professional
Education School, Wuhan Tarena Professional Education School, Chongqing Jiulongpo Tarena Professional Education
School, Kunming Guandu Tarena Professional Education School, Nanjing Tarena Professional Education School,
Shenzhen Bao’an Tarena Professional Education School, Harbin Tarena Professional Education School, Zhengzhou
Tarena Professional Education School, Dalian High-Tech Zone Tarena Professional Education School, Shenyang
Tarena Times Professional Education School, Chengdu Tarena Professional Education School, Shenzhen Longhua
Xinqu Tarena Professional Skills Education School, Changchun Tarena Professional Education School and Ningbo
Tarena Professional Education School; Qian Li is the principal of Qingdao Tarena Professional Education School; Yue
Qin Shen is the principal of Nanjing Weishang Tarena Professional Education School; Bin Du is the principal of
Changchun Nanguanqu Yingcai Tianyi Professional Education School; Haibo Huang is the principal of Wuhan
Technology Tarena Professional Education School, Wuhan Hongshan Tarena Professional Education School Co.,Ltd.;
Wenwei Jia is the principal of Qingdao Shinan Tongcheng Technology Education Co.,Ltd.; Jiping Xing is the principal
of Jinan lixia Tongcheng Tongmei Training School Co., Ltd.; Wei Wang is the principal of Wuhan Wuchang Tarena
Zhixing Professional Education School; Yan Wang is the principal of Tianjin Tongcheng Tongmei Education Training
School Co., Ltd., Tianjin Tarena Professional Education School Co.,Ltd.; Hui Liu is the principal of Xi’an Lianhu
Tongcheng Tongmei Tonghui Training Center Co., Ltd.; Liping Han is the principal of Shijiazhuang Yuhuaqu
Tongxincheng Education Training School, Shijiazhuang Changanqu Tongzhicheng Education Training School;
the principal of Shenyang Hengping Tongcheng Educational Center, Shenyang Tiexi
Meiyue Zhu
Tongchengtongmei Educational Center; Zengbo Li is the principal of Kunming Wuhua Tongcheng Tongmei Education
Training School Co., Ltd.; Hehai Tian is the principal of Jinan Gaoxin Tongcheng Tongmei Training School Co., Ltd.
Shuai Wang is the principal of Shijiazhuang Tarena Professional Education School; Nan Pan is the principal of
Shijiazhuang Tongcheng Education School; Yudong Wang is the principal of Shenyang Shenhe Tongchengtongmei
Education School Co.,Ltd; Lingzhen Kong is the principal of Taiyuan Xinghualing Tongcheng Tongmei training
school Co., Ltd; Yan Hong is the principal of Qingdao Shibei District Tongcheng Tongchuang Computer Training
School Co., Ltd; Lisha Deng is the principal of Fuzhou Gulou Tarena Professional Education Co.,Ltd; Mei Tan is the
principal of Nanning qingxiu district tonghui training school co., ltd; Leng Liao is the principal of Kunming Xishan
District Tongcheng Tongmei Culture and Art Training School Co. , Ltd. Kunming Guandu Tongcheng Tongmei
Education Training School Co., Ltd; De Xun Wang* is the principal of Guangzhou Tarena Software Professional
Education School; Dan Liu*is the principal of Changsha Kaifu District, the Science Kid Robot Education Training
School, Nanchang Xihu Tarena Technology Digital Art School; Zhi Han* is the principal of Shijiazhuang
Xinhuaqudarenzhinei Tarena Professional Education School Co.,Ltd.
is
* De Xun Wang, Zhi Han and Dan Liu are no longer employed by us. The principal registration for each of
Guangzhou Tarena Software Professional Education School, Nanchang Xihu Tarena Technology Digital Art
School and Changsha Kaifu KxueXiaoZi Robot Education Training School, Shijiazhuang Xinhuaqudarenzhinei
Tarena Professional Education School Co.,Ltd. has not been updated.
Because of foreign ownership restriction on internet content and other value-added telecommunication services in China,
we operate our goto211.com and TMOOC.cn websites through our consolidated VIE, Beijing Tarena. Beijing Tarena is
70% owned by Mr. Shaoyun Han, our founder and chairman, and 30% owned by Mr. Jianguang Li, our independent
director. Mr. Han and Mr. Li are both PRC citizens. We entered into a series of contractual arrangements with Beijing
Tarena and its shareholders, which enable us to:
●
●
●
exercise effective financial control over Beijing Tarena;
receive substantially all of the economic benefits and bear the obligation to absorb substantially all of the losses
of Beijing Tarena; and
have an exclusive option to purchase all or part of the equity interests in Beijing Tarena when and to the extent
permitted by PRC law.
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Because of these contractual arrangements, we are the primary beneficiary of Beijing Tarena and consolidate its financial
results in our consolidated financial statements in accordance with U.S. GAAP.
The following is a summary of the currently effective contracts by and among Tarena International, our subsidiary Tarena
Tech, our VIE, Beijing Tarena, and the shareholders of Beijing Tarena.
Exclusive Business Cooperation Agreement
Under the exclusive business cooperation agreement between Beijing Tarena and Tarena Tech, as amended and restated,
Tarena Tech has the exclusive right to provide, among other things, technical support, business support and related
consulting services to Beijing Tarena and Beijing Tarena agrees to accept all the consultation and services provided by
Tarena Tech. Without Tarena Tech’s prior written consent, Beijing Tarena is prohibited from engaging any third party to
provide any of the services under this agreement. In addition, Tarena Tech exclusively owns all intellectual property rights
arising out of or created during the performance of this agreement. Beijing Tarena agrees to pay a monthly service fee to
Tarena Tech at an amount negotiated by Tarena Tech and Beijing Tarena after taking into account factors including the
complexity and difficulty of the services provided, the time consumed, the seniority of the Tarena Tech employees
providing services to Beijing Tarena, the value of services provided, the market price of comparable services and the
operating conditions of Beijing Tarena. Furthermore, to the extent permitted under the PRC law, Tarena Tech agrees to
provide financial support to Beijing Tarena if Beijing Tarena has any operating loss or suffered any critical operation
adversity. The term of the agreement will remain effective unless Tarena Tech terminates the agreement in writing or a
competent governmental authority rejects the renewal applications by either Beijing Tarena or Tarena Tech to renew its
respective business license upon expiration. Without the consent of Tarena Tech, Beijing Tarena is not permitted to
terminate this agreement in any event unless required by applicable laws.
Power of Attorney
Pursuant to the power of attorney, as amended and restated, the shareholders of Beijing Tarena each irrevocably appointed
Tarena Tech as the attorney-in-fact to act on their behalf on all matters pertaining to Beijing Tarena and to exercise all of
their rights as a shareholder of Beijing Tarena, including but not limited to attend shareholders’ meetings, vote on their
behalf on all matters of Beijing Tarena requiring shareholders’ approval under PRC laws and regulations and the articles of
association of Beijing Tarena, and designate and appoint directors and senior management members. Tarena Tech may
assign its rights under this power of attorney to any other person or entity at its sole discretion without prior notice to the
shareholders of Beijing Tarena. Each power of attorney will remain in force until the shareholder ceases to hold any equity
interest in Beijing Tarena.
Equity Interest Pledge Agreements
Under the equity interest pledge agreements between Tarena Tech, Beijing Tarena and the shareholders of Beijing Tarena,
as amended and restated, the shareholders pledged all of their equity interests in Beijing Tarena to Tarena Tech to guarantee
Beijing Tarena’s and Beijing Tarena’s shareholders’ performance of their obligations under the contractual arrangements
including, but not limited to the service fees due to Tarena Tech. If Beijing Tarena or any of Beijing Tarena’s shareholders
breaches its contractual obligations under the contractual arrangements, Tarena Tech, as the pledgee, will be entitled to
certain rights and entitlements, including receiving proceeds from the auction or sale of whole or part of the pledged equity
interests of Beijing Tarena in accordance with legal procedures. Tarena Tech has the right to receive dividends generated by
the pledged equity interests during the term of the pledge. If any event of default as provided in the contractual
arrangements occurs, Tarena Tech, as the pledgee, will be entitled to dispose of the pledged equity interests in accordance
with PRC laws and regulations. The equity interest pledge agreements became effective on the date when the agreements
were duly executed. The pledge was registered with Changping Bureau of Beijing Administration for Industry and
Commerce in December 2013 and April 2017, respectively. The pledge will remain binding until Beijing Tarena and its
shareholders discharge all their obligations under the contractual arrangements. The registration of the equity pledge
enables Tarena Tech to enforce the equity pledge against third parties who acquire the equity interests in Beijing Tarena in
good faith.
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Exclusive Option Agreements
Under the exclusive option agreements between Tarena International, Inc., Tarena Tech, each of the shareholders of Beijing
Tarena and Beijing Tarena, as amended and restated, each of the shareholders irrevocably granted Tarena International, Inc.
or its designated representative(s) an exclusive option to purchase, to the extent permitted under PRC law, all or part of his
equity interests in Beijing Tarena. In addition, Tarena International, Inc. has the option to acquire the equity interests in
Beijing Tarena for a specified price equal to the loan provided by Tarena Tech to the individual shareholders. If the lowest
price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply.
Tarena International, Inc. or its designated representative(s) has sole discretion as to when to exercise such options, either
in part or in full. Without Tarena International, Inc.’s prior written consent, Beijing Tarena’s shareholders shall not sell,
transfer, mortgage, or otherwise dispose any equity interests in Beijing Tarena. These agreements will remain effective
until all equity interests in Beijing Tarena held by its shareholders are transferred or assigned to Tarena International, Inc.
or Tarena International, Inc.’s designated representatives.
Loan Agreements
Pursuant to the loan agreements between Tarena Tech and each individual shareholder of Beijing Tarena, as amended and
restated, Tarena Tech provided loans with an aggregate amount of RMB5 million to the individual shareholders of Beijing
Tarena for the sole purpose of providing capital for Beijing Tarena. The loans can only be repaid in a manner determined
by Tarena Tech at its sole discretion, which repayment may take the form of transferring the individual shareholders’ equity
interest in Beijing Tarena to Tarena or its designated person pursuant to the exclusive option agreements. The loan shall be
interest-free, unless the transfer price exceeds the principal of the loan when each individual shareholder of Beijing Tarena
transfers his equity interests in Beijing Tarena to Tarena or its designated person(s). Such excess over the principal of the
loan shall be deemed the interest of the loan to the extent permitted under PRC law. The term of each loan agreement is
ten years from the date of the agreement expiring in 2026 and can be extended with the written consent of both parties
before expiration.
In the opinion of our PRC counsel, Han Kun Law Offices, these contractual arrangements are valid, binding and
enforceable under current PRC laws. However, these contractual arrangements may not be as effective in providing control
as direct ownership. There are substantial uncertainties regarding the interpretation and application of current or future
PRC laws and regulations. For a description of the risks relating to our contractual arrangements, please see “Item 3. Key
Information—D. Risk Factors—Risks Relating to Our Corporate Structure.”
D.
Property, Plants and Equipment
We have dual headquarters in China, located in Beijing and Hangzhou. Our principal executive offices in Beijing comprise
of 7,172.4 square meters and accommodate certain of our management and general and administrative activities, as well as
our research and development activities. We also have 19,457.1 square meters in leased classroom space in Beijing. Our
principal executive offices and classrooms in Hangzhou comprise of 13,648.9 square meters of leased space. Our principal
executive offices in Hangzhou accommodate certain of our management and general and administrative activities.
In addition to our principal executive offices in Beijing and Hangzhou, we maintain a number of offices, classrooms and
student dormitories with an aggregate of 275,700.9 square meters in 59 cities in the PRC. For our leased facilities, we
leased them from unrelated third parties. Our lease terms range from six months to ten years. We purchased two office
buildings in Beijing in 2016, mainly for teaching purpose, and to a lesser extent for administrative function. We paid an
aggregate of RMB231.9 million for these two office buildings. We also purchased a building in Qingdao and another one in
Haikou for an aggregate price of RMB50 million in 2016. The purpose of these two buildings is mainly teaching and partly
for administration.
We believe that the facilities that we currently own or lease are adequate to meet our needs for the foreseeable future, and
we believe that we will be able to obtain adequate facilities, principally through leasing of additional properties, to
accommodate our future expansion plans.
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ITEM 4.A. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations is based upon and should be read in
conjunction with our consolidated financial statements and their related notes included in this annual report on Form 20-F.
This report contains forward-looking statements. See “Forward-Looking Information.” In evaluating our business, you
should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this
annual report on Form 20-F. We caution you that our businesses and financial performance are subject to substantial risks
and uncertainties.
A.
Operating Results
Overview
Net Revenues
We derive substantially all of our net revenues from tuition fees that we charge students. In 2018, 2019 and 2020, we
generated net revenues of RMB2,085.4 million, RMB2,051.4 million and RMB1,897.9 million (US$290.9 million),
respectively. We record tuition fees that we collect in advance as deferred revenues. Our net revenues are presented net of
business tax and surcharges.
Number of Student Enrollments
Our total net revenue decreased by 7.5% from RMB2,051.4 million in 2019 to RMB1897.9 million (US$290.9 million) in
2020. Our total adult student enrollments changed from approximately 116,500 in 2018 to approximately 108,800 in 2019
and to approximately 83,400 in 2020. Student enrollments in K-12 education programs changed from approximately
45,600 in 2018 to approximately 99,200 in 2019, and further increased to approximately 141,600 in 2020.
Our total student enrollments are affected by the continuing popularity of our existing courses and programs and the
number and popularity of new courses and new programs we offer. In 2020, K-12 computer programming was the largest
course in terms of revenues and number of student enrollments.
Our total student enrollments are also affected by our ability to maintain our cooperative relationships with financing
service providers for student loans. A significant portion of our adult students enrolled in 2020 relied on loans mainly
provided or arranged by Baidu Small Loan Co., Ltd., Bank of China Consumer Finance Co., Ltd., Beijing Ronglian Shiji
Information Technology Co., Ltd., to pay for our tuition fees. In 2020, 15% of our students received loans provided or
arranged by Baidu Small Loan Co., Ltd., Bank of China Consumer Finance Co., Ltd., Beijing Ronglian Shiji Information
Technology Co., Ltd., to pay for our tuition fees.
Tuition fees
Our net revenues are affected by the tuition fees for each of our courses. For our full-time classes for adult students, our
standard tuition fees generally range from RMB20,800 to RMB23,800 per course in 2020. For our K-12 education
programs, our standard tuition fees are between RMB8,000 and RMB19,200 in 2020. Courses under K-12 education
program typically are composed of multiple levels, with each level consisting of 64 to 120 learning hours in one year.The
actual tuition fees of our courses for adult students may vary according to the recruiting channel through which a student is
enrolled. We recruit students either through our direct marketing efforts or from our network of cooperative universities
and colleges.
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Our tuition fees of our courses for adult students are also affected by the payment option selected by our students. We
primarily offer two payment options for our students, including one-time full payment upon enrollment and multiple
payments within two months of enrollment. We also allow qualified students to pay our tuition fees within a period of time
after graduation. We generally charge approximately RMB1,000 to RMB3,980 higher in tuition fees to students electing to
pay in multiple payments, as compared to students who elect to pay in full upfront. For students recruited through our joint-
majors with universities and colleges, they pay tuition fees for their degrees directly to the universities and colleges
according to the tuition payment schedule stipulated by such schools, which is typically paid in installments prior to the
beginning of each semester of the degree program. In 2020, 88.6% of our enrolled students paid one-time in full upon
enrollment, 2.1% of our enrolled students paid multiple times within two months of enrollment, 1.6% of our enrolled
students utilized the option to pay within a period of time after graduation, and 7.7% of our enrolled students were enrolled
through joint-major programs with universities and colleagues. For our post-graduation payment option, qualified students
are given a grace period of up to six months after graduation to look for employment, during which time no repayment
needs to be made. After such grace period, students are given a ten-month repayment period. In order to qualify for such
payment option, students must pass our credit screening by furnishing to us a number of supporting documents, for
instance a credit report from the People’s Bank of China.Our tuition fees for K-12 education programs are required to be
fully paid up-front.
Cost of Revenues
Our cost of revenues primarily consists of payroll and employee benefits for our instructors (as apportioned based on the
amount of time that they devote to teaching), teaching assistants, career counselors and employer cooperation
representatives, as well as rental payments for our learning centers, and to a lesser extent, depreciation relating to property
and equipment used at our learning centers. The following table sets forth a breakdown of our cost of revenues in absolute
amounts and as percentages of net revenues for the periods indicated:
2018
2019
2020
For the Year Ended December 31,
Personnel cost and welfare
Rental cost
Depreciation expenses
Others
Total cost of revenues
377,098
202,929
129,643
208,879
918,549
RMB revenues
% of net
18.1
% of net
revenues
RMB
RMB
(in thousands, except percentages)
84,102
548,763
28.0
573,520
32,575
212,551
11.3
230,976
9.7
20,504
133,787
7.4
151,373
6.2
10.5
10.0
26,320
171,741
217,965
57.2 1,066,842 163,501
44.0 1,173,834
US$
28.9
11.2
7.0
9.1
56.2
% of net
revenues
Our cost of revenues is primarily affected by the number of our learning centers. In terms of the adult education business,
we had a total of 180, 130 and 104 learning centers as of December 31, 2018, 2019 and 2020, respectively. We also had a
total of 148, 217 and 236 learning centers for K-12 students as of December 31, 2018, 2019 and 2020, respectively.
Operating Expenses
Our operating expenses consist primarily of selling and marketing expenses, general and administrative expenses and, to a
lesser extent, research and development expenses. The following table sets forth our operating expenses in absolute
amounts and as percentages of net revenues for the periods indicated:
For the Year Ended December 31,
2018
2019
RMB
% of net
revenues
% of net
revenues
RMB
(in thousands, except percentages)
RMB
2020
% of net
revenues
US$
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Total operating expenses
1,047,632
546,568
167,254
1,761,454
1,119,698
50.2
26.2
723,306
8.0
132,672
84.5 1,975,676
54.6
138,902
906,337
35.3
96,646
630,618
6.5
15,397
100,466
96.4 1,637,421 250,946
47.8
33.2
5.3
86.3
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Our selling and marketing expenses primarily consist of compensation expenses relating to our personnel involved in
selling and marketing, including our enrollment advisors and our university cooperation representatives based at our
learning centers, advertising expenses relating to our marketing activities, and, to a lesser extent, rental expenses relating to
our selling and marketing functions. We expect our selling and marketing expenses to increase in the future as we further
expand our business.
Our general and administrative expenses primarily consist of compensation expenses relating to our management and
administrative personnel. To a lesser extent, our general and administrative expenses include office expenses relating to
administrative functions. We expect our general and administrative expenses to decrease in absolute amount as we will
continue to implement effective cost control measures.
Our research and development expenses primarily consist of a portion of the personnel costs of our instructors as
determined based on the amount of time that they devote to research and development-related activities, as well as the
personnel costs of our software engineers. We expect our research and development expenses to decrease in absolute
amount as we will continue to implement effective cost control measures.
Seasonality
Seasonal fluctuations have affected, and are likely to continue to affect, our business. Historically, we typically generate the
highest net revenues in the third and fourth quarters because of the increased student enrollments during summer vacation.
We generally generate less tuition fees in the first quarter of each year due to the Chinese New Year holiday.
Internal Control Over Financial Reporting
We are subject to reporting obligations under the U.S. securities laws. Among other things, the Securities and Exchange
Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, adopted
rules requiring every public company, including us, to include a management report on the company’s internal control over
financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s
internal control over financial reporting. Furthermore, our independent registered public accounting firm is required to
report on the effectiveness of our internal control over financial reporting.
We have made, and will continue to make necessary changes and improvements to the overall design of our control
environment to address any deficiencies or material weaknesses in internal control over financial reporting and the
ineffectiveness of our disclosure controls and procedures.
During 2020, our management has undertaken remedial actions to address the material weaknesses in our internal control
over financial reporting as set forth below under “Item 15. Controls and Procedures – Management’s Actions for
Remediation of Material Weaknesses.” As a result of the remedial actions which have been taken, management has
concluded that our internal control over financial reporting was effective as of December 31, 2020. In addition, our
independent registered public accounting firm attesting the effectiveness of our internal control and reported that our
internal control over financial reporting was effective as of December 31, 2020.
Taxation
Cayman Islands
We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or
capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.
Hong Kong
Our wholly-owned subsidiary in Hong Kong, Tarena Hong Kong Limited, is subject to Hong Kong profits tax on its
activities conducted in Hong Kong. No provision for Hong Kong profits tax has been made in the consolidated financial
statements as Tarena Hong Kong Limited has no assessable income since its inception on October 22, 2012 to
December 31, 2020.
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China
Pursuant to the EIT Law and its implementation rules, which became effective on January 1, 2008 and amended on
December 29, 2018 and April 23, 2019, respectively, foreign-invested enterprises and domestic companies are subject to
enterprise income tax at a uniform rate of 25%. In addition, “high and new technology enterprises,” or HNTEs, will enjoy a
preferential enterprise income tax rate of 15% under the EIT Law. Tarena Tech qualified as a HNTE under the EIT Law
and is eligible for a preferential enterprise income tax rate of 15% for the period from 2009 to the end of 2021. Tarena
Hangzhou was established in 2013 and qualified as a “newly established software enterprise,” which entitles it to two years
of full exemption followed by three years of 50% exemption, commencing from the year in which its taxable income is
greater than zero, which was 2014. Tarena Hangzhou no longer has the 50% tax exemption since 2019. On January 25,
2016, we acquired 100% of the equity interests in Hangzhou Hanru Education Technology Co., Ltd., which is qualified as a
“newly established software enterprise” and entitles to two years of full tax exemption followed by three years of 50% tax
exemption, commencing from 2016. Certain of our subsidiaries qualify as “Small Profit Enterprises” in 2017 and 2018, and
therefore are subject to the preferential income tax rate of 20% followed by a 50% exemption. From January 1, 2019 to
December 31, 2021, the first RMB 1 million of assessable profit before tax are subject to the preferential income tax rate of
20% followed by a 75% exemption for our subsidiaries qualify as “Small Profit Enterprises”, while the remaining
assessable profit before tax are subject to the tax rate of 20% followed by a 50% exemption. In 2017, we established
Huoerguosi Weiying Information Technology Co., Ltd., a subsidiary in Horgos, which was qualified to receive a full tax
exemption from its start to December 31, 2020. Subject to the approvals from the tax authorities in certain locations in the
PRC, our subsidiaries and consolidated VIE that are based in these locations are required to use the deemed profit method
to determine their income tax.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make judgments,
estimates and assumptions that affect (i) the reported amounts of our assets and liabilities; (ii) the disclosure of our
contingent assets and liabilities at the end of each reporting period; and (iii) the reported amounts of revenues and expenses
during each reporting period. We continually evaluate these judgments, estimates and assumptions based on our own
historical experience, knowledge and assessment of current business and other conditions and our expectations regarding
the future based on available information, which together form our basis for making judgments about matters that are not
readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process,
our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment
than others in their application.
When reading our consolidated financial statements, you should consider our selection of critical accounting policies, the
judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes
in conditions and assumptions. We believe the following accounting policies involve the most significant judgments and
estimates used in the preparation of our financial statements.
Revenue recognition
The Company adopted ASC Topic 606 (“ASC 606”), Revenue from Contracts with Customers, with effect from January 1,
2018, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.
Accordingly, revenues for the year ended December 31, 2018, 2019 and 2020 were presented under ASC 606.
Revenue recognition before adoption of ASU 2014-09, “Revenue from Contracts with Customers (ASC 606)
Revenue is recognized when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery
has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.
These criteria as they relate to each of the following major revenue generating activities are described below. Revenue is
presented net of business tax and value added taxes (“VAT”) at rates ranging between 3% and 6%, and surcharges. VAT and
business tax collected from customers, net of VAT paid for purchases, is recorded as a liability in the consolidated balance
sheets until it is paid to the tax authorities.
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Tuition revenue
Tuition fees are recognized as revenue proportionately as the training courses are delivered, with unearned portion of
tuition fees being recorded as deferred revenue. For certain students who borrow the tuition fee from financial service
providers, the Company also provides a guarantee service to financial service providers whereas in the event of default, the
financial service providers are entitled to receive unpaid interest and principal from the Company. Given that the Company
effectively takes on all of the credit risk of the borrowers and are compensated by the tuition fees charged, the guarantee is
deemed as a service and the guarantee exposure is recognized as a stand-ready obligation in accordance with ASC Topic
460, Guarantees (see accounting policy for Guarantee Liabilities). The Company first allocates the transaction price to the
guarantee liabilities, if any, in accordance with ASC Topic 460, Guarantees, which requires the guarantee to be measured
initially at fair value based on the stand ready obligation. Then the remaining considerations are allocated to the tuition
fees.
Certain qualified students are allowed to pay their tuition fees on installment for a period of time after the completion of
the course. When tuition services are sold on installment terms that exceeds one year beyond the point in time that revenue
is recognized, the receivable, and therefore the revenue is recorded at the present value of the payments. The difference
between the present value of the receivable and the nominal or principal value of the tuition fees is recognized as interest
income over the contractual repayment period using the effective interest rate method. The interest rate used to determine
the present value of total amount receivable is the rate subject to management decision on the date of the transaction and it
reflects the rate that the students can obtain financing of a similar nature from other sources at the date of the transaction.
The Company enters into arrangements with certain students that purchase multiple services, including tuition service and
practical tutoring service. The Company treats training contracts with multiple performance obligations as separate units of
accounting for revenue recognition purposes and recognizes revenue during the contract period when each performance
obligation is satisfied. The Company allocates the transaction price to each performance obligations based on stand-alone
selling price.
Certification service revenue
The Company provides certification service to students who complete the training course and enroll for the exams. The
Company is responsible for the certification service, including organization, proctoring and grading of exams, and
providing the certificates to students. All certificates are issued by third parties to the students who pass the exam. The
Company acts as the principal in providing this service and recognizes revenue on gross basis because the Company is the
primary obligor in the arrangement and is responsible for fulfilling the ordered services by the students. Cash received
before the students taking the exam, is recorded as deferred revenue, and subsequently recognized as certification service
revenue upon completion of the certification service, which occurs when the certificates are provided to the students.
Loan referral service revenue
The Company promotes loan products of the financial service providers to its students, who need financial assistance for
the payment of their tuition fees, in exchange for a referral fee at a rate of the effective principal amount of the loans. Loan
referral service revenue is recognized upon the initiation of the loans and confirmed with the financial service providers on
a monthly basis.
Revenue recognition after adoption of ASU 2014-09, “Revenue from contracts with Customers (ASC 606)” with modified
retrospective method
Effective January 1, 2018, we evaluated and recognized revenue based on the five steps set forth in ASC 606 by:
●
●
●
identifying the contract(s) with the customer;
identifying the performance obligations in the contract;
determining the transaction price;
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●
●
allocating the transaction price to performance obligations in the contract; and
recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or
service to a customer (i.e., “transfer of control”).
These criteria as they relate to each of the following major revenue generating activities are described below. Revenue is
presented net of business tax and value added taxes (“VAT”) at rates ranging between 3% and 6%, and surcharges. VAT and
business tax to be collected from customers, net of VAT paid for purchases, is recorded as a liability in the consolidated
balance sheets until it is paid to the tax authorities.
Tuition revenue
The Company provides IT and non-IT related training courses to both adult and K-12. The Company also cooperate with
universities and colleges in China to offer joint-major degree programs in accordance with the higher education reform
policies of each province. The Company integrates its selected courses into universities and colleges’ standard
undergraduate curriculum for students enrolled in such joint-major programs. Students can attend part of the courses in our
established on-campus learning sites and part of the courses at the Company’s learning centers.
A majority of contract of tuition service is accounted for as a single performance obligation which is satisfied
proportionately over the service period. Tuition fees are recognized as revenue proportionately as the training courses are
delivered, with unearned portion of tuition fees being recorded as deferred revenue. For certain students who borrow the
tuition fee from financial service providers, the Company also provides a guarantee service to financial service providers
whereas in the event of default, the financial service providers are entitled to receive unpaid interest and principal from the
Company. Given that the Company effectively takes on all of the credit risk of the borrowers and are compensated by the
tuition fees charged, the guarantee is deemed as a service and the guarantee exposure is recognized as a stand-ready
obligation in accordance with ASC Topic 460, Guarantees (see accounting policy for Guarantee Liabilities). The Company
first allocates the transaction price to the guarantee liabilities, if any, in accordance with ASC Topic 460, Guarantees,
which requires the guarantee to be measured initially at fair value based on the stand ready obligation. Then the remaining
considerations are allocated to the tuition fees consistent with the guidance in ASC 606.
Certain qualified students are allowed to pay their tuition fees on installment for a period of time exceeding one year. When
tuition services are sold on installment terms that exceeds one year beyond the point in time that revenue is recognized, the
contract contains a significant financing component, and the consideration promised by the customer is variable. The
receivable, and therefore the revenue is recorded at the present value of the payments. The difference between the present
value of the receivable and the nominal or principal value of the tuition fees is recognized as interest income over the
contractual repayment period using the effective interest rate method. The interest rate used to determine the present value
of total amount receivable is the rate subject to management decision on the date of the transaction and it reflects the rate
that the students can obtain financing of a similar nature from other sources at the date of the transaction.
The Company enters into arrangements with certain students that purchase multiple services. The performance obligations
identified include tuition service and practical tutoring service. The Company treats training contracts with multiple
performance obligations as separate units of accounting for revenue recognition purposes and recognizes revenue during
the contract period when each performance obligation is satisfied. The Company allocates the transaction price to each
performance obligations based on stand-alone selling price.
Refunds are provided to students if they withdraw from classes, and usually only those unearned portions of the fee which
is available will be refunded. A refund liability represents the amounts of consideration received but are not expected to be
entitled to earn, and thus are not included in the transaction price because these amounts are expected to be eventually
refunded to students. The Company determines the transaction price to be earned by estimating the refund liability based
on historical refund ratio on a portfolio basis using the expected value method. Reclassification was made from deferred
revenue to refund liabilities, which was recorded under accrued expenses and other current liabilities. Historically, the
Company has not had material refunds.
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Certification service revenue
The Company provides certification service to students who complete the training course and enroll for the exams. The
Company is responsible for the certification service, including organization, proctoring and grading of exams, and
providing the certificates to students. All certificates are issued by third parties to the students who pass the exam.
The Company is the principal to end customers. The Company acts as the principal in providing the certificate service to
the students and recognizes revenue on gross basis because the Company is able to determine the price, acts as the main
obligor in the arrangement, and, is responsible for fulfilling the services ordered by the students. Cash received before the
students taking the exam is recorded as deferred revenue.
Each contract of certification service is accounted for as a single performance obligation which is satisfied at a point in
time. The performance obligation is satisfied when the certificates are provided to the students and the consideration are
received, then the received consideration is recognized as certification service revenue.
Loan referral service revenue
The Company promotes loan products of financial service providers to its students, who need financial assistance for the
payment of their tuition fees, in exchange for a referral fee generally at a rate of the principal amount of the loans. Each
contract of loan referral service is accounted for as a single performance obligation which is satisfied at a point in time.
Generally, the early repayment and default loan are excluded from the effective principal amount of the loans, and thus are
not included in the transaction price because these amounts are expected to be eventually refunded to financial service
providers. The Company determines the transaction price to be earned by estimating the refund liability based on historical
refund ratio on a portfolio basis using the expected value method. Refund liability was recorded under accrued expenses
and other current liabilities. Historically, the Company has not had material refunds.
Loan referral service revenue is recognized upon the initiation of the loans as the performance obligation is satisfied and
confirmed with the financial service providers on a monthly basis.
Contract acquisition costs
The Company has used practical expedients as allowed under ASC 606 to generally expenses sales commissions when
incurred, because the amortization period would be one year or less. These costs are recorded as sales and marketing
expenses
Contract liability
The Company does not have amounts of contract assets since revenue is recognized as the transferred control of promised
services to customers.
The contract liabilities consist of deferred revenue, which represent that the Company has received consideration but has
not satisfied the related performance obligations. The revenue recognized for years ended December 31, 2019 and 2020
that was previously included in the deferred revenue balances as of January 1, 2019 and December 31, 2019 was
RMB648.1 million and RMB905.9 million, respectively.
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The Company’s deferred revenue amounted to RMB1,586.0 million and RMB1,998.2 million (US$306.2 million) as of
December 31, 2019 and 2020, respectively. Starting from second half year 2019, the Company enters into contracts that
have an original expected length of more than one year with certain students. The remaining performance obligations of
these contracts are as following:
Revenue expected to be recognized on these contracts
For the years ended December 31,
Total
2021
2022
RMB in thousands
18,549
131,335
112,786
The Company has elected to apply the practical expedient in paragraph ASC 606-10-50-14 and does not disclose
information about remaining performance obligations in contracts that have an original expected length of one year or less.
Refund liability mainly related to the estimated refunds that are expected to be provided to students if they decide they no
longer want to take the course. Refund liability estimates are based on historical refund ratio on a portfolio basis using the
expected value method.
Guarantee service revenue recognized under ASC 460
At the inception of each loan, the guarantee liabilities recorded at fair value based on ASC Topic 460 is determined on a
loan by loan basis. The guarantee liabilities are generally reduced by recording a credit to guarantee service revenue as the
guarantor is released from the underlying guaranteed risk. Subsequent to initial recognition, the guarantee obligation’s
release from risk has typically been recognized over the term of the guarantee using a rational amortization method.
Guarantee liabilities
For certain students who borrow the tuition fee from financial service providers, the Company provides a guarantee service
to financial service providers whereas in the event of default, the financial service providers are entitled to receive unpaid
interest and principal from the Company. In general, any unpaid interest and principal are paid when the borrower does not
repay as scheduled.
For accounting purposes, at the inception of each loan, the Company recognizes the guarantee liability in accrued expenses
and other current liabilities at fair value in accordance with ASC 460-10, which incorporates the expectation of potential
future payments under the guarantee and takes into both non-contingent and contingent aspects of the guarantee.
Subsequent to the loan’s inception, the guarantee liability is composed of two components: (i) ASC Topic 460 component;
and (ii) ASC Topic 450 component. The liability recorded based on ASC Topic 460 is determined on a loan by loan basis
and it is reduced when the Company is released from the underlying risk, i.e. as the loan is repaid by the borrower or when
the investor is compensated in the event of a default. This component is a stand ready obligation which is not subject to the
probable threshold used to record a contingent obligation. The guarantee liabilities are generally reduced by recording a
credit to guarantee service revenue as the guarantor is released from the underlying guaranteed risk. Subsequent to initial
recognition, the guarantee obligation’s release from risk has typically been recognized over the term of the guarantee using
a rational amortization method. The other component is a contingent liability determined based on probable loss
considering the actual historical performance and current conditions, representing the obligation to make future payouts
under the guarantee liability in excess of the stand-ready liability, measured using the guidance in ASC Topic 450, loans
with similar risk characteristics are pooled into cohorts. The ASC 450 contingent component is recognized as part of
operating expenses. At all times the recognized liability (including the stand ready liability and contingent liability) is at
least equal to the probable estimated losses of the guarantee portfolio.
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Share-based Compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on
the grant-date fair value of the award and recognizes the cost over the period the employee is required to provide service in
exchange for the award, which generally is the vesting period. The Company recognizes compensation cost for an award
with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for
the entire award, net of estimated forfeitures, provided that the cumulative amount of compensation cost recognized at any
date at least equals the portion of the grant-date value of such award that is vested at that date. Forfeiture rates are
estimated based on historical of employee turnover rates.
Operating lease
The Company adopted Accounting Standards Update (“ASU”) 2016-02 Leases (“ASC 842”) as of January 1, 2019, using
the non-comparative transition option pursuant to ASU 2018-11. Therefore, the Company has not restated comparative
period financial information for the effects of ASC 842, and will not make the new required lease disclosures for
comparative periods beginning before January 1, 2019. The Company elected the package of practical expedients permitted
under the transition guidance within the new standard, which among others things (i) allowed the Company to carry
forward the historical lease classification; (ii) did not require the Company to reassess whether any expired or existing
contracts are or contain leases; (iii) did not require the Company to reassess initial direct costs for any existing leases.
The Company identifies lease as a contract, or part of a contract, that conveys the right to control the use of identified
property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. For all operating
leases except for short-term leases, the Company recognizes operating right-of-use assets and operating lease
liabilities. Leases with an initial term of 12 months or less are short-term lease and not recognized as right-of-use assets
and lease liabilities on the consolidated balance sheet. The Company recognizes lease expense for short-term leases on a
straight-line basis over the lease term. The operating lease liabilities are recognized based on the present value of the lease
payments not yet paid, discounted using the Company’s incremental borrowing rate over a similar term of the lease
payments at lease commencement. Some of the Company’s lease agreements contain renewal options; however, the
Company do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that the
Company is reasonably certain of renewing the lease at inception or when a triggering event occurs. The right-of-use assets
consist of the amount of the measurement of the lease liabilities and any prepaid lease payments. Lease expense for lease
payments is recognized on a straight-line basis over the lease term. The Company’s lease agreements do not contain any
material residual value guarantees or material restrictive covenants.
Income taxes
The Company follows the asset and liability method in accounting for income taxes in accordance to ASC topic 740
“Taxation” (“ASC 740”), Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the
difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect
in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred
tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred
tax assets will not be realized.
The Company adopted ASC 740 to account for uncertainty in income taxes. ASC 740 clarifies the accounting for
uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being
recognized in the consolidated financial statements. The Company 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 Company has elected to classify interest and penalties related to an unrecognized tax benefits, if and when
required, as part of income tax expense in the consolidated statements of comprehensive loss. For the year ended
December 31, 2020, there were no uncertain tax positions and the Company does not expect that the position of
unrecognized tax benefits will materially change within the next twelve months.
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In accordance with PRC Tax Administration Law on the Levying and Collection of Taxes, the PRC authorities generally
have up to five years to assess underpaid tax plus penalties and interest for PRC entities’ tax filings. In case of tax evasion,
which is not clearly defined in the law, there is no limitation on the tax years open for investigation. Accordingly, the PRC
entities remain subject to examination by the tax authorities based on above.
Fair value measurements
The Company applies the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, for fair value
measurements of financial assets and financial liabilities and for fair value measurements of non-financial items that are
recognized or disclosed at fair value in the financial statements on a recurring and non-recurring basis. ASC Topic 820
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and
liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous
market in which it would transact and it considers assumptions that market participants would use when pricing the asset or
liability. ASC Topic 820 also establishes a framework for measuring fair value and expands disclosures about fair value
measurements.
ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. ASC Topic 820 establishes three levels of inputs that
may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant
unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
●
●
●
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company
has the ability to access at the measurement date.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level
input that is significant to the fair value measurement in its entirety. In situations where there is little, if any, market activity
for the asset or liability at the measurement date, the fair value measurement reflects management’s own judgments about
the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by
management based on the best information available in the circumstances.
The carrying amounts of cash and cash equivalents, current time deposits, accounts receivable, loans to employees,
amounts due from related parties, accounts payable, amounts due to related parties, accrued expenses and other current
liabilities as of December 31, 2019 and 2020 approximate their fair value because of short maturity of these instruments.
The carrying amounts of non-current time deposits as of December 31, 2019 and 2020 approximates their fair value since
the interest rates of the time deposits did not differ significantly from the market interest rates for similar types of time
deposits.
The fair values of time deposits as of December 31, 2018 and 2019 are categorized as Level 2 measurement.
Recently Issued Accounting Policies
See Note 2 to our audited consolidated financial statements included in this annual report for recently issued accounting
standards that we believe may have implications on our consolidated financial statements for future periods.
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Results of Operations
The following table sets forth a summary of our consolidated results of operations for the periods indicated, both in
absolute amounts and as percentages of our net revenues. This information should be read together with our consolidated
financial statements and related notes included elsewhere in this annual report. The operating results in any period are not
necessarily indicative of the results that may be expected for any future period.
2018
RMB
% of Net
Revenues
For the Year Ended December 31,
2019
% of Net
Revenues
RMB
(in thousands, except percentages)
RMB
2020
US$
% of Net
Revenues
Net revenues
Cost of revenues(1)
Gross profit
Operating expenses(1):
Selling and marketing
General and administrative
Research and development
Operating loss
Interest income/(expenses)
Other (loss)/income
Foreign currency exchange
gains (loss)
Loss before income taxes
Income tax benefit
Net loss
2,085,371
(918,549)
1,166,822
100.0 2,051,354
(44.0)
56.0
(1,173,834)
877,520
100.0 1,897,883 290,863
(57.2)
42.8
(1,066,842)
831,041
(163,501)
127,362
(1,047,632)
(546,568)
(167,254)
(594,632)
26,200
(33,583)
(50.2)
(26.2)
(8.0)
(28.5)
1.3
(1.6)
(1,119,698)
(723,306)
(132,672)
(1,098,156)
15,859
246
(54.6)
(35.3)
(6.5)
(53.6)
0.8
—
(906,337)
(630,618)
(100,466)
(806,380)
(199)
5,201
(138,902)
(96,646)
(15,397)
(123,583)
(30)
797
100.0
(56.2)
43.8
(47.8)
(33.2)
(5.3)
(42.5)
—
0.3
4,951
(597,064)
4,865
(592,199)
0.2
(28.6)
0.2
(28.4)
1,614
(1,080,437)
41,559
(1,038,878)
0.1
(52.7)
2.0
(50.7)
(4,849)
(806,227)
35,034
(771,193)
(743)
(123,559)
5,369
(118,190)
(0.3)
(42.5)
1.9
(40.6)
Notes:
(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:
For the Year Ended December 31
2018
2019
2020
RMB RMB RMB US$
Cost of revenues
Selling and marketing expenses
General and administrative expenses
Research and development expenses
2,265
8,866
84,645
28,477
97
379
(in thousands)
983
6,502
36,719
14,968
1,842
26,242
7,783
58
282
4,022
1,193
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The Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Net revenues
Our net revenues decreased by 7.5% from RMB2,051.4 million in 2019 to RMB1,897.9 million (US$290.9 million) in
2020. The decrease was primarily due to the reduction of class consumption rates, which are defined as the ratio of revenue
recognized to total tuition fees collected, for both adult and K-12 education businesses during the COVID-19 pandemic in
2020, and a decrease in our adult student enrollment.
For our adult education programs, our net revenues decreased by 25.6% from RMB1,527.2 million in 2019 to RMB1,136.1
million (US$174.1 million) in 2020. The revenue decrease was mainly driven by a reduction of 23.3% in our student
enrollments from approximately 108,800 in 2019 to approximately 83,400 in 2020. The numbers of adult education
learning centers decreased from 130 as of December 31, 2019 to 104 as of December 31, 2020.
For our K-12 education programs, our net revenues increased by 45.3% from RMB524.2 million in 2019 to RMB761.8
million (US$116.8 million) in 2020. We experienced a significant increase of 42.7% in our total student enrollments from
approximately 99,200 in 2019 to approximately 141,600 in 2020. Our K-12 business has expanded into 53 cities in China.
The numbers of K-12 education learning centers increased from 217 as of December 31, 2019 to 236 as of December 31,
2020.
Cost of Revenues
Our cost of revenues decreased by 9.1% from RMB1,173.8 million in 2019 to RMB1,066.8 million (US$163.5 million) in
2020. This decrease was mainly due to the reduction of cooperation with tutoring service providers as most students
transferred to online studying during the COVID-19 pandemic in 2020. Furthermore, during the COVID-19 pandemic, the
utility and office fees declined as our employees worked from home, and the social security fees were exempted due to the
preferential policies promulgated by the government. The decrease was also partly attributable to the decrease in the
number of adult education learning centers, which resulted in a decrease in personnel-related costs and rental expenses.
Gross Profit and Gross Margin
As a result of the foregoing, our gross profit decreased by 5.3% from RMB877.5 million in 2019 to RMB831.0 million
(US$127.4 million) in 2020. Our gross profit margin increased from 42.8% in 2019 to 43.8% in 2020, which was mainly
attributable to the effective cost controls we have implemented in 2020.
Operating Expenses
Our operating expenses decreased by 17.1% from RMB1,975.7 million in 2019 to RMB1,637.4 million (US$250.9
million) in 2020 as a result of a decrease in selling and marketing expenses and general and administrative expenses.
Selling and Marketing Expenses
Our selling and marketing expenses decreased by 19.1% from RMB1,119.7 million in 2019 to RMB906.3 million
(US$138.9 million) in 2020. This decrease was partially due to a decrease in marketing activities and promotional
spending. In addition, personnel-related expenses decreased resulting from lower headcounts, and a decrease in social
security expenses due to the preferential policies promulgated by the government during COVID-19 pandemic in 2020.
General and Administrative Expenses
Our general and administrative expenses decreased by 12.8% from RMB723.3 million in 2019 to RMB630.6 million
(US$96.6 million) in 2020. The decrease was primarily due to a decrease in personnel-related expenses resulting from
lower headcounts, and a decrease in social security expenses resulting from the preferential policies enacted by the
government during COVID-19 pandemic in 2020. In addition, a one-time independent investigation related professional
expenses incurred in 2019.
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Research and Development Expenses
Our research and development expenses decreased by 24.3% from RMB132.7 million in 2019 to RMB100.5 million
(US$15.4 million) in 2020. The decrease was primarily due to a decrease in personnel-related expenses resulting from
lower headcounts.
Interest Income/(expenses)
Our net interest income was RMB15.9 million in 2019 and net interest expenses was RMB0.2 million (US$0.03 million) in
2020. Our interest income in both periods consisted of interest earned on our cash, cash equivalents and time deposits in
commercial banks and interest income recognized in relation to our installment payment plan for students. Interest
expenses in both periods consisted of interest incurred in relation to short-term bank loans. We incurred net interest
expenses in 2020 compared to a net interest income in 2019 primarily due to the RMB89.2 million short-term bank loans
we borrowed in 2019, which have been repaid in November and December 2020.
Income Tax Benefit
Our income tax benefit was RMB35.0 million (US$5.4 million) in 2020, compared to the income tax benefit of RMB41.6
million in 2019.
The effective income tax rate of 4.3% in 2020 was lower than the statutory income tax rate of 25.0% primarily because of
(i) recognition of valuation allowances for deferred income tax assets of certain subsidiaries, which were at cumulative loss
position; (ii) the impact of different tax rates in other jurisdictions; (iii) the preferential income tax rate enjoyed by our
subsidiaries; and (iv) the impact of change of tax rates to certain of our subsidiaries.
The effective income tax rate of 3.8% in 2019 was lower than the statutory income tax rate of 25.0% primarily because of
(i) recognition of valuation allowances for deferred income tax assets of certain subsidiaries, which were at cumulative loss
position; (ii) the impact of different tax rates in other jurisdictions; (iii) the preferential income tax rate enjoyed by our
subsidiaries; and (iv) the impact of change of tax rates to certain of our subsidiaries.
Net Loss
As a result of the foregoing, we incurred a net loss of RMB771.2 million (US$118.2 million) in 2020, as compared to a net
loss of RMB1,038.9 million in 2019.
The Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Net revenues
Our net revenues decreased by 1.6% from RMB2,085.4 million in 2018 to RMB2,051.4 million in 2019. This decrease was
primarily due to the decline in our adult education programs, partially offset by the growth in our K-12 education
programs.
For our adult education programs, our net revenues decreased by 20.3% from RMB1,915.4 million in 2018 to RMB1,527.2
million in 2019. The revenue decrease was mainly driven by a decrease in our student enrollments in adult education
programs, a 6.6% year-over-year decrease from approximately 116,500 in 2018 to approximately 108,800 in 2019, as well
as a reduction in the number of students guaranteed by the Company who are customers of our guarantee services.
For our K-12 education programs, our net revenues increased by 208.5% from RMB169.9 million in 2018 to RMB524.2
million in 2019. We experienced a significant increase in our total student enrollments in K-12 education programs, a
117.5% year-over-year increase from approximately 45,600 in 2018 to approximately 99,200 in 2019. Our K-12 business
has expanded into 54 cities in China by December 31, 2019.
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Cost of Revenues
Our cost of revenues increased by 27.8% from RMB918.5 million in 2018 to RMB1,173.8 million in 2019. This increase
was mainly due to an increase in personnel cost and welfare expenses resulting from growing number of teaching and
advisory staff at our learning centers, as well as depreciation expenses for our learning centers, which was in turn primarily
due to the fast expansion of our K-12 education programs. Our instructors, teaching assistants, career counselors and
employer cooperation representatives at our learning centers increased from 4,209 as of December 31, 2018 to 4,366 as of
December 31, 2019.
Gross Profit and Gross Margin
As a result of the foregoing, our gross profit decreased by 24.8% from RMB1,166.8 million in 2018 to RMB877.5 million
in 2019. Our gross profit margin decreased from 56.0% in 2018 to 42.8% in 2019, which was mainly due to the expansion
of our learning center network, especially the fast increase in the learning centers for our K-12 education programs. We
added a net of 69 learning centers exclusively for K-12 education and rolled out to 4 new cities during 2019.
Operating Expenses
Our operating expenses increased by 12.2% from RMB1,761.4 million in 2018 to RMB1,975.7 million in 2019 as a result
of increases in our selling and marketing and general and administrative expenses.
Selling and Marketing Expenses
Our selling and marketing expenses increased by 6.9% from RMB1,047.6 million in 2018 to RMB1,119.7 million in 2019.
This increase was partially due to the marketing efforts as we expanded our course offerings and network of learning
centers, mainly in K-12 centers. The increase in selling and marketing expenses was mainly due to expanded marketing
efforts, which increased advertising expenses from RMB339.4 million in 2018 to RMB416.8 million in 2019, primarily as
a result of increased spending on search engine advertising as we expanded our network of learning centers.
General and Administrative Expenses
Our general and administrative expenses increased by 32.3% from RMB546.6 million in 2018 to RMB723.3 million in
2019 primarily due to (a) an increase in compensation cost to our staffs which was derived from annual salary adjustments
and the increase of severance payments, and (b) an increase in professional service expenses from RMB19.2 million in
2018 to RMB87.8 million in 2019 as the independent investigation was conducted in 2019.
Research and Development Expenses
Our research and development expenses decreased by 20.7% from RMB167.3 million in 2018 to RMB132.7 million in
2019 primarily due to a decrease in personnel cost and welfare expenses of research and development staff and a decreased
in share-based compensation expenses as the low stock price in 2019.
Interest Income
Our interest income decreased from RMB26.2 million in 2018 to RMB15.9 million in 2019. Our interest income in both
periods consisted of interest earned on our cash, cash equivalents and time deposits in commercial banks and interest
income recognized in relation to our installment payment plan for students. The decrease in interest income in 2019 was
primarily due to the decrease in the interest income on time deposits.
Income Tax Benefit
Our income tax benefit was RMB41.6 million in 2019, compared to the income tax benefit of RMB4.9 million in 2018.
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The effective income tax rate of 3.8% in 2019 was lower than the statutory income tax rate of 25% primarily because of (i)
recognition of valuation allowances for deferred income tax assets of certain subsidiaries, which were at cumulative loss
position; (ii) the impact of different tax rates in other jurisdictions; (iii) the preferential income tax rate enjoyed by our
subsidiaries; and (iv) the impact of change of tax rates to certain of our subsidiaries.
The effective income tax rate of 0.8% in 2018 was lower than the statutory income tax rate of 25% primarily because of (i)
recognition of valuation allowances for deferred income tax assets of certain subsidiaries, which were at cumulative loss
position; (ii) the impact of different tax rates in other jurisdictions; and (iii) withholding tax resulted from distribution of
dividends
Net Loss
As a result of the foregoing, we incurred a net loss of RMB1,038.9 million in 2019, as compared to a net loss of RMB592.2
million in 2018.
Inflation
To date, inflation in China has not materially impacted our results of operations. According to the National Bureau of
Statistics of China, the year-over-year percent changes in the consumer price index for December 2018, 2019 and 2020
were increases of 1.9%, 4.5% and 0.2%, respectively. Although we have not been materially affected by inflation in the
past, we may be affected by higher rates of inflation in China in the future.
Impact of Foreign Currency Fluctuation
See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Fluctuations in exchange
rates could have a material adverse effect on our results of operations and the value of your investment.” and “Item 11.
Quantitative and Qualitative Disclosures About Market Risk—Foreign Exchange Risk.”
Impact of Governmental Policies
See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China” and “Item 4. Information on
the Company—B. Business Overview—Government Regulations.”
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B.
Liquidity and Capital Resources
Cash Flows and Working Capital
Our principal sources of liquidity have been cash generated from operating activities and proceeds from the issuance and
sale of our shares. As of December 31, 2020, we had RMB364.8 million (US$55.9 million) in cash and cash equivalents,
time deposits and restricted cash. Our cash consists of cash in bank and deposits place in third party payment processors.
Cash of our consolidated VIE, in the amount of RMB1.3 million as of December 31, 2020, can be used only to settle
obligations of our consolidated VIE. Cash equivalents consist of interest-bearing certificates of deposit with initial term of
no more than three months when purchased. Time deposits, which mature within one year as of the balance sheet date,
represent interest-bearing certificates of deposit with an initial term of greater than three months when purchased.
Restricted cash is the cash received from financial service provider for students’ tuition fee, which will release to cash
along with the service provided to the students.
We believe that our current cash, cash equivalents, time deposits, restricted cash and anticipated cash flow from operations
will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures,
for at least the next 12 months.
See Cash, cash equivalents, time deposits and restricted cash under Note 2(f) to our audited consolidated financial
statements included in this annual report for information regarding the currencies in which cash, cash equivalents, time
deposits and restricted cash were held as of December 31, 2020.
The following table sets forth a summary of our cash flows for the periods indicated:
For the Year Ended December 31,
2020
2019
RMB
RMB
US$
2018
RMB
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Effect of foreign currency exchange rate changes on cash and cash
equivalents
Net decrease in cash and cash equivalents
Cash, cash equivalents and restricted cash at the beginning of the year
Cash, cash equivalents and restricted cash at end of the year
(in thousands)
163,081
(91,977)
(222,682)
(31,730)
(51,217)
74,397
(108,821)
(657)
(68,299)
(16,677)
(101)
(10,468)
10,571
(141,007)
686,691
545,684
567
(7,983)
545,684
537,701
(1,376)
(179,153)
537,701
358,548
(210)
(27,456)
82,406
54,950
Operating Activities
Net cash used in operating activities amounted to RMB108.8 million (US$16.7 million) in 2020. It was primarily due to (a)
a net loss of RMB771.2 million, mainly adjusted by depreciation and amortization of RMB177.5 million, amortization of
right-of-use asset of RMB170.0 million, and share based compensation expense of RMB36.2 million; (b) a decrease in
operating lease liabilities of RMB128.2 million; and (c) deferred income tax benefit of RMB42.4 million due to
accumulated loss; and partially offset by an increase in deferred revenue of RMB412.2 million due to the expansion of our
K-12 tuition business.
Net cash used in operating activities amounted to RMB31.7 million in 2019. It was primarily due to (a) a net loss of
RMB1,038.9 million, mainly adjusted by depreciation and amortization of RMB194.8 million, amortization of right-of-use
asset of RMB218.3 million, and share based compensation expense of RMB59.2 million; (b) a decrease in operating lease
liabilities of RMB241.3 million; and (c) deferred income tax benefit of RMB46.0 million due to accumulated loss; and
partially offset by a) an increase in deferred revenue of RMB756.0 million due to the expansion of our K-12 tuition
business; and b) a decrease in prepaid expenses and other current assets of RMB22.8 million.
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Net cash provided by operating activities amounted to RMB163.1 million in 2018. It was primarily due to (a) a net loss of
RMB592.2 million, adjusted by deferred income tax benefit of RMB46.6 million, depreciation and amortization of
RMB158.8 million, share based compensation expense of RMB124.3 million, and impairment of long-term investments of
RMB35.5 million; (b) an increase in deferred revenue of RMB445.9 million due to the expansion of our tuition business;
and (c) an increase in accrued expenses and other current liabilities of RMB44.1 million; and partially offset by an increase
in other non-current assets of RMB16.0 million.
Investing Activities
Our cash used in investing activities is primarily related to investments in time deposits, short-term financial products and
other entities with a great development prospect, and purchase of buildings, property and equipment and leasehold
improvements.
Net cash used in investing activities was RMB0.7 million (US$0.1 million) in 2020, consisting of purchase of time deposits
of RMB94.4 million, and purchase of property and equipment, including computers and servers, of RMB79.4 million in
connection with the expansion of our network of K-12 learning centers, and partially offset by the maturity of time deposits
of RMB171.7 million.
Net cash used in investing activities was RMB51.2 million in 2019, consisting of purchase of time deposits of RMB341.7
million, purchase of property and equipment, including computers and servers, of RMB161.3 million in connection with
the expansion of our network of K-12 learning centers, and payment for long-term investment of RMB3.0 million, and
partially offset by the maturity of time deposits of RMB419.8 million and proceed from net repayment of employees loans
of RMB24.9 million.
Net cash used in investing activities was RMB92.0 million in 2018, consisting of purchase of time deposits of RMB284.2
million, purchase of property and equipment, including computers and servers, of RMB276.3 million in connection with
the expansion of our network of learning centers, and payment for long-term investment of RMB14.6 million, net payment
for loans to employees of RMB43.0 million, net payment for acquisition of RTEC of RMB57.7 million, and partially offset
by the maturity of time deposits of RMB563.4 million.
Financing Activities
Net cash used in financing activities in 2020 was RMB68.3 million (US$10.5 million), which was primarily attributed to
repayment of bank borrowings of RMB89.2 million, partially offset by proceeds from bank borrowings of RMB10.7
million, proceeds from issuance of Class A ordinary shares in connection with exercise of share options of RMB3.4
million, and proceeds from the collection of loan of a related party of RMB6.5 million.
Net cash provided by financing activities in 2019 was RMB74.4 million, which was primarily attributed to proceeds from
bank borrowings of RMB89.2 million, proceeds from issuance of Class A ordinary shares in connection with exercise of
share options of RMB3.3 million, and partially offset by repayment of bank borrowings of RMB13.8 million and
repayment of the balance repurchase payable as of December 31, 2018 of RMB5.1 million.
Net cash used in financing activities in 2018 was RMB222.7 million, which was primarily attributed to repurchase of
treasury stock under a share repurchase plan in the amount of RMB197.0 million, payment for dividend in the amount of
RMB43.0 million, and partially offset by proceeds from bank borrowings of RMB13.2 million, proceeds from non-
controlling interest of RMB1.1 million, and proceeds from issuance of Class A ordinary shares in connection with exercise
of share options of RMB3.0 million.
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Capital Expenditures
Our capital expenditures are primarily related to purchase of office building, property and equipment, leasehold
improvements and investments in computers, network equipment and software. Our capital expenditures were RMB276.3
million, RMB161.3 million and RMB71.5 million (US$11.0 million) in 2018, 2019 and 2020, respectively. We have made
and may continue to make acquisitions of businesses and properties that complement our operations. We expect our capital
expenditures will continue to be significant for the near future as we continue to expand our network of learning centers.
We expect to fund our future capital expenditures with our current cash, cash equivalents, time deposits and anticipated
cash flow from operations.
Impact of COVID-19
Beginning in January 2020, the outbreak of COVID-19 has spread rapidly to many parts of the world. The epidemic has
resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in China and many other
countries for the past one and a half years. In March 2020, the World Health Organization declared the COVID-19 a
pandemic.
The COVID-19 pandemic had adversely affected many of our business activities, including delivering lectures at its
learning centers, recruiting students and conducting our day-to-day business in 2020. As part of China’s nationwide efforts
to contain the spread of COVID-19, our classrooms in Beijing as well as our learning centers across China underwent
temporary yet prolonged closure from February 2020 to May 2020. We had arranged online webcasts for our students to
study at home. Many of the quarantine measures within China have since been relaxed as of the date of this annual report,
and we had gradually opened our learning centers for recruiting and consultation and resumed offline classes since June
2020. However, our learning centers may be ordered to suspend classes and cancel offline activities again if China fails to
fully contain COVID-19 or suffers a COVID-19 relapse.
The outbreak of COVID-19 in China also caused temporary closures of many of our offices, adjustment of operation hours
and work-from-home arrangements in our Beijing headquarters and other offices in China during the first half of 2020. The
duration and extent of impact of such business disruptions on the operating results and financial performance cannot be
reasonably estimated at this time. In light of the evolving nature of COVID-19 and the uncertainty it has produced, we do
not believe it is possible to predict the COVID-19 pandemic’s cumulative and ultimate impact on our future business,
results of operations, and financial condition. The extent of the impact of the COVID-19 pandemic on our business and
financial results will depend largely on future developments, including the duration and extent of the spread of COVID-19
in China, the prevalence of local and national travel restrictions which are highly uncertain and cannot be predicted.
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Holding Company Structure
We are a holding company with no material operations of our own. We conduct our operations primarily through our
wholly-owned subsidiaries in China. As a result, our ability to pay dividends depends upon dividends paid by our wholly-
owned subsidiaries. If our wholly-owned subsidiaries or any newly formed subsidiaries incur any debt in the future, the
instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly-owned
subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance
with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries is required to set aside at least
10% of its after-tax profits each year, if any, to fund a statutory surplus reserve until such reserve reaches 50% of its
registered capital. Although the statutory surplus reserves can be used to increase the registered capital and eliminate future
losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends
except in the event of liquidation. As a result of these PRC laws and regulations, as of December 31, 2020, we had
RMB139.1 million in statutory surplus reserves that are not distributable as cash dividends. We are required to set aside an
additional RMB454.4 million to satisfy the maximum requirement of statutory surplus reserves for all of our PRC
subsidiaries as of December 31, 2020. In addition, our private schools requiring reasonable returns are required to
appropriate no less than 25% of their net income to a statutory development fund, whereas in the case of private schools
requiring no reasonable return, this amount shall be no less than 25% of the annual increase of their net assets. As of
December 31, 2020, we had RMB19.8 million in statutory development fund that are not distributable as cash dividends.
C. Research and Development, Patents and Licenses, etc.
Research and Development
Building a reliable, scalable and secure technology infrastructure is crucial to our ability to support our live lecture
broadcasts, online TTS, TMOOC.cn and the various services that we provide to our students. We manage our lecture
delivery system, TTS and TMOOC.cn using a combination of commercially available software, hardware systems and
proprietary technology. Since 2006, we have established a powerful online platform that enables thousands of students to
simultaneously log onto our TTS and participate in activities online.
Our research and development expenses primarily consist of a portion of the personnel costs of our instructors as
determined based on the amount of time that they devote to research and development-related activities, as well as the
personnel costs of our software engineers. Our research and development expenses were RMB167.3 million, RMB132.7
million and RMB100.5 million (US$15.4 million) in 2018, 2019 and 2020, respectively.
Intellectual Property
Our trademarks, copyrights, domain names, trade secrets and other intellectual property rights distinguish our courses and
services from those of our competitors and contribute to our ability to compete in our target markets. We rely on a
combination of copyright and trademark law, trade secret protection and confidentiality agreements with senior executive
officers and most other employees, to protect our intellectual property rights. In addition, we require certain of our senior
executive officers and other employees to enter into agreements with us under which they acknowledge that all inventions,
utility models, designs, know-how, copyrights and other forms of intellectual property made by them within the scope of
their employment with us, pursuant to job assignments or using our materials and technology, or during the one year after
their employment that relates to their employment with us, are our property and they should assign the same to us if we so
require. We also regularly monitor any infringement or misappropriation of our intellectual property rights.
As of December 31, 2020, we had registered 89 domain names relating to our business, including our www.tedu.cn,
TMOOC.cn, jobshow.cn, www.IT61.cn and www.art61.cn websites, with the Internet Corporation for Assigned Names and
Numbers and China Internet Network Information Center and held 151 registered software copyrights and 112 trademarks.
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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 January 1, 2020 to December 31, 2020 that are reasonably likely to have a
material effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed
financial information to be not necessarily indicative of future operating results or financial conditions.
E.
Off-Balance Sheet Arrangements
We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity, or
that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent
interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.
We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit
support to us or engages in leasing, hedging or research and development services with us.
F.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2020:
Payment due by December 31,
Operating lease commitments(1)
686,693
243,857
197,984
71,696
22,277
8,467
Total
2021
2022
2023
(RMB in thousands)
142,412
2024
2025
2026 and
thereafter
Note:
(1) Represents our non-cancelable leases for our offices and learning centers.
G.
Safe Harbor
See “Forward-Looking Statements.”
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Executive Officers
The following table sets forth information regarding our executive officers and directors as of the date of this annual report.
Directors and Executive Officers
Shaoyun Han
Ying Sun
Yongji Sun
Jianguang Li
Hon Sang Lee
Arthur Lap Tat Wong
Wing Kee Lau
Age
Position/Title
50
44
56
56
62
61
56
Founder and Chairman
Chief Executive Officer
Director
Independent Director
Independent Director
Independent Director
Chief Financial Officer
Shaoyun Han is our founder and has served as chairman of our board of director since our inception. Mr. Han served as the
Chief Executive Officer of the Company from inception to April 2020. Before founding Tarena in September 2002,
Mr. Han was deputy chief engineer and director of the software division of AsiaInfo-Linkage between 1995 and 2002,
responsible for software research and development and corporate management. Mr. Han received a bachelor’s degree in
computer application from Jilin University in China.
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Ying Sun serves as our Chief Executive Officer since April 2021. Ms. Sun has served as our vice president from December
2009 to April 2021, responsible for our nation-wide operations. Ms. Sun joined us in June 2005 as the general manager of
our Beijing learning centers. Between 2007 and 2009, she was the general manager of our northern region. Ms. Sun made
significant contribution to the development of our marketing system, collaboration with universities and career support for
students. From 1999 to 2005, Ms. Sun worked in Gloria Hotels and Resorts, serving in various sales and human resources-
related roles. Ms. Sun received a bachelor’s degree in tourism economics management from Dongbei University of Finance
and Economics in China.
Yongji Sun serves as our director since April 2020. Mr. Sun had served as our independent director from April 2014 to
April 2020 and Chief Executive Officer from April 2020 to April 2021. Mr. Sun currently serves as the Chairman of Dilato
Infotech Ltd. Between 2011 and 2014, Mr. Sun served as the Chief Executive Officer of Shangxue Education Technology
Inc. Between 2005 and 2011, Mr. Sun served as Executive Vice President at Pactera Technology International Ltd., or
Pactera (a Nasdaq listed company from 2010 to 2014). Prior to joining Pactera in November 2005, Mr. Sun co-founded
Ensemble International Ltd. in 2002 and served as its Chief Executive Officer from 2003 to 2005. He founded and served
as Chief Executive Officer of Newland Network Co. from 2000 to 2002. He established China R&D Center for Lotus
Development Corporation (Lotus was later acquired by IBM) in 1993 and served as its R&D head until 1998. Mr. Sun
received his bachelor’s degree in Computer Science from North-East Machinery Institute in 1985, master’s degree in
Computer Science from Nanjing Aerospace & Aeronautic University in 1988, and MBA from Babson College, MA, U.S.A
in 2000.
Jianguang Li has served as our independent director since April 2020. Mr. Li had served as our director from April 2014 to
April 2020. Mr. Li has been a partner of IDG Capital Partners since March 2006, responsible for providing venture capital
and private equity investment-related advice. Between 1999 and 2006, Mr. Li served as a vice-president of IDG
Technology Venture Investment Inc. Prior to joining IDG in 1999, Mr. Li worked in Crosby Assets Management Limited
as an investment manager. Mr. Li received a bachelor’s degree in management from Peking University and a master’s of
science degree from the University of Guelph.
Hon Sang Lee has served as our independent director since January 2020. Mr. Lee is a seasoned technology entrepreneur
and active angel investor with unique leadership experience, having been a chief executive for both multinational and local
leading IT companies in China. Mr. Lee is an early China business pioneer starting in 1987 when he joined HP China and
stayed with HP for twelve years until 1999. While at HP, Mr. Lee established and headed the HP Personal Computer and
Peripheral Business in China, growing it from a small operation to a market leader when he left in 1999. Mr. Lee then
joined Founder (SEHK.418) as CEO to run its software and systems integration business. Mr. Lee was Chairman and CEO
of Hinge Software, a software company he had co-founded in 2003. In 2007, Hinge sold its outsourcing operations to
ChinaSoft (SEHK.354). Mr. Lee currently serves as the Chairman and Executive Partner of ShangGu Capital ,which is an
equity venture investment fund targeting early and growth stage innovative companies. Mr. Lee founded Sinova SJ Capital
in 2010. Mr. Lee received his B.S. in Computer Science from the University of Hong Kong.
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Arthur Lap Tat Wong has served as our independent director since March 2020. Mr. Wong currently serves as an
independent director and chairperson of the audit committees of the following public companies: Daqo New Energy Corp.
(NYSE: DQ), China Maple Leaf Educational Systems Limited (HKSE:1317) and Canadian Solar Inc. (Nasdaq: CSIQ).
From 2008 to 2018, Mr. Wong served as the chief financial officer of Asia New-Energy, Nobao Renewable Energy,
GreenTree Inns Hotel Management Group and Radio Cultural Transmission Co., Ltd sequentially. From 1982 to 2008,
Mr. Wong worked for Deloitte Touche Tohmatsu, in Hong Kong, San Jose and Beijing over various periods of time, with
his latest position as a partner in the Beijing office. Mr. Wong received a bachelor’s degree in applied economics from the
University of San Francisco and a higher diploma of accountancy from Hong Kong Polytechnic University. He is a
member of the American Institute of Certified Public Accountants, the Association of Chartered Certified Accountants and
the Hong Kong Institute of Certified Public Accountants.
Wing Kee Lau is our chief financial officer. Prior to joining us, Mr. Lau was the chief financial officer of Square Panda Inc.,
a U.S.-based AI education start-up company, between July 2018 and August 2019. Between March 2007 and June 2018,
Mr. Lau first served as the chief financial officer of Perfect World Co., Ltd., a China-based online game company (“Perfect
World”) listed on Nasdaq between 2007 and 2015, and later as the chief financial officer of Perfect World Holding
Co., Ltd., the holding company of Perfect World. Between November 2004 and February 2007, Mr. Lau was the chief
financial officer of Beijing Media Corporation Limited, a company listed on the Stock Exchange of Hong Kong Limited.
From 2000 to 2004, Mr. Lau was a group finance director of Shanghai Ogilvy & Mather Advertising Limited Beijing
Branch. From 1990 to 2000, Mr. Lau worked at Hong Kong, Shanghai and Beijing offices of PricewaterhouseCoopers,
lastly as a senior manager in Beijing. Mr. Lau received his bachelor’s degree in business administration from Hong Kong
Baptist University in 1990. He received his EMBA degree in 2011 from Cheung Kong Graduate School of Business in
China. Mr. Lau is a member of Association of Chartered Certified Accountants and Hong Kong Institute of Certified Public
Accountants.
B.
Compensation of Directors and Executive Officers
For the fiscal year ended December 31, 2020, we paid an aggregate of approximately RMB6.17 million in cash to our
executive officers, and we paid an aggregate of RMB2.25 million in cash to our non-executive directors. For share
incentive grants to our directors and executive officers, see “—Share Incentive Plan.”
Our PRC subsidiaries and consolidated affiliated entities are required by law to make contributions equal to
certain percentages of each employee’s salary for his or her pension insurance, medical insurance, housing fund,
unemployment and other statutory benefits. Other than the above-mentioned statutory contributions mandated by
applicable PRC law and the health insurance policy, we have not set aside or accrued any amount to provide pension,
retirement or other similar benefits to our executive officers and directors.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with each of our executive officers. Under these agreements, each of our
executive officers is employed for a specified time period. We may terminate employment for cause, at any time, without
advance notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or
any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform
agreed duties. We may also terminate an executive officer’s employment without cause upon three-month advance written
notice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required
by applicable law of the jurisdiction where the executive officer is based. The executive officer may resign at any time with
a three-month advance written notice.
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Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment
agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with
the employment or pursuant to applicable law, any confidential information or trade secrets of our clients or prospective
clients, or the confidential or proprietary information of any third party received by us and for which we have confidential
obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets
which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all
right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for
these inventions, designs and trade secrets.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the
term of his or her employment and typically for two years following the last date of employment. Specifically, each
executive officer has agreed not to (i) approach our suppliers, clients, customers or contacts or other persons or entities
introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with
such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment
with or provide services to any of our competitors, or engage, whether as a principal, partner, licensor or otherwise, any of
our competitors, without our express consent; or (iii) seek directly or indirectly, to solicit the services of any of our
employees who is employed by us on or after the date of the executive officer’s termination, or in the year preceding such
termination, without our express consent.
We have also entered into indemnification agreements with each of our directors and executive officers. Under these
agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by
such persons in connection with claims made by reason of their being a director or officer of our company.
Share Incentive Plan
The 2008 Plan
We have adopted the 2008 Plan in September 2008. The purpose of the 2008 Plan is to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional incentives to selected directors, officers,
employees and consultants and to promote the success of Tarena’s business by offering these individuals an opportunity to
acquire a proprietary interest in Tarena.
Under the 2008 Plan, the maximum aggregate number of shares which may be issued is 8,184,990. Options to purchase a
total of 3,815,000 Class A ordinary shares were granted prior to our adoption of the 2008 Plan. Such options were ratified
by our board and included in the 2008 Plan.
The 2008 Plan has expired according to it terms. All options granted under the 2008 Plan had been vested before the
termination of the 2008 Plan. As of March 31, 2021, no options were issued and outstanding.
The 2014 Plan
We adopted the 2014 Plan in February 2014. The maximum aggregate number of shares which may be issued pursuant to
all awards under the 2014 Plan, or the Award Pool, is 1,833,696, provided that the shares reserved in the Award Pool shall
be increased on the first day of each calendar year, commencing with January 1, 2015, if the unissued shares reserved in the
Award Pool on such day account for less than 2% of the total number of shares issued and outstanding on a fully-diluted
basis on December 31 of the immediately preceding calendar year, as a result of which increase the shares unissued and
reserved in the Award Pool immediately after each such increase shall equal 2% of the total number of shares issued and
outstanding on a fully-diluted basis on December 31 of the immediately preceding calendar year. The number of Class A
ordinary shares available for future issuance upon the exercise of future grants under the 2014 Plan was 1,173,714 as of
January 1, 2021. As of February 28, 2021, options to purchase 3,001,942 Class A ordinary shares are issued and
outstanding under the 2014 Plan and 210,210 restricted share units were granted and outstanding under the 2014 Plan. The
following paragraphs summarize the terms of the 2014 Plan.
Types of Awards. The 2014 Plan permits the awards of options, restricted shares and restricted share units.
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Plan Administration. Our board or a committee of one or more members of our board duly authorized for the purpose of
the 2014 Plan can act as the plan administrator.
Award Agreement. Options, restricted shares or restricted share units granted under the 2014 Plan are evidenced by an
award agreement that sets forth the terms, conditions and limitations for each grant.
Eligibility. We may grant awards to our employees, consultants or directors. However, we may grant options that are
intended to qualify as incentive share options only to our employees and employees of our parent companies and
subsidiaries.
Acceleration of Awards upon Change in Control. If a change in control, liquidation or dissolution of our company occurs,
the plan administrator may, in its sole discretion, provide for (i) all awards outstanding to terminate at a specific time in the
future and give each participant the right to exercise the vested portion of such awards during a specific period of time, or
(ii) the purchase of any award for an amount of cash equal to the amount that could have been attained upon the exercise of
such award, or (iii) the replacement of such award with other rights or property selected by the plan administrator in its sole
discretion, or (iv) payment of award in cash based on the value of ordinary shares on the date of the change-in-control
transaction plus reasonable interest.
Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award
agreement. The vested portion of option will expire if not exercised prior to the time as the plan administrator determines at
the time of its grant. However, the maximum exercisable term is the tenth anniversary after the date of a grant.
Exercise Price of Options. The exercise price in respect of any option shall be determined by the plan administrator and set
forth in the award agreement which may be a fixed or variable price related to the fair market value of the shares. The
exercise price per share subject to an option may be amended or adjusted in the absolute discretion of the plan
administrator, the determination of which shall be final, binding and conclusive.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is set forth in the award
agreement.
Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of
descent and distribution, except as otherwise provided by the plan administrator.
Termination. Unless terminated earlier, the 2014 Plan will terminate automatically in 2024.
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The following table summarizes, as of February 28, 2021, the outstanding options granted to our directors and executive
officers under our share plan.
Ordinary Shares
Underlying
Exercise Price
Name
Shaoyun Han
Ying Sun
Wing Kee Lau
Total
Date of Expiration
Date of Grant
February 20, 2014
February 20, 2014
March 1, 2015
Options Awarded (US$/Share)
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
1,097,788
April 3, 2024
4.36
April 3, 2024
1.83
4.36
February 28, 2025
1.83 December 31, 2016 December 31, 2026
March 31, 2017 December 31, 2026
1.00
January 1, 2020 December 31, 2029
0
January 1, 2021 December 31, 2030
0.01
April 3, 2024
January 1, 2013
1.83
April 3, 2024
February 20, 2014
4.36
4.36
February 28, 2025
March 1, 2015
1.83 December 31, 2016 December 31, 2026
January 1, 2020 December 31, 2029
2.51 December 28, 2020 December 28, 2030
0.01
January 1, 2021 December 31, 2030
2.51 December 28, 2020 December 28, 2030
0
*
The aggregate number of ordinary shares underlying the outstanding options held by this individual is less than 1% of
our total outstanding shares as of February 28, 2021.
The following table summarizes, as of February 28, 2021, the outstanding restricted share units we granted to our directors
and executive officers under the 2014 Plan.
Name
Yongji Sun
Jianguang Li
Hon Sang Lee
Arthur Lap Tat Wong
Wing Kee Lau
Number of
Class A
Ordinary
Shares
Underlying
Restricted
Share
Units
*
*
*
*
*
Date of
Grant
April 9, 2020
April 9, 2020
January 1, 2020
March 1, 2020
March 1, 2020
*
Less than 1% of our total outstanding shares as of February 28, 2021.
As of February 28, 2021, other individuals as a group held outstanding options to purchase a total of 1,904,154 Class A
ordinary shares of our company, with exercise prices ranging from US$0.058 to US$4.36 per share, and held outstanding
restricted share units to acquire a total of 155,803 Class A ordinary shares of our company.
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C.
Board Practices
Board of Directors
Our board of directors currently consists of five directors. A director is not required to hold any shares in our company.
Subject to the rules of the NASDAQ Global Select Market and disqualification by the chairman of the relevant board
meeting, a director may vote with respect to any contract, proposed contract, or arrangement in which he or she is
materially interested. The board may exercise all the powers of the company to borrow money, mortgage its business,
property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any
obligation of the company or of any third party. There is no age limit requirement for directors. The service agreements
between us and the directors do not provide benefits upon termination of their services.
Committees of the Board of Directors
We have an audit committee, a compensation committee and a nominating and corporate governance committee under the
board of directors. We have adopted a charter for each of the three committees. In December 2020, we have also formed a
special committee of the board of directors in response to a preliminary non-binding proposal letter from Mr. Shaoyun Han.
Each committee’s members and functions are described below.
Audit Committee. Our audit committee consists of Messrs. Arthur Lap Tat Wong, Jianguang Li and Hon Sang Lee, and is
chaired by Mr. Arthur Lap Tat Wong. Each member of our audit committee satisfies the “independence” requirements of
Rule 5605(c)(2) of the NASDAQ Stock Market Rules and meets the independence standards under Rule 10A-3 under the
Securities Exchange Act of 1934, as amended, or the Exchange Act. We have determined that Mr. Arthur Lap Tat Wong
qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting
processes and the audits of the financial statements of our company. The audit committee is responsible for, among other
things:
●
●
●
●
●
selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing
services permitted to be performed by the independent registered public accounting firm;
reviewing with the independent registered public accounting firm any audit problems or difficulties and
management’s response;
reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under
the Securities Act;
discussing the annual audited financial statements with management and the independent registered public
accounting firm;
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of
material control deficiencies;
●
reviewing and reassessing annually the adequacy of our audit committee charter;
● meeting separately and periodically with management and the independent registered public accounting firm;
● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and
effectiveness of our procedures to ensure proper compliance; and
●
reporting regularly to the board.
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Compensation Committee. Our compensation committee consists of Messrs. Hon Sang Lee, Jianguang Li and Arthur Lap
Tat Wong, and is chaired by Hon Sang Lee. Each member of our compensation committee satisfies the “independence”
requirements of Rule 5605(c)(2) of the NASDAQ Stock Market Rules. The compensation committee assists the board in
reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and
executive officers. Our chief executive officer may not be present at any committee meeting during which their
compensation is deliberated upon. The compensation committee is responsible for, among other things:
●
●
●
●
reviewing and approving, or recommending to the board for its approval, the compensation for our chief
executive officer and other executive officers;
reviewing and recommending to the board for determination with respect to the compensation of our non-
employee directors;
reviewing and recommending to the board for determination with respect to the compensation of our non-
employee directors;
selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors
relevant to that person’s independence from management.
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of
Messrs. Jianguang Li, Hon Sang Lee and Arthur Lap Tat Wong, and is chaired by Mr. Jianguang Li. Each member of our
nominating and corporate governance committee satisfies the “independence” requirements of Rule 5605(c)(2) of the
NASDAQ Stock Market Rules. The nominating and corporate governance committee assists the board in selecting
individuals qualified to become our directors and in determining the composition of the board and its committees. The
nominating and corporate governance committee is responsible for, among other things:
●
●
●
●
recommending nominees to the board for election or re-election to the board, or for appointment to fill any
vacancy on the board;
reviewing annually with the board the current composition of the board with regards to characteristics such as
independence, age, skills, experience and availability of service to us;
selecting and recommending to the board the names of directors to serve as members of the audit committee and
the compensation committee, as well as of the nominating and corporate governance committee itself;
developing and reviewing the corporate governance principles adopted by the board and advising the board with
respect to significant developments in the law and practice of corporate governance and our compliance with
such laws and practices; and
●
evaluating the performance and effectiveness of the board as a whole.
Special Committee. In December 2020, our board of directors formed a special committee of independent directors
consisting of two independent directors, Mr. Arthur Lap Tat Wong, as the chairman of the Special Committee, and Mr. Hon
Sang Lee in response to a preliminary non-binding proposal letter from Mr. Shaoyun Han, our founder and chairman of the
board of directors, to acquire all of the outstanding Class A ordinary shares of the Company that are not already owned by
Mr. Han and his affiliates.
Duties of Directors
Under Cayman Islands law, our directors have a 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 skill they actually possess and such care and diligence that a
reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors
must ensure compliance with our memorandum and articles of association. A shareholder may have the right to seek
damages in our name if a duty owed by our directors is breached.
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Terms of Directors and Officers
Our officers are elected by and serve at the discretion of the board. Our directors are not subject to a term of office and hold
office until such time as they resign or are removed from office by ordinary resolution of our shareholders. A director will
be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement
or composition with his creditors; or (ii) dies or is found by our company to be of unsound mind.
D.
Employees
We have dual headquartered in Beijing and Hangzhou, where our instructors, software engineers and certain general and
administrative staff are based. We have divided our national network of learning centers into three regions, namely
northern region, southern region, and central and western region, and we have regional offices that are responsible for
managing the daily operations of learning centers located within each territory.
We had a total of 12,337, 11,833 and 10,181 employees as of December 31, 2018, 2019 and 2020, respectively. As of
December 31, 2020, we had 2,690 employees in Beijing, 235 employees in Hangzhou and 7,231 employees in other areas
within China. We also have 25 employees in Taipei. The following table sets forth the number of our employees,
categorized by function, as of December 31, 2020:
Functions
Teaching and content development
Selling and marketing
General and administration
Others*
Total
Notes:
Number of Employees
3,233
3,628
1,698
1,632
10,181
* includes employer cooperation representatives for adult and K-12 education, career counselors for adult, and center
administrators for K-12 education.
As required by regulations in China, we participate in various employee social security plans that are organized by
municipal and provincial governments, including pension, unemployment insurance, childbirth insurance, work-related
injury insurance, medical insurance and housing insurance. We are required under PRC law to make contributions from
time to time to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our
employees, up to a maximum amount specified by the local government.
Our employees are not covered by any collective bargaining agreement. We believe that we maintain a good working
relationship with our employees, and we have not experienced any significant labor disputes.
E.
Share Ownership
Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our
ordinary shares as of February 28, 2021 by:
●
●
each of our directors and executive officers; and
each person known to us to own beneficially 5% or more of our ordinary shares.
The calculations in the table below are based on 55,645,243 ordinary shares outstanding as of February 28, 2021,
comprising of 48,439,184 Class A ordinary shares (excluding 7,199,870 Class A ordinary shares issued to our depositary
bank for bulk issuance of ADSs reserved for issuances upon the exercise or vesting of awards under our share incentive
plan) and 7,206,059 Class B ordinary shares.
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Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of
shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the
person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the
conversion of any other security. These shares, however, are not included in the computation of the percentage ownership
of any other person.
Ordinary Shares Beneficially Owned
Class A
ordinary
shares
Class B
ordinary
shares
Total ordinary
shares on an
as-converted
basis
10,068,133 7,206,059 17,274,192
*
*
*
*
*
*
11,042,510
—
—
—
—
—
—
7,206,059
*
*
*
*
*
*
18,248,569
6,826,263
6,794,732
2,193,223
4,307,727
—
—
7,206,059
—
6,826,263
6,794,732
9,399,282
4,307,727
% of total
ordinary
shares on
an as-
converted
basis
% of
aggregate
voting
power †
30.7
*
*
*
*
*
*
32.3
12.3
12.2
16.9
7.7
67.8
*
*
*
*
*
*
68.4
5.7
5.6
61.6
3.6
Directors and Executive Officers:**
Shaoyun Han(1)
Yongji Sun
Jianguang Li(2)
Hon Sang Lee(3)
Arthur Lap Tat Wong
Wing Kee Lau
Ying Sun
All directors and executive officers as a group
Principal Shareholders:
KKR funds(4)
AERO Holdings Limited(5)
Learningon Limited(6)
Connion Capital Limited(7)
Notes:
*
Less than 1%.
** Except for Mr. Jianguang Li and Mr. Hon Sang Lee, the business address of our directors and executive officers is 6/F,
No. 1 Andingmenwai Street, Litchi Tower, Chaoyang District, Beijing 100011, PRC.
†
For each person and group included in this column, percentage of voting power is calculated by dividing the voting
power beneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary
shares as a single class. Each holder of Class A ordinary shares is entitled to one vote per share and each holder of our
Class B ordinary shares is entitled to ten votes per share on all matters submitted to them for a vote. Our Class A
ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of our
shareholders, except as may otherwise be required by law. Our Class B ordinary shares are convertible at any time by
the holder thereof into Class A ordinary shares on a one-for-one basis.
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(1) Represents (i) 7,206,659 Class B Ordinary Shares held by Learningon Limited, (ii) 1,152,183 Class A Ordinary Shares
held by Techedu Limited, (iii) 2,000,000 Class A Ordinary Shares held by Moocon Education Limited, (iv) 3,594,439
restricted American depositary shares (“ADSs”) representing 3,594,439 Class A Ordinary Shares held by Connion
Capital Limited, (v) 2,193,223 restricted ADSs representing 2,193,223 Class A Ordinary Shares held by Learningon
Limited, (vi) 415,000 ADSs representing 415,000 Class A Ordinary Shares held by Mr. Han and (vii) 713,288 Class A
Ordinary Shares that Connion Capital Limited may purchase upon exercise of options within 60 days of February 28,
2021. Each of Connion, Learningon and Techedu is principally an investment holding vehicle. Each of Connion and
Learningon is a company organized and existing under the laws of the British Virgin Islands, and is ultimately wholly
owned by HANQQ Trust. TMF (Cayman) Ltd. is the trustee of HANQQ Trust, with Mr. Han as settlor and Mr. Han
and his family as beneficiaries. Techedu Limited is a company organized and existing under the laws of the British
Virgin Islands and is wholly owned by Mr. Shaoyun Han. Mr. Han is the sole director of each of Connion, Learningon
and Techedu, which do not have any executive officer. Moocon Education Limited is a company organized and
existing under the laws of the British Virgin Islands, and is wholly owned by Mr. Shaoyun Han, who is also the sole
director of Moocon Education Limited. The registered office address of each of Connion, Learningon, Moocon and
Techedu is the offices of Trident Trust Company, (B.V.I.) Ltd., Trident Chambers, Wickhams Cay, P.O. Box 146, Road
Town, Tortola, British Virgin Islands.
(2) The business address of Mr. Li is 6/F., COFCO Plaza, No.8 Jianguomennei Ave, Jiannei St, Dongcheng District,
Beijing, 100020, PRC.
(3) The business address of Mr. Wong is 1208 Dragon Bay Villa, Hou Sha Yu, Shunyi, Beijing, 101302, PRC.
(4) Consists of 6,826,263 Class A ordinary shares held by Talent Fortune Investment Limited, a Cayman Islands company,
as reported in a Schedule 13D amendment filed by KKR & Co. L.P. on August 30, 2017. Talent Fortune Holdings
Limited is the sole shareholder of Talent Fortune Investment Limited. KKR China Growth Fund L.P. is the controlling
member of Talent Fortune Holdings Limited. KKR Associates China Growth L.P. is the sole general partner of KKR
China Growth Fund L.P. KKR China Growth Limited is the sole general partner of KKR Associates China
Growth L.P. KKR Fund Holdings L.P is the sole shareholder of KKR Associates China Growth L.P. KKR Fund
Holdings GP Limited is a general partner of KKR Fund Holdings L.P. KKR Group Holdings L.P. is the sole
shareholder of KKR Fund Holdings GP Limited and a general partner of KKR Fund Holdings L.P. KKR Group
Limited is the general partner of KKR Group Holdings L.P. KKR & Co. L.P. is the sole shareholder of KKR Group
Limited. KKR Management LLC is the general partner of KKR & Co. L.P. The designated members of KKR
Management LLC are Messrs. Henry R. Kravis and George R. Roberts. The business address of Talent Fortune
Investment Limited is c/o KKR Asia Limited, Level 56, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong.
The percentage of beneficial ownership and voting power was calculated based on the total number of our ordinary
shares outstanding as of February 28, 2021.
(5) The number of ordinary shares beneficially owned is as reported in a Schedule 13G/A filed by AERO Holdings
Limited on February 10, 2021, and consists of (i) 6,470,741 ADSs, representing 6,470,741 Class A ordinary shares,
held by Orchid Asia VI, L.P. and (ii) 323,991 ADSs, representing 323,991 Class A ordinary shares, held by Orchid
Asia V Co-Investment Limited. The general partner of Orchid Asia VI, L.P. is OAVI Holdings, L.P., whose general
partner is Orchid Asia VI GP, Limited. Orchid Asia VI GP, Limited is wholly owned by Orchid Asia V Group
Management, Ltd., which is wholly owned by Orchid Asia V Group, Limited. AERO Holdings Limited is the
controlling shareholder of Orchid Asia V Group, Limited and Orchid Asia V Co-Investment Limited. Ms. Lam Lai
Ming is the sole shareholder of AERO Holdings Limited. The business address of AERO Holdings Limited is Suites
6211-12, 62nd Floor, The Center, 99 Queen’s Road, Central, Hong Kong. The percentage of beneficial ownership and
voting power was calculated based on the total number of our ordinary shares outstanding as of February 28, 2021.
(6) Represents (i) 7,206,059 Class B ordinary shares and (ii) 2,193,223 ADSs representing 2,193,223 Class A ordinary
shares. The registered office address of Learingon Limited is the offices of Trident Trust Company (B.V.I.) Limited,
Trident Chambers, P.O. Box 146, Road Town, Tortola, the British Virgin Islands. Learingon Limited is ultimately
owned by Mr. Shaoyun Han through a trust.
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(7) Represents (i) 3,594,439 ADSs representing 3,594,439 Class A Ordinary Shares and (ii) 713,288 Class A Ordinary
Shares that Connion Capital Limited may purchase upon exercise of options within 60 days of February 28, 2021. The
registered office address of Connion Capital Limited is the offices of Trident Trust Company (B.V.I.) Limited, Trident
Chambers, P.O. Box 146, Road Town, Tortola, the British Virgin Islands. Connion Capital Limited is ultimately owned
by Mr. Shaoyun Han through a trust.
Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary
shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share. We
issued Class A ordinary shares represented by our ADSs in our initial public offering in April 2014. Holders of our Class B
ordinary shares may choose to convert their Class B ordinary shares into the same number of Class A ordinary shares at
any time. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstance.
To our knowledge, other than Mr. Shaoyun Han, 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. We are not aware of
any arrangement that may, at a subsequent date, result in a change of control of our company.
To our knowledge, as of February 28, 2021, a total of 42,725,515 ADSs (equivalents to 42,725,515 Class A ordinary
shares) are outstanding (among which 36,937,853 are unrestricted ADSs while 5,787,662 are restricted ADSs),
representing 78.1% of our total issued and outstanding Class A ordinary shares as of such date. To our knowledge, there is
one record holder in the United States which is CEDE & CO. The number of beneficial owners of our ADSs in the United
States is likely to be much larger than the number of record holders in the United States. As of February 28, 2021, none of
our Class B ordinary shares are held by any record holder in the United States.
For options and restricted share unit granted to our officers, directors and employees, see “—B. Compensation of Directors
and Executive Officers—Share Incentive Plan.”
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B.
Related Party Transactions
Contractual Arrangements with our VIE
See “Item 4. Information on the Company—C. Organizational Structure.”
Transactions with Shareholders and Affiliates
Transactions with Chuanbang. Chuanbang Business Consulting (Beijing) Co., Ltd., or Chuanbang, is a company owned
by our chairman, Mr. Shaoyun Han. Pursuant to our agreement with Chuanbang, Chuanbang provided cash collection
service on our accounts receivable to better manage our cash collection since August 2013. The fee is calculated based on
2%~20% of the amount collected. Employees of Chuanbang include former employees of the Company who worked in the
credit evaluation department. Chuanbang also provides similar cash collection service to other financial institutions. The
cash collection service fees were RMB3.5 million, RMB0.8 million and RMB0.1 million (US$0.01 million) for 2018, 2019
and 2020, respectively.
Transactions with Ms. Lijuan Han. On October 8, 2016, we extended a loan of RMB6.5 million to Ms. Lijuan Han, a
sister of Mr. Shaoyun Han, for 60 months with an annual interest rate of 5%. Upon the Company’s request to avoid any risk
of possible violation of Sarbanes-Oxley Act, all of the balance was repaid to the Company on April 2, 2020.
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Transactions with Connion Capital Limited. Connion Capital Limited is a company ultimately owned by our chairman,
Mr. Shaoyun Han through a trust. In 2018, the Company wired funds to and shortly received same funds back from
Connion Capital Limited in five separate occasions with each no more than US$1 million in order for the Company to
maintain the requisite minimum level of activity in its bank account. No amount was due from Connion Capital Limited as
of December 31, 2020.
Registration Rights
We entered into a registration rights agreement with Talent Fortune Investment Limited, or KKR, an affiliate of KKR &
Co. L.P., on July 17, 2015, pursuant to which we granted certain registration rights to KKR. Set forth below is a description
of the registration rights granted under the agreement.
Securities Act Registration on Request. Upon a written request from KKR, we must use reasonable best efforts to effect a
registration under the Securities Act covering the registrable securities requested by KKR to register.
However, we are not obligated to effect more than a total of three registration requests and at least a period of 180 days
shall have elapsed since the previous registration request and the previous registration in which KKR had an opportunity to
participate pursuant to its piggyback registration rights.
Piggyback Registration Rights. If we propose to register our securities under the Securities Act, subject to limited
exceptions, we must offer KKR an opportunity to include in that registration all or any part of its registrable securities. The
managing underwriter of any underwritten offering have the right to limit the number of shares with registration rights to
be included in the registration statement, subject to certain limitations.
Postponements. We have the right to defer filing of a registration statement for up to 90 days if our board of directors
determines in good faith that the filing of a registration statement would be materially adversely affect us and our
shareholders, but we cannot exercise the deferral right more than once in any 12-month period.
Expenses of Registration. We will pay all expenses relating to any requested or piggyback registration, with certain limited
exceptions.
Termination of Obligations. Our obligations under this registration rights agreement shall terminate when all registrable
shares of KKR could be sold without restriction under Rule 144(e) under the Securities Act within a 90-day period.
Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—
Employment Agreements and Indemnification Agreements.”
Share Option Grants
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—
Share Incentive Plan.”
C.
Interests of Experts and Counsel
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
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Legal Proceedings
We are currently not a party to, and are not aware of any threat of, any legal, arbitration or administrative proceedings that,
in the opinion of our management, are likely to have a material and adverse effect on our business, financial condition or
results of operations. From time to time, we have become, and may in the future become, a party to various legal or
administrative proceedings or claims arising in the ordinary course of our business. Regardless of the outcome, legal or
administrative proceedings or claims may have an adverse impact on us because of defense and settlement costs, diversion
of management attention and other factors.
Dividend Policy
In June 2018, we paid an aggregate amount of cash dividends of RMB43.0 million (US$6.8 million), US$0.12 per ADS, to
our shareholders of record as of the close of business on April 5, 2018. In June 2017, we paid a RMB63.1 million (US$9.2
million) cash dividend, US$0.16 per ADS, to our shareholders of record as of the close of trading on March 27, 2017,
which was declared on February 28, 2017. In May 2016, we paid a RMB54.0 million (US$8.4 million) cash dividend,
US$0.15 per ADS, to our shareholders as of the close of trading on April 6, 2016, which was declared on March 7, 2016.
The dividends were funded by surplus cash on our balance sheet.
Our board of directors has complete discretion whether to declare dividends, subject to the Companies Act, our articles of
association, and the common law of the Cayman Islands. In addition, our shareholders may by ordinary resolution declare a
dividend, but no dividend may exceed the amount recommended by our directors. Even if our board of directors decides to
declare dividends, their form, frequency and amount will depend upon our future operations and earnings, capital
requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors
may deem relevant. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or
share premium account, provided that in no circumstances may a dividend be paid if this would result in the company
being unable to pay its debts as they fall due in the ordinary course of business.
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 Class A common shares. Cash dividends will be paid to the depositary of our ADSs in U.S.
dollars, which will distribute them to the holders of ADSs after fees 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.
We are a holding company incorporated in the Cayman Islands. PRC regulations may restrict the ability of our PRC
subsidiaries to pay dividends to us. See “Item 4. Information on the Company—B. Business Overview—Government
Regulations—Regulations on Dividend Distribution.”
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our
audited consolidated financial statements included in this annual report.
ITEM 9.
THE OFFER AND LISTING
A.
Offering and Listing Details.
See “—C. Markets.”
B.
Plan of Distribution
Not applicable.
C. Markets
Our ADSs, each representing one Class A ordinary share, have been listed on the NASDAQ Global Select Market under
the symbol “TEDU” since April 3, 2014.
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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
The following are summaries of material provisions of our currently effective fifth amended and restated memorandum and
articles of association, as well as the Companies Act, Cap 22 ( Law 3 of 1961, as consolidated and revised) of the Cayman
Islands insofar as they relate to the material terms of our ordinary shares. The information set forth in Exhibit 2.5 to this
Annual Report on Form 20-F is incorporated herein by reference.
Registered Office and Objects
Our registered office in the Cayman Islands is located at the offices of Conyers Trust Company (Cayman) Limited, Cricket
Square, Hutchins Drive, PO Box 2681, Grand Cayman KY1-1111, Cayman Islands. As set forth in article 3 of our fifth
amended and restated memorandum of association, the objects for which our company is established are unrestricted.
Board of Directors
See “Item 6. Directors, Senior Management and Employees—C. Board Practices.”
Ordinary Shares
General. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and
conversion rights. All of our outstanding ordinary shares are fully paid and non-assessable. Certificates representing the
ordinary shares are issued in registered form. Our shareholders who are non-residents of the Cayman Islands may freely
hold and transfer their ordinary shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors,
provided that dividends may be declared and paid out of funds legally available therefor, namely out of either profit, our
share premium account or any other fund or account which can be authorized for this purpose in accordance with the
Companies Act. Holders of Class A ordinary shares and Class B ordinary shares will be entitled to the same amount of
dividends, if declared.
Voting Rights. Holders of our ordinary shares are entitled to ten calendar days notice of meetings of our shareholders. In
respect of all matters subject to a shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B
ordinary share is entitled to ten votes, voting together as one class. Voting at any meeting of shareholders is by show of
hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any shareholder present in
person or by proxy.
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A quorum required for a meeting of shareholders consists of two shareholders who hold at least 50% of all voting power of
our share capital in issue at the meeting present in person or by proxy or, if a corporation or other non-natural person, by its
duly authorized representative. Shareholders’ meetings may be held annually. Each general meeting, other than an annual
general meeting, shall be an extraordinary general meeting. Extraordinary general meetings may be called by a majority of
our board of directors or our chairman or upon a requisition of shareholders holding at the date of deposit of the requisition
not less than 1/3 of the aggregate voting power of our company. Advance notice of at least ten calendar days is required for
the convening of our annual general meeting and other general meetings.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of
the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no
less than 2/3 of the votes cast attaching to the outstanding ordinary shares at a meeting. A special resolution will be
required for important matters such as a change of name or making changes to our fifth amended and restated
memorandum and articles of association.
Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof.
Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of
Class B ordinary shares by a holder to any person or entity which is not an affiliate of such holder, such Class B ordinary
shares shall be automatically and immediately converted into the equivalent number of Class A ordinary shares.
Transfer of Ordinary Shares. Subject to the restrictions set out below and the provisions above in respect of Class B
ordinary shares, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in
the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not
fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary
share unless:
●
●
●
●
●
the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it
relates and such other evidence as our board of directors may reasonably require to show the right of the
transferor to make the transfer;
the instrument of transfer is in respect of only one class of ordinary shares;
the instrument of transfer is properly stamped, if required;
in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be
transferred does not exceed four; and
a fee of such maximum sum as the NASDAQ Global Market may determine to be payable or such lesser sum as
our directors may from time to time require is paid to us in respect thereof.
If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer
was lodged, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of the NASDAQ Global Market, be suspended
and the register closed at such times and for such periods as our board of directors may from time to time determine,
provided, however, that the registration of transfers shall not be suspended nor the register closed for more than thirty days
in any year as our board may determine.
Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of
ordinary shares), assets available for distribution among the holders of ordinary shares shall be distributed among the
holders of the ordinary shares on a pro rata basis. If our assets available for distribution are insufficient to repay all of the
paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately. Any
distribution of assets or capital to a holder of a Class A ordinary share and a holder of a Class B ordinary share will be the
same in any liquidation event.
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Calls on Ordinary Shares and Forfeiture of Ordinary Shares. Our board of directors may from time to time make calls
upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least fourteen
calendar days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are
subject to forfeiture.
Repurchase and Redemption of Ordinary Shares. The Companies Act and our fifth amended and restated articles of
association permit us to purchase our own shares. In accordance with our fifth amended and restated articles of association
and provided the necessary shareholders or board approval have been obtained, we may issue shares on terms that are
subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner,
including out of capital, as may be determined by our board of directors.
Variations of Rights of Shares. All or any of the special rights attached to any class of shares may, subject to the
provisions of the Companies Act, be varied with the written consent of the holders of three-fourths of the issued shares of
that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.
The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the
terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari
passu with such existing class of shares.
Inspection of Books and Records. Holders of our ordinary shares have no general right under Cayman Islands law to
inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders
with annual audited financial statements. See “Item 10. Additional Information—H. Documents on Display.”
Issuance of Additional Shares. Our fifth amended and restated memorandum of association authorizes our board of
directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of
available authorized but unissued shares.
Our fifth amended and restated memorandum of association also authorizes our board of directors to establish from time to
time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and
rights of that series, including:
●
●
●
●
the designation of the series;
the number of shares of the series;
the dividend rights, dividend rates, voting rights; and
the rights and terms of redemption and liquidation preferences.
Our board of directors may issue preferred shares without action by our shareholders to the extent authorized but unissued.
Issuance of these shares may dilute the voting power of holders of ordinary shares.
Anti-Takeover Provisions. Some provisions of our fifth amended and restated memorandum and articles of association
may discourage, delay or prevent a change of control of our company or management that shareholders may consider
favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to
designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or
action by our shareholders.
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Exempted Company. We are an exempted company with limited liability under the Companies Act. “Limited liability”
means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the
company. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company
that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be
registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary
company except that an exempted company:
●
●
●
does not have to file an annual return of its shareholders with the Registrar of Companies;
is not required to open its register of members for inspection;
does not have to hold an annual general meeting;
● may issue shares with no par value;
● may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for
20 years in the first instance);
● may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
● may apply to be registered as a special economic zone company;
● may register as a limited duration company; and
● may register as a segregated portfolio company.
Our fifth amended and restated memorandum and articles of association do not provide provisions that are different from
those that are applicable to an exempted company as set forth above, except that they do not permit us to issue shares with
no par value.
C. Material Contracts
Banking Facilities
In June 2018, we entered into banking facilities, or the Facilities, with Hang Seng Bank Limited, or Hang Seng, with a total
facility limit of US$12 million to finance and refinance our dividend payment and general working capital needs.
Drawdowns under the Facilities are subject to an interest of 1.2% per annum over HIBOR/LIBOR or Hang Seng’s cost of
funds, whichever is higher. A standby documentary credits of US$12 million or its equivalent in Hong Kong dollar to be
issued to support the Facilities. The repayment shall be made in one lump sum upon 12 months from the drawdown date or
at least two weeks before the expiry date of the standby documentary credits. Prepayment, either in whole or in part, is
allowed provided that Hang Seng receives 30 days prior written notice and such prepayment is made on an interest
payment date with a minimum amount of US$5 million or ten million in Hong Kong dollar. We had drawn down US$2.0
million under the Facilities with a term of 12 months, with an interest rate of 4.0% per annum, and repaid the US$2.0
million in full in 2019. We have provided a standby documentary credits of US$2 million to support the loan.
On August 9, 2019, we entered into two lines of credit contracts with Bank of Beijing for a loan of RMB190 million in
total with validity period on August 8, 2021. The loan bears a fixed interest rate of one-year Loan Prime Rate (“LPR”) plus
1.15% per annum on the date of drawing. As of December 31, 2019, the Company has drawn RMB89.2 million. The
applicable interest rate for the loan is 5.3% per annum. The loan was subsequently repaid in November and December
2020. As of December 31, 2020, the Company has drawn RMB10.7 million, which will mature in 12 months from the
drawdown date. The applicable interest rate for the loan is 5.3% per annum. The carrying value of office buildings pledged
for the borrowing was RMB197.7 million.
We have not entered into any material contracts other than in the ordinary course of business and other than those described
above and in “Item 4. Information on the Company” or elsewhere in this annual report on Form 20-F.
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D.
Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulations on Foreign
Exchange Registration of Overseas Investment by PRC Residents,” “Item 4. Information on the Company—B. Business
Overview—Government Regulations—Regulations on Foreign Currency Exchange” and “Item 4. Information on the
Company—B. Business Overview—Government Regulations—Regulations on Dividend Distribution.”
E.
Taxation
The following summary of Cayman Islands, PRC and United States federal income tax considerations of an investment in
our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual
report, all of which are subject to change or differing interpretation, possibly with retroactive effect. This summary does
not deal with all possible tax considerations relating to an investment in our ADSs or ordinary shares, such as the tax
considerations under other federal, state, local and other tax laws not addressed herein. To the extent that the discussion
relates to matters of Cayman Islands tax law, it represents the opinion of Conyers Dill & Pearman, our Cayman Islands
counsel. To the extent that the discussion relates to matters of PRC tax law, it represents the opinion of Han Kun Law
Offices, our PRC counsel.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or
appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes levied by the
Government of the Cayman Islands that are likely to be material to holders of ADSs or ordinary shares. The Cayman
Islands is a party to double taxation treaty with the United Kingdom but otherwise 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 (2011 Revision) of the Cayman Islands, we have obtained an
undertaking from the Governor-in-Council:
(i) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or
appreciation shall apply to us or our operations; and
(ii) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares,
debentures or other obligations.
The undertaking for us is for a period of twenty years from March 25, 2014.
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People’s Republic of China Taxation
Under the EIT Law, an enterprise established outside the PRC with “de facto management bodies” within the PRC is
considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25%
enterprise income tax rate on its worldwide income as well as tax reporting obligations. Under the Implementation Rules to
the EIT Law, a “de facto management body” is defined as a body that has material 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 issued by the SAT in April 2009, as amended in December 2017, specifies that certain offshore-
incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident
enterprises if the following are located or resident in the PRC: 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, minutes of board meetings and shareholders’ meetings; and half or more of
the senior management or directors having voting rights. Further to Circular 82, the SAT issued the Bulletin 45, which took
effect in September 2011 and amended respectively in 2015, 2016 and 2018, to provide more guidance on the
implementation of Circular 82. Bulletin 45 provides for procedures and administration details of determination on PRC
resident enterprise status and administration on post-determination matters. We do not believe that Tarena
International, Inc. is a PRC resident enterprise. If the PRC tax authorities determine that Tarena International, Inc. is a PRC
resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow.
One example is that a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders
and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ADSs and
potentially a 20% of withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and
with respect to gains derived by our non-PRC individual shareholders from transferring our shares or ADSs.
Under the EIT Law and its implementation rules, dividends generated from retained earnings from a PRC company and
distributed to a foreign parent company are subject to a withholding tax rate of 10% unless the foreign parent’s jurisdiction
of incorporation has a tax treaty with China that provides for a preferential withholding arrangement. Pursuant to the Hong
Kong Tax Treaty, which was promulgated on August 21, 2006, a company incorporated in Hong Kong, such as Tarena HK,
will be subject to withholding income tax at a rate of 5% on dividends it receives from its PRC subsidiary if it holds a 25%
or more interest in that particular PRC subsidiary, or 10% if it holds less than a 25% interest in that subsidiary. However,
based on Circular 81, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied,
including without limitation that (a) the Hong Kong enterprise must be the beneficial owner of the relevant dividends; and
(b) the Hong Kong enterprise must directly hold at least 25% share ownership in the PRC enterprise during the 12
consecutive months preceding its receipt of the dividends. However, a transaction or arrangement entered into for the
primary purpose of enjoying a preferential tax treatment should not be a reason for the application of the preferential tax
treatment under the Hong Kong Tax Treaty. If a taxpayer inappropriately is entitled to such preferential tax treatment, the
competent tax authority has the power to make appropriate adjustments. According to the Circular 9, effective from
April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatments in connection
with dividends, interests or royalties in the tax treaties, several factors, including without limitation whether the applicant is
obligated to pay more than 50% of his or her income in twelve months to residents in a third country or region, whether the
business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region
to the tax treaties levies any tax or grants tax exemption on relevant incomes or levies tax at an extremely low rate, will be
taken into account, and such determination will be analyzed according to the actual circumstances of the specific cases.
Circular 9 further provides that applicants who intend to prove his or her status of the “beneficial owner” shall submit the
relevant documents to the relevant tax authority according to Circular 60, which was replaced and repealed by Circular 35.
Based on Circular 60, non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in
order to enjoy the reduced withholding tax rate. Instead, non-resident enterprises and their withholding agents may, by self-
assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the
reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will
be subject to post-tax filing examinations by the relevant tax authorities. Circular 35 sets forth similar rules with Circular
60 that non-resident enterprises and their withholding agents shall enjoy treaty benefit by means of “self-judgment of
eligibility, declaration of entitlement, and retention of relevant materials for future reference.” However, if a competent tax
authority finds out that it is necessary to apply the general anti-tax avoidance rules, it may start general investigation
procedures for anti-tax avoidance and adopt corresponding measures for subsequent administration.
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The State Administration of Tax issued the Notice on Promulgating the Administrative Measures for Special Tax
Investigation Adjustments and Mutual Agreement Procedures, or Notice 6, on March 17, 2017. Notice 6 further regulates
and strengthens the transfer pricing administration on outbound payments by a PRC enterprise to its overseas related
parties. In addition to emphasizing that outbound payments by a PRC enterprise to its overseas related parties must comply
with arm’s-length principles, Notice 6 specifies certain circumstances whereby such payments that do not comply with
arm’s-length principles may be subject to the special tax adjustments by the tax authority, including payments to an
overseas related party which does not undertake any function, bear any risk or has no substantial operation or activities,
payments for services which do not enable the PRC enterprise to obtain direct or indirect economic benefits, royalties paid
to an overseas related party which only owns the legal rights of the intangible assets but has no contribution to the value of
such intangible assets, royalties paid to an overseas related party for the transfer of the right to use of the intangible assets
with no economic benefits, and royalties paid to an overseas related party for the incidental benefits generated from the
listing activities. Although we believe all our related party transactions, including all payments by our PRC subsidiaries
and consolidated affiliated entities to our non-PRC entities, are made on an arm’s-length basis and our estimates are
reasonable, the ultimate decisions by the relevant tax authorities may differ from the amounts recorded in our financial
statements and may materially affect our financial results in the period or periods for which such determination is made.
It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ADSs would be able to claim
the benefit of income tax treaties or agreements entered into between China and other countries or areas. See “Item 3. Key
Information—D. Risk Factors—Risks Relating to Doing Business in China—Under the PRC Enterprise Income Tax Law,
we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would
likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our
results of operations and the value of your investment.”
The SAT issued a Circular 59 together with the Ministry of Finance in April 2009 and a Circular 698 in December 2009.
Both Circular 59 and Circular 698 became effective retroactively as of January 1, 2008. By promulgating and
implementing these two circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer
of equity interests in a PRC resident enterprise by a non-resident enterprise. On February 3, 2015, the SAT issued a Public
Notice [2015] No.7, or Public Notice 7, to supersede the existing tax rules in relation to the Indirect Transfer as set forth in
Circular 698. Under Public Notice 7, where a non-resident enterprise conducts an “indirect transfer” by transferring the
equity interests in a PRC “resident enterprise” or other taxable assets indirectly by disposing of the equity interests in an
overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC enterprise income tax,
if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. In
addition, Public Notice 7 provides clear criteria on how to assess reasonable commercial purposes and introduces safe
harbor scenarios applicable to internal group restructurings. However, it also brings challenges to both the foreign
transferor and transferee of the Indirect Transfer as they have to make self-assessment on whether the transaction should be
subject to PRC tax and to file or withhold the PRC tax accordingly. In October 2017, the SAT promulgated the
Announcement of the State Administration of Taxation on Matters Concerning Withholding of Income Tax of Non-resident
Enterprises at Source, or SAT Circular 37, amended in June 2018, which provides certain changes to the current
withholding regime, repeals and replaces all other provisions under Circular 698 and amends certain provisions in Public
Notice 7. For example, SAT Circular 37 requires that the transferor shall declare to the competent tax authority for payment
of tax within seven (7) days after the tax payment obligation comes into being if the withholding agent fails to withhold the
tax due or withhold the tax due in full. However, according to SAT Circular 37, if the withholding agent fails to withhold
and remit the income tax payable, or is unable to perform its obligation in this regard, as long as the non-resident enterprise
that earns the income voluntarily declares and pays the tax payable before the tax authority orders it to do so within
required time limits, it shall be deemed that such enterprise has paid the tax in time. There is little guidance and practical
experience as to the application of Public Notice 7 or SAT Circular 37. Where non-resident investors were involved in our
private equity financing, if such transactions were determined by the tax authorities to lack reasonable commercial purpose,
we and our non-resident investors may become at risk of being taxed under Public Notice 7 or SAT Circular 37 and may be
required to expend valuable resources to comply with Public Notice 7 or SAT Circular 37 or to establish that we should not
be taxed under Public Notice 7 or SAT Circular 37. The PRC tax authorities have the discretion under SAT Circular 59,
Public Notice 7 or SAT Circular 37 to make adjustments to the taxable capital gains based on the difference between the
fair value of the equity interests transferred and the cost of investment. See “Item 3. Key Information—D. Risk Factors—
Risks Relating to Doing Business in China—We face uncertainty regarding the PRC tax reporting obligations and
consequences for certain indirect transfers of our operating company’s equity interests. Enhanced scrutiny over acquisition
transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.”
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United States Federal Income Taxation
The following discussion is a summary of U.S. federal income tax considerations generally applicable to the
ownership and disposition of our ADSs or Class A ordinary shares by a U.S. Holder (as defined below) that holds our
ADSs or Class A ordinary shares as “capital assets” (generally, property held for investment) under the U.S. Internal
Revenue Code of 1986, as amended (the “Code”). This discussion is based upon existing U.S. federal income tax law,
which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the
Internal Revenue Service (the “IRS”) with respect to any U.S. federal income tax considerations described below, and there
can be no assurance that the IRS or a court will not take a contrary position. This discussion, moreover, does not address
the U.S. federal estate, gift, and alternative minimum tax considerations, the Medicare tax on certain net investment income
or any state, local and non-U.S. tax considerations, relating to the ownership or disposition of our ADSs or Class A
ordinary shares. The following summary does not address all aspects of U.S. federal income taxation that may be important
to particular investors in light of their individual circumstances or to persons in special tax situations such as:
● banks and other financial institutions;
● insurance companies;
● pension plans;
● cooperatives;
● regulated investment companies;
● real estate investment trusts;
● broker-dealers;
● traders that elect to use a mark-to-market method of accounting;
● certain former U.S. citizens or long-term residents;
● tax-exempt entities (including private foundations);
● holders who acquire their ADSs or Class A ordinary shares pursuant to any employee share option or
otherwise as compensation;
● investors that will hold their ADSs or Class A ordinary shares as part of a straddle, hedge, conversion,
constructive sale or other integrated transaction for U.S. federal income tax purposes;
● investors that have a functional currency other than the U.S. dollar;
● persons that actually or constructively own 10% or more of the total combined voting power or value of our
stock; or
● partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding
ADSs or Class A ordinary shares through such entities, all of whom may be subject to tax rules that differ
significantly from those discussed below.
Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular
circumstances, and the state, local, non-U.S. and other tax considerations of the ownership and disposition of our ADSs or
Class A ordinary shares.
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General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or Class A ordinary shares that is, for
U.S. federal income tax purposes:
● an individual who is a citizen or resident of the United States;
● a corporation (or other entity subject to tax as a corporation for U.S. federal income tax purposes) created in,
or organized under the laws of the United States or any state thereof or the District of Columbia;
● an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless
of its source; or
● a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has
one or more U.S. persons who have the authority to control all substantial decisions of the trust or (B) that
has otherwise validly elected to be treated as a U.S. person under the Code.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our
ADSs or Class A ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of
the partner and the activities of the partnership. Partnerships holding our ADSs or Class A ordinary shares and their
partners are urged to consult their tax advisors regarding an investment in our ADSs or Class A ordinary shares.
The discussion below assumes that the representations contained in the deposit agreement and any related agreement are
true and that the obligations in such agreements will be complied with in accordance with their terms. Accordingly for U.S.
federal income tax purposes, it is generally expected that a U.S. Holder of ADSs will be treated as the beneficial owner of
the underlying Class A ordinary shares represented by our ADSs, and therefore deposits or withdrawals of Class A ordinary
shares for ADSs will generally not be subject to U.S. federal income tax.
Passive Foreign Investment Company Considerations
A non-U.S. corporation, such as our company, will be classified as a PFIC for U.S. federal income tax purposes for any
taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or
(ii) 50% or more of the value of its assets (based on an average of the quarterly values of the assets) during such year is
attributable to assets that produce or are held for the production of passive income (the “asset test”). A separate
determination must be made after the close of each taxable year as to whether a non-United States corporation is a PFIC for
that year. Passive income generally includes dividends, interest, royalties, rents, annuities, net gains from the sale or
exchange of property producing such income and net foreign currency gains. For this purpose, cash and assets readily
convertible into cash are categorized as passive assets and the company’s unbooked intangibles associated with active
business activity are taken into account as non-passive assets.
In addition, a non-U.S. corporation will be treated as owning its proportionate share of the assets and earning its
proportionate share of the income of any other corporation in which it owns, directly or indirectly, 25% or more (by value)
of the stock. Although the law in this regard is not entirely clear, we treat our VIE as being owned by us for U.S. federal
income tax purposes because we control the management decisions and are entitled to substantially all of the economic
benefits associated with this entity. As a result, we consolidate the entity’s results of operations in our consolidated U.S.
GAAP financial statements. If it were determined, however, that we are not the owner of the VIE for U.S. federal income
tax purposes, we may be treated as a PFIC for the current taxable year and any subsequent taxable year.
Based on the market price of our ADSs and outstanding Class A ordinary shares, the value of our assets and the
composition of our assets and income, we do not believe that we were a PFIC for our taxable year ended December 31,
2020 and we do not expect to be classified as a PFIC for our taxable year ending December 31, 2020 or in the foreseeable
future.
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While we do not expect to become a PFIC in the current or future taxable years, the determination of whether we will be or
become a PFIC will depend upon the composition of our income and assets and the value of our assets from time to time,
including, in particular the value of our unbooked intangibles (which may depend upon the market value of our ADSs or
Class A ordinary shares from time to time, which may be volatile). Among other factors, if market capitalization is less
than anticipated or subsequently declines, we may be classified as a PFIC for the current or future taxable years. It is also
possible that the IRS may challenge our classification or valuation of our unbooked intangibles or determine that such
assets should not be included in the determination of whether we are classified as a PFIC, which may result in our company
being, or becoming classified as, a PFIC for the current or one or more future taxable years.
The determination of whether we will be or become a PFIC may also depend, in part, on how, and how quickly, we use our
liquid assets. Under circumstances where we determine not to deploy significant amounts of cash for active purposes, our
risk of being classified as a PFIC may substantially increase. Because there are uncertainties in the application of the
relevant rules and because PFIC status is a fact-intensive determination made on an annual basis, there can be no assurance
that we will not be a PFIC for the current or any future taxable year. If we were classified as a PFIC for any year during
which a U.S. Holder held our ADSs or Class A ordinary shares, we generally would continue to be treated as a PFIC for all
succeeding years during which such U.S. Holder held our ADSs or Class A ordinary shares.
The discussion below under “Dividends” and “Sale or Other Disposition” is written on the basis that we will not be
classified as a PFIC for U.S. federal income tax purposes. The U.S. federal income tax rules that apply if we are classified
as a PFIC for the current taxable year or any subsequent taxable year are generally discussed below under “Passive Foreign
Investment Company Rules.”
Dividends
Subject to the discussion below under “—Passive Foreign Investment Company Rules,” any cash distributions (including
the amount of any PRC tax withheld) paid on the ADSs or Class A ordinary shares out of our current or accumulated
earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross
income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case
of Class A ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings
and profits on the basis of U.S. federal income tax principles, any distribution we pay will generally be treated as a
“dividend” for U.S. federal income tax purposes. Dividends received on the ADSs or Class A ordinary shares will not be
eligible for the dividends received deduction allowed to corporations in respect of dividends received from U.S.
corporations.
Individuals and other non-corporate U.S. Holders will be subject to tax at the lower capital gains tax rate applicable to
“qualified dividend income,” provided that certain conditions are satisfied, including that (1) the ADSs or Class A ordinary
shares on which the dividends are paid are readily tradable on an established securities market in the United States, or, in
the event that we are deemed to be a PRC resident enterprise under the PRC tax law, we are eligible for the benefit of the
United States-PRC income tax treaty, (2) we are neither a PFIC nor treated as such with respect to a U.S. Holder (as
discussed below) for the taxable year in which the dividend is paid or the preceding taxable year, (3) certain holding period
requirements are met, and (4) such non-corporate U.S. Holders are not under an obligation to make related payments with
respect to positions in substantially similar or related property. For this purpose, ADSs listed on the Nasdaq Global Select
Market will generally be considered to be readily tradable on an established securities market in the United States.
Although the law in this regard is not entirely clear, since we do not expect our Class A ordinary shares will be listed on
any securities market, we do not believe that Class A ordinary shares that are not represented by ADSs will generally be
considered to be readily tradable on an established securities market in the United States. Each U.S. Holder should consult
its tax advisors regarding the availability of the lower rate for dividends paid with respect to the ADSs or Class A ordinary
shares.
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In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law (see “Item 4.
Information on the Company—B. Business Overview—Government Regulations—Regulation on Tax—PRC Enterprise
Income Tax”), we may be eligible for the benefits of the United States-PRC income tax treaty. If we are eligible for such
benefits, dividends we pay on our Class A ordinary shares, regardless of whether such shares are represented by the ADSs,
and regardless of whether our ADSs are readily tradable on an established securities market in the United States, would be
eligible for the reduced rates of taxation applicable to qualified dividend income, as described in the preceding paragraph.
For U.S. foreign tax credit purposes, dividends paid on the ADSs or Class A ordinary shares generally will be treated as
income from foreign sources and generally will constitute passive category income. If PRC withholding taxes apply to
dividends paid to a U.S. Holder with respect to the ADSs or Class A ordinary shares, such holder may be able to obtain a
reduced rate of PRC withholding taxes under the United States-PRC income tax treaty if certain requirements are met. In
addition, subject to certain conditions and limitations, PRC withholding taxes on dividends that are non-refundable under
the income tax treaty between the United States and the PRC may be treated as foreign taxes eligible for credit against a
U.S. Holder’s U.S. federal income tax liability. If a U.S. Holder does not elect to claim a foreign tax credit, such holder
may instead claim a deduction for U.S. federal income tax purposes in respect of such withholding, but only for a year in
which such holder elects to do so for all creditable foreign income taxes. Each U.S. Holder should consult its tax advisors
regarding the creditability of any PRC tax.
Sale or Other Disposition
Subject to the discussion below under “—Passive Foreign Investment Company Rules,” a U.S. Holder will generally
recognize gain or loss upon the sale or other disposition of our ADSs or Class A ordinary shares in an amount equal to the
difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or Class A
ordinary shares. The gain or loss will generally be capital gain or loss. Individuals and other non-corporate U.S. Holders
who have held the ADS or Class A ordinary shares for more than one year will generally be eligible for reduced tax rates.
The deductibility of a capital loss may be subject to limitations. Any such gain or loss that the U.S. Holder recognizes will
generally be treated as U.S. source income or loss for foreign tax credit limitation purposes, which will generally limit the
availability of foreign tax credits. However, in the event we are deemed to be a PRC resident enterprise under the PRC
Enterprise Income Tax Law, a U.S. Holder may be subject to PRC tax upon the disposition of our ADSs or Class A
ordinary shares. In such event, if PRC tax were to be imposed on any gain from such disposition, a U.S. Holder that is
eligible for the benefits of the United States-PRC income tax treaty may elect to treat such gain as PRC source income.
Each U.S. Holder should consult its tax advisors regarding the creditability of any PRC tax.
Passive Foreign Investment Company Rules
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares,
and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be
subject to special tax rules on (i) any excess distribution that we make to the U.S. Holder (which generally means any
distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions
paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or Class A ordinary
shares), and (ii) any gain realized on the sale or other disposition of ADSs or Class A ordinary shares. Under the PFIC
rules:
● such excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for the
ADSs or Class A ordinary shares;
● such amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period
prior to the first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable
as ordinary income;
● such amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the
highest tax rate in effect for individuals or corporations, as appropriate, for that year; and
● will be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to
each such other taxable year.
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If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares and any of
our subsidiaries, our VIE or any of the subsidiaries of our VIE is also a PFIC, such U.S. Holder would be treated as owning
a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S.
Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries, our
VIE or any of the subsidiaries of our VIE.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a
mark-to-market election with respect to such stock. If a U.S. Holder makes this election with respect to the ADSs, the
holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair
market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an
ordinary loss in each such taxable year the excess, if any, of the adjusted tax basis of the ADSs over the fair market value
of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount
previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs
would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-
to-market election in respect of the ADSs and we cease to be classified as a PFIC, the holder will not be required to take
into account the gain or loss described above during any period that we are not classified as a PFIC. If a U.S. Holder makes
a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year
when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only
be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market
election.
The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded on a qualified
exchange or other market, as defined in applicable United States Treasury regulations. We expect that our ADSs will
continue to be listed on the NASDAQ Global Select Market, which is a qualified exchange for these purposes, and,
consequently, assuming that our ADSs are regularly traded, it is expected that the mark-to-market election would be
available to a U.S. Holder of our ADSs if were we to become a PFIC, but no assurances are given in this regard.
Because, as a technical matter, a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a
U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any
investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if
available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs
described above.
If a U.S. Holder owns our ADSs or Class A ordinary shares during any taxable year that we are a PFIC, the holder must
generally file an annual report containing such information as the United States Treasury Department may require. Each
U.S. Holder should consult its tax advisors regarding the U.S. federal income tax consequences of owning and disposing of
our ADSs or Class A ordinary shares if we are or become a PFIC.
F.
Dividends and Paying Agents
Not Applicable.
G.
Statement by Experts
Not Applicable.
H.
Documents on Display
We previously filed with the SEC our registration statement on Form F-1 (Registration No. 333-194191), as amended,
including the prospectus contained therein, to register our Class A ordinary shares in relation to our initial public offering.
We have also filed with the SEC a related registration statement on F-6 (Registration No. 333-194662) to register the
ADSs.
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We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the
SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year, which
is December 31. Copies of reports and other information, when so filed, may be inspected without charge and may be
obtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at 100
F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C.
Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov
that contains reports, proxy and information statements, and other information regarding registrants that make electronic
filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and
principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of
the Exchange Act.
We will furnish Citibank, N.A., the depositary of our ADSs, all notices of shareholders’ meetings and other reports and
communications that are made generally available to our shareholders. The depositary will make such notices, reports and
communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the
information contained in any notice of a shareholders’ meeting received by the depositary from us.
In accordance with NASDAQ Stock Market Rules 5250(d), we will post this annual report on Form 20-F on our website at
http://ir.tedu.cn.
I.
Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
Substantially all of our net revenues, costs and expenses are denominated in Renminbi. The Renminbi is not freely
convertible into foreign currencies for capital account transactions. Our exposure to foreign exchange risk primarily relates
to the U.S. dollar proceeds of the offerings of our equity securities. We had a net foreign exchange gain of RMB4.8 million
in 2020.
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. In 2005, the PRC government changed
its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the Renminbi appreciated more than 20%
against the U.S. dollar over the following three years. Since June 2010, the RMB has fluctuated against the U.S. dollar, at
times significantly and unpredictably. In August 2015, the People’s Bank of China changed the way it calculates the mid-
point price of Renminbi against the U.S. dollar, requiring the market-makers who submit for reference rates to consider the
previous day’s closing spot rate, foreign-exchange demand and supply as well as changes in major currency rates. On
November 30, 2015, the Executive Board of the International Monetary Fund (IMF) completed the regular five-year review
of the basket of currencies that make up the Special Drawing Right, or the SDR, and decided that with effect from
October 1, 2016, Renminbi is determined to be a freely usable currency and will be included in the SDR basket as a fifth
currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In 2018, the RMB has depreciated
significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the
foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC
government may in the future announce further changes to the exchange rate system and we cannot assure you that the
Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to
predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S.
dollar in the future.
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To the extent that we need to convert the U.S. dollars we received from our equity offerings into Renminbi to fund our
operations, acquisitions, or for other uses within the PRC, appreciation of the Renminbi against the U.S. dollar would have
an adverse effect on the Renminbi amount we receive from the conversion. To the extent that we seek to convert Renminbi
into U.S. dollars, depreciation of the Renminbi against the U.S. dollar would have an adverse effect on the U.S. dollar
amount we receive from the conversion. On the other hand, a decline in the value of the Renminbi against the U.S. dollar
could reduce the value of your investment in the company and the dividends that we may pay in the future, if any, all of
which may have a material adverse effect on the prices of our ADS.
A hypothetical 10% decrease in the exchange rate of the U.S. dollar against the RMB would have resulted in an increase of
RMB39.1 million in the value of our U.S. dollar-denominated financial assets at December 31, 2020.
Interest Rate Risk
Our exposure to interest rate risk primarily relates to interest income generated by excess cash invested in demand deposits
with original maturities of one months to 5 years. Interest-earning instruments carry a degree of interest rate risk. We have
not used any significant derivative financial instruments to manage our interest rate risk exposure. We have not been
exposed, nor do we anticipate being exposed to, material risks due to changes in interest rates. However, our future interest
income may be different from expectations due to changes in market interest rates.
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 and Charges Our ADS holders May Have to Pay
Holders of our ADSs will be required to pay the following service fees to the depositary bank:
Service
Issuance of ADSs
Cancellation of ADSs
Distribution of cash dividends or other cash distributions
Distribution of ADSs pursuant to stock dividends, free
stock distributions or exercise of rights
Fees
Up to U.S. 5¢ per ADS issued
Up to U.S. 5¢ per ADS canceled
Up to U.S. 5¢ per ADS held
Up to U.S. 5¢ per ADS held
Distribution of securities other than ADSs or rights to
Up to U.S. 5¢ per ADS held
purchase additional ADSs
Depositary Services
Up to U.S. 5¢ per ADS held on the applicable record
date(s) established by the depositary bank
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Holders of our ADSs will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain
taxes and governmental charges such as:
● fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary
shares in the Cayman Islands (i.e., upon deposit and withdrawal of ordinary shares);
● expenses incurred for converting foreign currency into U.S. dollars;
● expenses for cable, telex and fax transmissions and for delivery of securities;
● taxes and duties upon the transfer of securities (i.e., when ordinary shares are deposited or withdrawn from
deposit); and
● fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the
brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf
of their clients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their
clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary
services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date.
The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of
distributions other than cash (i.e., stock dividend, rights), the depositary bank 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 uncertificated in direct registration), the depositary bank sends invoices to the applicable record date ADS
holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its
fees through the 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 banks.
In the event of refusal to pay the depositary fees, the depositary bank 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.
The fees and charges holders of our ADSs may be required to pay may vary over time and may be changed by us and by
the depositary bank.
Fees and Other Payments Made by the Depositary to Us
The depositary has agreed to reimburse us for certain expenses we incur that are related to establishment and maintenance
of the ADS program upon such terms and conditions as we and the depositary may agree from time to time. In 2020, we
received US$ 8,338.05 from the depository for expenses incurred in connection with the establishment and maintenance of
the ADS program.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II.
None.
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ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Material Modifications to the Rights of Security Holders
See “Item 10. Additional Information—B. Memorandum and Articles of Association—Ordinary Shares” for a description
of the rights of securities holders, which remain unchanged.
Use of Proceeds
The following “Use of Proceeds” information relates to the Registration Statement on Form F-1, as amended (File number:
333-19419) in relation to the initial public offering of 15,300,000 ADSs representing 15,300,000 of our Class A ordinary
shares, at an initial offering price of US$9.00 per ADS. We offered and sold 11,500,000 ADSs and the selling shareholders
offered and sold 3,800,000 ADSs in our initial public offering. Our initial public offering closed in April 2014. Goldman
Sachs (Asia) L.L.C. and Credit Suisse Security (USA) LLC were the representatives of the underwriters for our initial
public offering. The aggregate price of the offering amount registered and sold was US$137.7 million.
We received net proceeds of approximately US$92.2 million from our initial public offering. Our expenses incurred and
paid to others in connection with the issuance and distribution of the ADSs in our initial public offering totaled US$13.6
million, which included US$9.6 million for underwriting discounts and commissions and US$4.0 million for other
expenses. Among the US$13.6 million in expenses, US$4.8 million were paid to Goldman Sachs (Asia) L.L.C., an affiliate
of ours and one of the underwriters for our initial public offering.
For the period from April 2, 2014, the date that the F-1 Registration Statement was declared effective by the SEC, to
December 31, 2020, we invested the net proceeds from our initial public offering in term deposits and still intend to use the
proceeds from our initial public offering for general corporate purposes, which may include investing in course
development, expanding our learning center network, sales and marketing activities, technology infrastructure and capital
expenditures, upgrading facilities, paying dividends, repurchasing shares and other general and administrative matters. We
may also use a portion of the net proceeds for investing in, or acquiring, complementary businesses.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, our management, with the participation of our chief executive
officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and
procedures within the meaning of Rules 13a-15(e) and 15d-15(e) of the Exchange Act.
Based upon this evaluation, our management concluded that, as of December 31, 2020, our disclosure controls and
procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief
financial officer, as appropriate, to allow timely decisions regarding required disclosure.
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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
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. 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 U.S. GAAP and includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a
company’s assets, (ii) 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 (iii) 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.
Our management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation
of the effectiveness of our company’s internal control over financial reporting as of December 31, 2019 based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO 2013 Framework). Based on this evaluation, we noted several deficiencies that we believe
to be material weaknesses as of December 31, 2019, including failure to provide oversight for the system of internal
control and failure to effectively consider the potential for fraud and non-compliance with laws and regulations in assessing
risks to the achievement of objectives; lack of sufficient requisite skills for the financial reporting under U.S. GAAP;
failure to align incentives and rewards with the fulfillment of internal control responsibilities in the achievement of
objectives; lack of sufficient controls designed and implemented for the credit approval, initiation, recording, allocation
and cash collection with respect to revenue transactions; lack of sufficient controls designed and implemented for
authorization, validation and payment with respect to cost or expense transactions; failure to evaluate and implement a mix
of control activities, considering both manual and automated controls for other routine transactions; lack of sufficient
segregation of duties and appropriate skill or competence of control owners at certain control activity level; and failure to
develop control activities to restrict technology access right to authorized users commensurate their job responsibilities;
As a result of the above material weaknesses, management has concluded that our internal control over financial reporting
was ineffective as of December 31, 2019.
During 2020, we have undertaken the remedial steps to address the material weaknesses in our internal control over
financial reporting as set forth below under “Management’s Plan for Remediation of Material Weaknesses.” Our
management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the
effectiveness of our company’s internal control over financial reporting as of December 31, 2020 based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO 2013 Framework). Based on this evaluation, we did not note or identify any deficiencies
that we believe to be material weaknesses as of December 31, 2020.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our
Business—If we fail to implement an effective system of internal controls, we may be unable to accurately report our
results of operations or prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price
of our ADSs may be materially and adversely affected.”
Remediation of the Material Weaknesses in Internal Control over Financial Reporting Reported in 2019
Our management has been engaged in, and continues to be engaged in making necessary changes and improvements to the
overall design of its control environment to address the material weaknesses, significant deficiencies and control
deficiencies in internal control over financial reporting and the ineffectiveness of our disclosure controls and procedures
and of internal control over financial reporting described above.
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To remediate the material weaknesses identified as of December 31, 2019 as described above, during 2020, we have
established a comprehensive and effective internal control system with the assistance from a third party consulting firm
which has provided relevant professional advisory services to us. We have assessed and will continuously access our
standardized processes to further enhance the effectiveness of our financial review, including the analysis and monitoring
of financial information in a consistent and thorough manner. In respect of the ineffective disclosure controls and
procedures and material weaknesses in our internal control over financial reporting identified as of December 31, 2019, we
have undertaken remediation actions highlighted as follows:
a. Engaged an advisory firm to assist on the internal control systems improvement during January to June of 2020,
particularly focusing on the issues identified during the Independent Investigation and Restatement, and material
weaknesses identified as above;
b. Launched and improved the more comprehensive financial compliance policies, and severely punished those who have
violated the policies;
c. Continued to strengthen the supervision and controls on the IT functions, including the enhancement of authorization
restriction and segregation of duties;
d. Continued to deliver more internal trainings regrading compliance, code of conduct, ethics, new regulations and
policies more frequently;
e. Developed the facial recognition system, based on AI technique, to verify the authenticity of the student’s identity
when students signed agreement in order to ensure the data accuracy in the CRM system.
f. The polices and procedures of financial budget preparation and staff performance appraisal have been further reviewed
and modified so as to prevent the occurrence of improper actions and behavior undertaken by staffs; and
g. Launched policies of “Zero Tolerance” and “Red Line” for major violations of company’s policy and code of
conducts, and emphasized that major violations would be subject to severe punishments and consequences.
Changes in Internal Control over Financial Reporting
Following the identification of the material weaknesses that were disclosed in the 2019’s annual report on Form 20-F filed
with the SEC on April 24, 2020, we have taken a series of remedial actions. We believe we have remediated all material
weaknesses that were identified in fiscal year 2018 and 2019.
In the fiscal years of 2019 and 2020, we have standardized essential business processes according to the requirements of
our internal control system for accounting rules and financial reporting, to ensure the authenticity and integrity of our
financial reporting. Specifically, the internal control team has undertaken multiple measures in standardizing the following
business processes for internal control purposes. These remedial actions, especially the internal audit function, improved
our monitoring process. Our remedial actions included, but not limited to the following:
a. Adjusted our internal audit reporting structures to ensure enhanced oversight over the Company’s financial reporting
function;
b. Appointed new chief executive officer and chief financial officer in fiscal year 2020;
c. Provided trainings to our employees on issues identified in the Independent Investigation and delivered more internal
trainings regrading compliance, code of conduct, ethics, new regulations and policies more frequently;
d. Launched and improved the internal control execution plan to supervise and monitor the operational functions;
e. Launched electronic student contracts in the CRM system to ensure the existence, accuracy and completeness of
contract data;
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f. Combined the operational accounting team and reporting team so as to ensure both teams will communicate and
cooperate smoothly and effectively;
g. Redesigned and improved the approach for performance appraisal for heads of centers and senior management; and
h. Reinforced the implementation of authorization limits matrix and segregation of duties systems to ensure the
appropriateness of all approvals, authorizations, and confirmations granted.
From January 1, 2020 to December 31, 2020, there were no other changes in our internal controls over financial reporting
that occurred during the period covered by this annual report on Form 20-F that have materially affected our internal
control over financial reporting. As of the date of this annual report, we have engaged in, and will continue to engage
measures to improve our internal control over financial reporting.
Attestation Report of the Independent Registered Public Accounting Firm
Our independent registered public accounting firm, Marcum Bernstein & Pinchuk LLP, has audited the effectiveness of our
company’s internal control over financial reporting as of December 31, 2020, and its attestation report is set forth as
follows:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Shareholders and Board of Directors of
Tarena International, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Tarena International, Inc.’s (the “Company”) internal control over financial reporting as of December 31,
2020, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control
– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated balance sheets as of December 31, 2020 and 2019 and the related consolidated
statements of income, shareholders’ equity, and cash flows and the related notes for each of the three years in the period
ended December 31, 2020 of the Company, and our report dated April 13, 2021, expressed an unqualified opinion on those
financial statements.
Basis for Opinion
The Company’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
Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
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Definition and Limitations of Internal Control over Financial Reporting
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 the 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 degree of compliance with the policies or procedures may deteriorate.
/s/ Marcum Bernstein & Pinchuk LLP
Marcum Bernstein & Pinchuk LLP
Beijing, China
April 13, 2021
ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. Arthur Lap Tat Wong, an independent director and member of our audit
committee, is an audit committee financial expert.
ITEM 16.B. CODE OF ETHICS
Our board of directors has adopted a code of ethics that applies to all of the directors, officers and employees of us and our
subsidiaries, whether they work for us on a full-time, part-time, consultative, or temporary basis. Certain provisions of the
code apply specifically to our chief executive officer, chief financial officer, senior finance officer, controller, senior vice
presidents, vice presidents and any other persons who perform similar functions for us. We have posted a copy of our code
of business conduct and ethics on our website at http://ir.tedu.cn/
ITEM 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by the categories specified below in connection with certain professional
services rendered by Marcum Bernstein & Pinchuk LLP and Shanghai Deloitte Tax Ltd. Tianjin Branch, for the periods
indicated. We did not pay any other fees to our auditors during the periods indicated below.
Audit Fees(1)
Tax Fees(2)
2019
2020
(in thousands)
7,310
312
8,334
578
Note:
(1) “Audit fees” means the aggregate fees in each of the fiscal years listed for professional services rendered by our
independent registered public accounting firm for the audit of our annual financial statements or services that are
normally provided by the auditors in connection with and regulatory filing or engagements.
(2) “Tax fees” means the aggregate fees billed or payable for services rendered by independent registered public
accounting firm for tax advisory, tax retainer and compliance.
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The policy of our audit committee is to pre-approve all audit and non-audit services provided by our independent registered
public accounting firms, including audit services, audit-related services, tax services and other services as described above.
ITEM 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable.
ITEM 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
On August 20, 2015, our board of directors authorized a share repurchase plan under which we may repurchase up to
US$20 million of our shares over the next 12 months. For the period from May 27, 2016 to July 20, 2016, we repurchased
648,867 ADSs for an aggregate consideration of US$6.7 million under our share repurchase plan.
On August 21, 2017, our board of directors authorized a share repurchase plan under which the Company may repurchase
up to US$30 million of its shares over the next 12 months. For the period from August 25, 2017 to December 12, 2017, we
repurchased 1,755,666 ADSs for an aggregate consideration of US$24.5 million under our share repurchase plan.
On June 22, 2018, our board of directors authorized an increase to the size of the share repurchase plan it adopted on
August 21, 2017 from US$30 million to US$70 million and an extension of the term to June 20, 2019. Under the revised
plan, the Company is authorized to repurchase up to an aggregate value of US$70 million of the Company’s shares until
June 20, 2019. The other terms of the share repurchase plan remain unchanged. In 2018, we repurchased 3,768,495 ADSs
for an aggregate consideration of US$30.3 million under our share repurchase plan, as amended.
The following table sets forth a summary of our repurchase of our ADSs made in 2018 under the share repurchase
programs described in the paragraph above.
Total Number of Maximum Dollar
Total
Number of
ADSs
Average Price
Purchased(1) Paid Per ADS(1)
1,298,299
1,227,290
405,481
246,280
202,149
138,065
256,178
7.7542
8.3428
8.8865
8.5045
7.7214
7.1202
6.8124
ADSs
Purchased as Part
of
Publicly
Announced
Plans or
Programs
1,298,299
1,227,290
405,481
246,280
202,149
138,065
256,178
Value of ADSs
that
May Yet Be
Purchased Under
Plans or
Programs
(US$)
35,446,262
25,207,249
21,603,948
19,509,453
17,948,581
16,965,528
13,510,731
Period
June (from June 7 to June 29)
July (from July 2 to July 31)
August (from August 1 to August 24)
September (from September 4 to September 26)
October (from October 1 to October 15)
November (from November 20 to November 30)
December (from December 3 to December 24)
(1) Each ADS represents one Class A ordinary share.
In 2019, we purchased 94,100 ADSs for an aggregate consideration of US$0.3 million.
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The following table sets forth a summary of our repurchase of our ADSs made in 2019.
Total
Number
of ADSs
Purchased(1) Paid Per ADS(1)
Average Price
46,792
4,362
42,946
6.3520
1.1912
0.8886
Total Number of Maximum Dollar
ADSs
Purchased as Part
of
Publicly
Announced
Plans or
Programs
46,792
0
0
Value of ADSs
that
May Yet Be
Purchased Under
Plans or
Programs
(US$)
13,213,507
0
0
Period
February (from February 1 to February 28)
August (from August 1 to August 31)(2)
December (from December 1 to December 31)(2)
(1) Each ADS represents one Class A ordinary share.
(2) These Class A ordinary shares were repurchased not through the revised share repurchase plan, which expired on
June 20, 2019. We repurchased these Class A ordinary shares from our employees in private transactions.
In 2020, we purchased 1,382 ADSs for an aggregate consideration of US$0.005 million.
The following table sets forth a summary of our repurchase of our ADSs made in 2020.
Period
March (from March 1 to March 31)(2)
Total
Number of
ADSs
Purchased as
Part of
Publicly
Announced
Plans or
Maximum
Dollar
Value of
ADSs that
May Yet Be
Purchased
Under
Total
Number of
ADSs
Average
Price
Purchased (1) Paid Per ADS (1) Programs
1,382
0.1542
0
Plans or Programs
(US$)
0
(1) Each ADS represents one Class A ordinary share.
(2) We repurchased these Class A ordinary shares from our employees in private transactions.
ITEM 16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
The disclosure required by this Item 16.F. has previously been disclosed in Item 16.F. of our annual report on Form 20-F
for the year ended December 31, 2018, filed on April 24, 2020.
ITEM 16.G. CORPORATE GOVERNANCE
As a Cayman Islands company listed on the NASDAQ Global Select Market, we are subject to the NASDAQ corporate
governance listing standards. However, NASDAQ rules permit a foreign private issuer like us to follow the corporate
governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our
home country, may differ significantly from the NASDAQ corporate governance listing standards.
We relied on the exemption available to foreign private issuers for the requirement that it hold an annual general meeting of
shareholders no later than December 31, 2020 in 2020. In this respect, we elected to follow home country practice and did
not hold an annual general meeting of shareholders in 2020. If we continue to rely on this and other exemptions available
to foreign private issuers in the future, our shareholders may be afforded less protection than they otherwise would under
the NASDAQ corporate governance listing standards applicable to U.S. domestic issuers. See “Item 3. Key Information—
D. Risk Factors—Risks Relating to Our ADSs—We are a foreign private issuer within the meaning of the rules under the
Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.”
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ITEM 16.H. MINE SAFETY DISCLOSURE
Not applicable.
PART III.
ITEM 17.
FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18.
FINANCIAL STATEMENTS
The consolidated financial statements of Tarena International, Inc. and its subsidiaries are included at the end of this annual
report.
ITEM 19. EXHIBITS
Exhibit
Number
Description of Document
1.1
2.1
2.2
2.3
2.4
2.5
4.1
4.2
4.3
4.4
Fifth Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated
herein by reference to Exhibit 3.2 to the registration statement on Form F-1 (File No. 333-194191), as
amended, initially filed with the SEC on February 27, 2014)
Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3)
Registrant’s Specimen Certificate for Class A ordinary shares (incorporated herein by reference to
Exhibit 4.2 to the registration statement on Form F-1 (File No. 333-194191), as amended, initially filed
with the SEC on February 27, 2014)
Deposit Agreement, among the Registrant, the depositary and holder of the American Depositary
Receipts (incorporated herein by reference to Exhibit 4.3 to the registration statement on Form S-8 (File
No. 333-197226) filed with the SEC on July 3, 2014)
Registration Rights Agreement dated as of July 17, 2015 among the Registrant and Talent Fortune
Investment Limited (incorporated herein by reference to Exhibit 2.6 to the annual report on Form 20-F
(File No. 001-36363) filed with the SEC on April 20, 2016)
Description of Securities (incorporated herein by reference to Exhibit 2.5 to the annual report on
Form 20-F (File No. 001-36363) filed with the SEC on April 24, 2020)
2008 Share Incentive Plan, as amended on November 28, 2012 (incorporated herein by reference to
Exhibit 10.1 to the registration statement on Form F-1 (File No. 333-194191), as amended, initially filed
with the SEC on February 27, 2014)
2014 Share Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the registration statement
on Form F-1 (File No. 333-194191), as amended, initially filed with the SEC on February 27, 2014)
Form of Indemnification Agreement with the Registrant’s directors (incorporated herein by reference to
Exhibit 10.3 to the registration statement on Form F-1 (File No. 333-194191), as amended, initially filed
with the SEC on February 27, 2014)
Form of Employment Agreement between the Registrant and an Executive Officer of the Registrant
(incorporated herein by reference to Exhibit 10.5 to the registration statement on Form F-1 (File No. 333-
194191), as amended, initially filed with the SEC on February 27, 2014)
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Table of Contents
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
Amended and Restated Exclusive Business Cooperation Agreement dated November 25, 2013 between
Tarena Tech and Beijing Tarena (incorporated herein by reference to Exhibit 10.6 to the registration
statement on Form F-1 (File No. 333-194191), as amended, initially filed with the SEC on February 27,
2014)
Spousal consent letter dated November 25, 2013 signed by Ying Sun in connection with Beijing Tarena
(incorporated herein by reference to Exhibit 10.15 to the registration statement on Form F-1 (File
No. 333-194191), as amended, initially filed with the SEC on February 27, 2014)
Spousal consent letter dated November 25, 2013 signed by Nan Li in connection with Beijing Tarena
(incorporated herein by reference to Exhibit 10.16 to the registration statement on Form F-1 (File
No. 333-194191), as amended, initially filed with the SEC on February 27, 2014)
Power of Attorney dated July 5, 2016 granted to Tarena Tech by Mr. Shaoyun Han and acknowledged by
Beijing Tarena (incorporated herein by reference to Exhibit 4.27 from our annual report on Form 20-F
(File No. 001-36363), filed with the Securities and Exchange Commission on April 25, 2017)
Power of Attorney dated July 5, 2016 granted to Tarena Tech by Mr. Jianguang Li and acknowledged by
Beijing Tarena (incorporated herein by reference to Exhibit 4.28 from our annual report on Form 20-F
(File No. 001-36363), filed with the Securities and Exchange Commission on April 25, 2017)
Second Amended and Restated Exclusive Option Agreement dated July 5, 2016 among Tarena, Tarena
Tech, Mr. Shaoyun Han and Beijing Tarena (incorporated herein by reference to Exhibit 4.29 from our
annual report on Form 20-F (File No. 001-36363), filed with the Securities and Exchange Commission on
April 25, 2017)
Second Amended and Restated Exclusive Option Agreement dated July 5, 2016 among Tarena, Tarena
Tech, Mr. Jianguang Li and Beijing Tarena (incorporated herein by reference to Exhibit 4.30 from our
annual report on Form 20-F (File No. 001-36363), filed with the Securities and Exchange Commission on
April 25, 2017)
Second Amended and Restated Loan Agreement dated July 5, 2016 between Tarena Tech and
Mr. Shaoyun Han in connection with Beijing Tarena (incorporated herein by reference to Exhibit 4.31
from our annual report on Form 20-F (File No. 001-36363), filed with the Securities and Exchange
Commission on April 25, 2017)
Second Amended and Restated Loan Agreement dated July 5, 2016 between Tarena Tech and
Mr. Jianguang Li in connection with Beijing Tarena (incorporated herein by reference to Exhibit 4.32
from our annual report on Form 20-F (File No. 001-36363), filed with the Securities and Exchange
Commission on April 25, 2017)
Second Amended and Restated Share Pledge Agreement dated July 5, 2016 among Tarena Tech,
Mr. Shaoyun Han and Beijing Tarena (incorporated herein by reference to Exhibit 4.33 from our annual
report on Form 20-F (File No. 001-36363), filed with the Securities and Exchange Commission on
April 25, 2017)
Second Amended and Restated Share Pledge Agreement dated July 5, 2016 among Tarena Tech,
Mr. Jianguang Li and Beijing Tarena (incorporated herein by reference to Exhibit 4.34 from our annual
report on Form 20-F (File No. 001-36363), filed with the Securities and Exchange Commission on
April 25, 2017)
Spousal consent letter dated July 5, 2016 signed by Nan Li in connection with Beijing Tarena
(incorporated herein by reference to Exhibit 4.16 to the annual report on Form 20-F (File No. 001-36363)
filed with the SEC on April 24, 2020)
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Table of Contents
8.1*
11.1
12.1*
12.2*
List of Subsidiaries of Variable Interest Entity of the Registrant
Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1
to the registration statement on Form F-1 (File No. 333-194191), as amended, initially filed with the SEC
on February 27, 2014)
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.
13.1**
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2**
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1*
15.2*
15.3*
Consent of Conyers Dill & Pearman
Consent of Han Kun Law Offices
Consent of Marcum Bernstein & Pinchuk LLP
101.INS*
Inline XBRL Instance Document – this instance document does not appear in the Interactive Data File
because its XBRL tags embedded within the Inline XBRL document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith.
** Furnished herewith.
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The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has
duly caused and authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
Date: April 13, 2021
Tarena International, Inc.
/s/ Ying Sun
By:
Name: Ying Sun
Title: Director and Chief Executive Officer
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2020
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, 2019 and 2020
Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 2019 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2019 and 2020
Notes to the Consolidated Financial Statements
Page
F-2
F-5
F-6
F-7
F-8
F-9
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Tarena International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tarena International, Inc. (the “Company”) as of
December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) ("PCAOB"), the Company’s internal control over financial reporting as of December 31, 2020, based on the criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in 2013 and our report dated April 13, 2021, expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for lease in 2019
due to the adoption of Accounting Standards Codification (“ASC”) Topic 842, Leases (“Topic 842”).
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
F-2
Table of Contents
Going Concern Assessment
Critical Audit Matter Description
As described in Note 1 to the consolidated financial statements, the Company prepared its consolidated financial
statements on a going concern basis, which assumes that the Company will continue as a going concern for a period of at
least twelve months from the financial statement issuance date, and accordingly, will be able to realize its assets and
discharge its liabilities in the normal course of operations. For the fiscal years ended December 31, 2020 and 2019, the
Company has reported net losses of RMB771.2 million and RMB1,038.9 million, respectively. As of December 31, 2020,
net current liabilities amounted to RMB2,132.9 million. These adverse conditions and events, before consideration of
management’s plans, raised substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans to mitigate the adverse conditions and events include a business plan with projected future cash flows covering the
next twelve months from the financial statement issuance date and, if necessary, accessing additional funding through debt
financing and the disposition of certain long-lived assets.
Auditing the Company’s going concern assessment is a critical audit matter, as it involved significant judgment by
management when preparing the business plan with projected future cash flows and its ability to access funding included in
the going concern assessment, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing
procedures and evaluating the relevant audit evidence.
How the Critical Audit Matter was Addressed in the Audit
Our principal audit procedures included, among others:
● obtaining an understanding, evaluating the design, and testing controls over the Company’s going concern assessment
process. For example, we tested controls over management’s review of significant assumptions in relation to financing
options used in the assessment and the sensitivity analyses over the key inputs to the cash flow forecasts described
above;
● testing the completeness, accuracy, and relevance of underlying data, and evaluating the reasonableness of the
assumptions used in the projected future cash flows by considering (i) the Company’s current and past performance,
(ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with
evidence obtained in other areas of the audit;
● assessing the level of certainty in its ability to access funding;
● assessing the sensitivity and impact of reasonably possible changes in the key assumptions and estimates included in
management’s cash flow forecasts and liquidity position and compared those results to the sensitivity analyses
performed by management; and
● assessing the adequacy of the Company’s going concern disclosures included in Note 1 to the consolidated financial
statements.
Realizability of Deferred Tax Assets
Critical Audit Matter Description
As described in Note 11 to the consolidated financial statements, the Company had deferred tax assets of RMB288.6
million, net of a RMB146.4 million valuation allowance as of December 31, 2020. The gross deferred tax assets are
reduced by a valuation allowance if, based upon the weight of all available evidence, it is more likely than not that some
portion, or all, of the deferred tax assets will not be realized.
Auditing management’s analysis of the realizability of its deferred tax assets is a critical audit matter, as it involved
especially subjective judgment and assumptions in relation to estimating the projections of future taxable income that may
be affected by future market or economic conditions.
F-3
Table of Contents
How the Critical Audit Matter was Addressed in the Audit
Our principal audit procedures included, among others:
● obtaining an understanding, evaluating the design, and testing the operating effectiveness of controls that address the
risks of material misstatement relating to the realizability of deferred tax assets. This included controls over
management’s evaluation of the schedule of the future reversal pattern of existing taxable temporary differences that
have been identified as a source of future taxable income; and
● testing the Company’s calculation of future taxable income from the reversal of existing temporary taxable differences
and evaluating the schedule of the reversal patterns. In addition, we considered the feasibility of tax planning
strategies; and, evaluated projected future taxable income exclusive of reversing temporary differences and
carryforwards. We also involved our tax professionals to assist in evaluating the Company’s consideration of the future
taxable income.
Impairment on property and equipment and right of use assets
Critical Audit Matter Description
As described in Note 5 and Note 16 to the consolidated financial statements, the carrying amount of the Company’s
property and equipment and right of use assets as of December 31, 2020 were RMB464.5 million and RMB586.5 million,
respectively. The Company tests the property and equipment and right of use assets (the “asset groups”) for impairment
whenever events or changes in circumstances indicate that the carrying amount of the asset groups may not be recoverable.
Auditing the management’s assessment of the impairment of asset groups is a critical audit matter. The management’s
impairment assessment involved a high degree of subjectivity, including the projection of future cash flows. The significant
assumptions used in calculating projected future cash flows are sales growth rates, gross margin ratios and discount rate.
Projected future cash flows for the asset groups are based on management’s estimates of future cash flows over the
remaining expected life or lease period, if shorter.
How the Critical Audit Matter was Addressed in the Audit
Our principal audit procedures included, among others:
● obtaining an understanding, evaluating the design and testing the operating effectiveness of controls over
management’s processes to determine the fair value of asset groups and measure any impairment. This included
controls over management’s determination and assessment of the sales growth rates, gross margin ratios and discount
rate underlying the fair value calculation;
● testing the completeness, accuracy, and relevance of underlying data used in the future cash flows and evaluating the
reasonableness of the assumptions used by the Company by comparing actual results to the Company’s historical
forecasts, and other forecasted financial information prepared by the Company, as well as management’s consideration
of current industry and economic trends; and
● involving our internal valuation professionals with specialized skills and knowledge, who assisted in evaluating the
Company’s valuation methodologies and assessing the significant assumptions used to determine the fair value of the
asset groups.
/s/ Marcum Bernstein & Pinchuk LLP
Marcum Bernstein & Pinchuk LLP
We have served as the Company’s auditor since 2019.
Beijing, China
April 13, 2021
F-4
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of Renminbi (“RMB”) and US Dollar (“US$”),
except for number of shares and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Time deposits
Restricted cash
Accounts receivable, net of allowance for doubtful accounts
Amounts due from related parties
Prepaid expenses and other current assets
Total current assets
Time deposits-non current
Accounts receivable, net of allowance for doubtful accounts-non current
Property and equipment, net
Intangible assets, net
Right-of-use assets
Goodwill
Long-term investments, net
Deferred income tax assets
Other non-current assets, net
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Short-term bank loans
Accounts payable
Amounts due to related parties
Operating lease liabilities-current
Income taxes payable
Deferred revenue- current
Accrued expenses and other current liabilities
Total current liabilities
Deferred revenue- non current
Operating lease liabilities-non current
Other non-current liabilities
Total liabilities
Commitments and contingencies
Shareholders' equity:
Class A ordinary shares (US$0.001 par value, 860,000,000 shares authorized, 53,806,534 and
55,546,254 shares issued, 46,707,393 and 48,346,384 shares outstanding as of December 31, 2019
and 2020, respectively)
Class B ordinary shares (US$0.001 par value, 40,000,000 shares authorized, 7,206,059 shares issued
and outstanding as of December 31, 2019 and 2020, respectively)
Treasury shares (7,099,141 and 7,199,870 Class A ordinary shares as of December 31, 2019 and
2020, at cost)
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total equity deficit to the shareholders of Tarena International, Inc.
Non-controlling interest
Total liabilities and equity
Note
2019
RMB
December 31,
2020
RMB
2020
US$
2(f)
2(f)
2(f)
3
12
4
2(f)
3
5
16
6
11
7
8
16
11
2(k)
9
2(k)
16
17
13
537,701
83,081
—
31,442
16,492
132,539
801,255
406
724
576,633
17,669
773,472
52,782
67,773
99,789
121,517
2,512,020
89,162
16,563
239
241,710
69,671
1,554,431
397,558
2,369,334
31,539
508,810
5,401
2,915,084
—
337
74
(457,169)
1,284,573
51,386
(1,279,248)
(400,047)
(3,017)
2,512,020
320,179
6,257
38,369
32,790
305
138,353
536,253
—
192
464,490
13,444
586,451
52,782
67,592
142,220
95,825
1,959,249
10,710
10,293
180
199,083
76,817
1,980,138
391,904
2,669,125
18,060
406,251
5,082
3,098,518
—
349
74
(459,815)
1,324,161
49,120
(2,045,891)
(1,132,002)
(7,267)
1,959,249
49,070
959
5,880
5,025
47
21,204
82,185
—
29
71,186
2,060
89,878
8,089
10,359
21,796
14,685
300,267
1,641
1,577
28
30,511
11,773
303,469
60,062
409,061
2,768
62,261
779
474,869
—
53
11
(70,470)
202,937
7,528
(313,547)
(173,488)
(1,114)
300,267
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
Net revenues
Cost of revenues(a)
Gross profit
Selling and marketing expenses(a)
General and administrative expenses(a)
Research and development expenses(a)
Operating loss
Interest income (expense)
Other (loss) income
Foreign currency exchange gains (loss)
Loss before income taxes
Income tax benefit
Net loss
Less: Net loss attributable to non-controlling interests
Net loss attributable to Class A and Class B ordinary shareholders
Basic loss per Class A and Class B ordinary share
Diluted loss per Class A and Class B ordinary share
Net loss
Other comprehensive income (loss)
Foreign currency translation adjustment
Comprehensive loss
Less: Comprehensive loss attributable to non-controlling interests
Comprehensive loss attributable to Class A and Class B ordinary shareholders
(a) Includes share-based compensation expense as follows (note 14):
Cost of revenues
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Note
10
11
15
15
Year Ended December 31,
2018
2019
RMB RMB
2020
2020
RMB US$
2,085,371
(918,549)
1,166,822
(1,047,632)
(546,568)
(167,254)
(594,632)
26,200
(33,583)
4,951
(597,064)
4,865
(592,199)
(2,025)
(590,174)
2,051,354
(1,173,834)
877,520
(1,119,698)
(723,306)
(132,672)
(1,098,156)
15,859
246
1,614
(1,080,437)
41,559
(1,038,878)
(2,792)
(1,036,086)
1,897,883
(1,066,842)
831,041
(906,337)
(630,618)
(100,466)
(806,380)
(199)
5,201
(4,849)
(806,227)
35,034
(771,193)
(4,550)
(766,643)
290,863
(163,501)
127,362
(138,902)
(96,646)
(15,397)
(123,583)
(30)
797
(743)
(123,559)
5,369
(118,190)
(697)
(117,493)
(10.74)
(10.74)
(19.41)
(19.41)
(14.11)
(14.11)
(2.16)
(2.16)
(592,199)
(1,038,878)
(771,193)
(118,190)
11,100
(581,099)
(2,025)
(579,074)
914
(1,037,964)
(2,792)
(1,035,172)
(2,266)
(773,459)
(4,550)
(768,909)
(347)
(118,537)
(697)
(117,840)
(2,265)
(8,866)
(84,645)
(28,477)
(983)
(6,502)
(36,719)
(14,968)
(379)
(1,842)
(26,242)
(7,783)
(58)
(282)
(4,022)
(1,193)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in thousands of RMB, except for number of shares and per share data)
Additional
Paid-in
Capital
RMB
Accumulated Other
Comprehensive
Income (Loss)
RMB
Number of
Class A
Ordinary
Shares
52,340,176
—
632,402
—
—
—
—
—
52,972,578
—
833,956
—
—
—
53,806,534
—
1,739,720
—
—
—
—
55,546,254
Ordinary Shares
Number of
Class B
Ordinary
Shares
7,206,059
—
Amount
RMB
327
—
Amount
RMB
74
—
Treasury
Shares
RMB
(255,103)
—
4
—
—
—
—
—
331
—
6
—
—
—
337
—
12
—
—
—
—
349
—
—
—
—
—
—
7,206,059
—
—
—
—
—
7,206,059
—
—
—
—
—
—
7,206,059
—
—
—
—
—
—
74
—
—
—
—
—
74
—
—
—
—
—
—
74
—
—
—
—
—
(202,066)
(457,169)
—
—
—
—
—
(457,169)
—
—
—
—
—
(2,646)
(459,815)
Balance as of December 31, 2017
Net loss
Issuance of Class A ordinary shares upon
exercise of share options and vesting of non-
vested shares
Foreign currency translation adjustment
Non-controlling interest contribution
Share-based compensation
Dividends
Purchase of Class A ordinary shares
Balance as of December 31, 2018
Net loss
Issuance of Class A ordinary shares upon
exercise of share options and vesting of non-
vested shares
Foreign currency translation adjustment
Non-controlling interest contribution
Share-based compensation
Balance as of December 31, 2019
Net loss
Issuance of Class A ordinary shares upon
exercise of share options and vesting of non-
vested shares
Foreign currency translation adjustment
Non-controlling interest contribution
Share-based compensation
Treasury shares
Balance as of December 31, 2020
1,094,872
—
2,947
—
—
124,253
—
—
1,222,072
—
3,329
—
—
59,172
1,284,573
—
3,342
—
—
36,246
—
1,324,161
Retained
Earnings
(accumulated
deficit)
RMB
389,967
(590,174)
Non-
controlling
Interest
RMB
—
(2,025)
Total
Equity (deficit)
RMB
1,269,509
(592,199)
—
—
—
—
(42,955)
—
(243,162)
—
—
1,050
—
—
—
(975)
2,951
11,100
1,050
124,253
(42,955)
(202,066)
571,643
39,372
—
—
11,100
—
—
—
—
50,472
—
(1,036,086)
(2,792)
(1,038,878)
—
914
—
—
51,386
—
—
(2,266)
—
—
—
49,120
—
—
—
—
(1,279,248)
(766,643)
—
—
—
—
—
(2,045,891)
—
—
750
—
(3,017)
(4,550)
—
—
300
—
—
(7,267)
3,335
914
750
59,172
(403,064)
(771,193)
3,354
(2,266)
300
36,246
(2,646)
(1,139,269)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands RMB and US$, except for number of shares and per share data)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
Amortization of operating lease right-of-use asset
Bad debt provision
Loss on disposal of property and equipment
Deferred income tax benefit
Share based compensation expense
Investment loss (income)
Foreign currency exchange (gain) loss, net
Impairment of long-term investments
Changes in operating assets and liabilities:
Accounts receivable
Amounts due from related parties
Inventory
Prepaid expenses and other current assets
Accrued interest income on time deposits
Other non-current assets
Accounts payable
Fund wired to a related party
Fund received from a related party
Amounts due to related parties
Income taxes payable
Deferred revenue
Accrued expenses and other current liabilities
Operating lease liabilities
Other non-current liabilities
Net cash provided (used in) by operating activities
Investing activities:
Purchase of property and equipment and intangible assets
Proceeds from disposal of property and equipment
Purchase of long-term investments
Purchase of time deposits
Proceeds from maturity of time deposits
Payment for acquisition of RTEC
Cash acquired from acquisition of RTEC
Issuance of loans to employees
Proceeds from repayment of loans to employees
Net cash used in investing activities
Financing activities:
Proceeds from bank borrowing
Contribution from non-controlling entities
Repayment of bank borrowings
Collection of loan from a related party
Issuance of Class A ordinary shares in connection with exercise of share options
Payment of dividend
Repurchase of treasury shares
Net cash (used in) provided by financing activities
Changes in cash, cash equivalents and restricted cash
Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Supplemental disclosure of cash flow information:
Income taxes paid
Interest paid
Non-cash investing and financing activities:
Accrual for purchase of equipment
Payable for repurchase of treasury shares
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities
2018
RMB
Year Ended December 31,
2019
RMB
2020
RMB
2020
US$
(592,199)
(1,038,878)
(771,193)
(118,190)
158,757
—
—
1,238
(46,595)
124,253
1,548
(4,440)
35,524
6,000
(2,996)
(971)
(3,454)
9,814
(15,986)
(390)
(22,488)
22,488
656
2,978
445,854
44,128
—
(638)
163,081
(276,253)
8,905
(14,580)
(284,166)
563,354
(57,700)
11,424
(69,784)
26,823
(91,977)
13,229
1,050
—
—
2,951
(42,955)
(196,957)
(222,682)
(151,578)
10,571
(141,007)
686,691
545,684
37,216
163
18,292
5,109
—
194,806
218,314
2,251
5,118
(46,037)
59,172
(27)
(1,614)
2,000
17,641
(54)
(3,551)
22,773
538
(4,616)
55
—
—
(634)
(2,176)
755,951
29,086
(241,266)
(582)
(31,730)
(161,275)
10,144
(3,000)
(341,722)
419,777
—
—
(12,042)
36,901
(51,217)
89,162
750
(13,792)
—
3,335
—
(5,058)
74,397
(8,550)
567
(7,983)
545,684
537,701
6,654
419
16,272
—
432,898
177,478
170,022
13,900
3,303
(42,431)
36,246
77
4,849
—
(7,779)
(252)
699
97
(2,307)
14,549
821
—
—
(58)
7,146
412,228
2,289
(128,186)
(319)
(108,821)
(79,414)
7,909
(4,000)
(94,426)
171,660
—
—
(8,782)
6,396
(657)
10,710
300
(89,162)
6,499
3,354
—
—
(68,299)
(177,777)
(1,376)
(179,153)
537,701
358,548
615
4,954
9,180
—
484,202
27,200
26,057
2,130
506
(6,503)
5,555
12
743
—
(1,192)
(39)
107
15
(354)
2,230
126
—
—
(9)
1,095
63,177
351
(19,645)
(49)
(16,677)
(12,171)
1,212
(613)
(14,471)
26,308
—
—
(1,346)
980
(101)
1,641
46
(13,665)
996
514
—
—
(10,468)
(27,246)
(210)
(27,456)
82,406
54,950
94
759
1,407
—
74,207
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
1 DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT
CONCENTRATIONS AND RISKS
(a) Description of business
Tarena International, Inc. (“Tarena International”), through its wholly-owned subsidiaries and consolidated
variable interest entities or VIEs (collectively referred to hereinafter as the “Company”), is principally engaged in
providing professional education services including professional information technology (“IT”) training courses
and non-IT training courses across the People’s Republic of China (“PRC”). The Company is also engaged in
providing IT and non-IT training courses for children. All of the Company’s operations are located in the PRC
with nearly all of its customers located in the PRC.
(b) Organization
Tarena International is a holding company that was incorporated in the Cayman Islands on October 8, 2003 by Mr.
Han Shaoyun (“Mr. Han”), the founder and former chief executive officer of the Company, and five other
individuals. Tarena International is the parent company of a number of wholly-owned subsidiaries that are
engaged in the provision of educational products and services. The Company’s education services in certain
locations of the PRC were previously conducted through Beijing Tarena Jinqiao Technology Co., Ltd. (“Beijing
Tarena”), and its subsidiaries, in order to comply with the PRC laws and regulations which restricted foreign
investments in companies that were engaged in education products and services. Pursuant to the VIE Agreement
as described below, Tarena International has effective financial control over Beijing Tarena and its initial capital
funding was provided by Tarena Technologies Inc., (a wholly-owned subsidiary of Tarena International or the
“WFOE”, formerly known as Beijing Tarena Technology Co., Ltd.). The recognized and unrecognized revenue-
producing assets that were held by Beijing Tarena and its subsidiaries primarily consists of property and
equipment, operating leases for the learning premises, ICP license, www.tmooc.cn website and assembled
workforce in those learning centers.
All of the equity interests of Beijing Tarena are legally held by Mr. Han and Mr. Li Jianguang (“Mr. Li”), a
director of Tarena International. Both individuals are nominee equity holders of Beijing Tarena and holding their
equity interests on behalf of Tarena International. Through a series of contractual agreements and arrangements
(the “VIE Agreement”), among Tarena International, WFOE, Beijing Tarena and its nominee equity holders, the
nominee equity holders of Beijing Tarena have granted all their legal rights including voting rights and disposition
rights of their equity interests in Beijing Tarena to Tarena International. The nominee equity holders of Beijing
Tarena do not participate significantly in income and loss and do not have the power to direct the activities of the
Beijing Tarena that most significantly impact their economic performance. Accordingly, the Beijing Tarena is
considered variable interest entities.
In accordance with Accounting Standards Codification (“ASC”) 810-10-25-38A, Tarena International has a
controlling financial interest in Beijing Tarena because Tarena International has (i) the power to direct activities of
Beijing Tarena that most significantly impact the economic performance of Beijing Tarena; and (ii) the obligation
to absorb the expected losses and the right to receive expected residual return of Beijing Tarena that could
potentially be significant to Beijing Tarena. Thus, Tarena International is the primary beneficiary of the Beijing
Tarena.
Under the terms of the VIE Agreement, Tarena International has (i) the right to receive economic benefits that
could potentially be significant to Beijing Tarena in the form of service fees under the exclusive business
cooperation agreements; (ii) the right to receive all dividends declared by Beijing Tarena and the right to all
undistributed earnings of Beijing Tarena; (iii) the right to receive the residual benefits of Beijing Tarena through
its exclusive option to acquire 100% of the equity interests in Beijing Tarena, to the extent permitted under PRC
law. Accordingly, Tarena International is the primary beneficiary of the Beijing Tarena and the financial
statements of Tarena VIE Entities are consolidated in Tarena International’s consolidated financial statements.
F-9
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
1 DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT
CONCENTRATIONS AND RISKS (CONTINUED)
(b) Organization (continued)
Under the terms of the VIE Agreement, Beijing Tarena’ nominee equity holders have no rights to the net assets
nor have the obligations to fund the deficit, and such rights and obligations have been vested to Tarena
International. All of the equity (net assets) and net income of Beijing Tarena are attributed to Tarena International.
The key terms of the VIE Agreement are as follows:
Loan Agreements: The WFOE provided RMB6,000 loans in aggregate to Beijing Tarena’ nominee equity
holders for the sole purpose of their contribution of Beijing Tarena’ registered capital. The nominee equity holders
of Beijing Tarena can only repay the loans by transferring all of their legal equity interest in Beijing Tarena to the
WFOE or its designated representatives pursuant to the exclusive option agreements. The loans shall be interest-
free, unless the transfer price exceeds the principal of the loans when each nominee equity holder of Beijing
Tarena transfers his equity interests in Beijing Tarena to Tarena International or its designated representatives.
Such excess over the principal of the loan shall be deemed as the interest of the loans to the extent permitted under
the PRC law. The initial terms of the loans expire in 2026, which can be extended with the written notice of both
the WFOE and Beijing Tarena before expiration.
Exclusive Option Agreements: Each of the nominee equity holders irrevocably granted Tarena International, Inc.
or its designated representatives an exclusive option to purchase, to the extent permitted under PRC law, all or part
of his equity interests in Beijing Tarena. In addition, Tarena International has the option to acquire the equity
interests of Beijing Tarena for a specified price equal to the loan provided by the WFOE to the nominee equity
holders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted
under PRC law shall apply. Without Tarena International’s prior written consent, the nominee equity holders shall
not sell, transfer, mortgage, or otherwise dispose any equity interests in Beijing Tarena. These agreements will
remain effective until all equity interests held in Beijing Tarena by the nominee equity holders are transferred or
assigned to Tarena International or its designated representatives.
Exclusive Business Cooperation Agreements: The WFOE has the exclusive right to provide, among other
things, technical support, business support and related consulting services to Beijing Tarena and Beijing Tarena
agrees to accept all the consultation and services provided by the WFOE. Without the WFOE’s prior written
consent, Beijing Tarena is prohibited from engaging any third party to provide any of the services under this
agreement. In addition, the WFOE exclusively owns all intellectual property rights arising out of or created during
the performance of this agreement. Beijing Tarena agrees to pay a monthly service fee to the WFOE at an amount
determined solely by the WFOE after taking into account factors including the complexity and difficulty of the
services provided, the time consumed, the seniority of the WFOE employees providing services to Beijing Tarena,
the value of services provided, the market price of comparable services and the operating conditions of Beijing
Tarena. Furthermore, to the extent permitted under the PRC law, the WFOE agrees to provide financial support to
Beijing Tarena. The term of the agreement will remain effective unless the WFOE terminates the agreement in
writing or a competent governmental authority rejects the renewal applications by either Beijing Tarena or the
WFOE to renew its respective business license upon expiration. Beijing Tarena is not permitted to terminate this
agreement in any event unless required by applicable laws.
F-10
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
1 DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT
CONCENTRATIONS AND RISKS (CONTINUED)
(b) Organization (continued)
Power of Attorney: Each nominee equity holder of Beijing Tarena appointed the WFOE as the attorney-in-fact to
act on all matters pertaining to Beijing Tarena and to exercise all of their rights as an equity holder of Beijing
Tarena, including but not limited to attend shareholders’ meetings, vote on their behalf on all matters of Beijing
Tarena requiring shareholders’ approval under PRC laws and regulations and the articles of association of Beijing
Tarena, designate and appoint directors and senior management members. The WFOE may authorize or assign its
rights under this appointment to any other person or entity at its sole discretion without prior notice to the
nominee equity holders of Beijing Tarena. Each power of attorney will remain effective until the nominee equity
holder ceases to hold any equity interest in Beijing Tarena.
Equity Interest Pledge Agreements: Pursuant to the equity interest pledge agreement, Beijing Tarena’ nominee
equity holders pledged all of their equity interests in Beijing Tarena to the WFOE to guarantee their performance
of the obligations under the contractual arrangements including but not limited to, the service fees due to the
WFOE. If Beijing Tarena or any of Beijing Tarena’ nominee equity holders breaches its contractual obligations
under the contractual arrangements, the WFOE, as the pledgee, will be entitled to certain rights and entitlements,
including receiving proceeds from the auction or sale of whole or part of the pledged equity interests of Beijing
Tarena in accordance with legal procedures. The WFOE has the right to receive dividends generated by the
pledged equity interests during the term of the pledge. If any event of default as provided in the contractual
arrangements occurs, the WFOE, as the pledgee, will be entitled to dispose of the pledged equity interests in
accordance with PRC laws and regulations. The equity interest pledge agreements became effective on the date
when the agreements were duly executed. The pledge was registered with the relevant local administration for
industry and commerce in December 2013 and April 2017 and will remain binding until Beijing Tarena and their
nominee equity holders discharge all their obligations under the contractual arrangements. The registration of the
equity pledge enables the WFOE to enforce the equity pledge against third parties who acquire the equity interests
of Beijing Tarena in good faith.
Tarena International relies on the VIE Agreement to operate and control the Beijing Tarena. However, these
contractual arrangements may not be as effective as direct equity ownership in providing Tarena International with
control over Beijing Tarena. Any failure by Beijing Tarena or the nominee equity holders to perform their
obligations under the VIE Agreement would have a material adverse effect on the consolidated financial position
and consolidated financial performance of the Company. All the VIE Agreement is 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 Tarena International’s ability to enforce these
contractual arrangements. In addition, if the legal structure and the VIE Agreement was found to be in violation of
any existing or future PRC laws and regulations, Tarena International may be subject to fines or other legal or
administrative sanctions.
F-11
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
1 DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT
CONCENTRATIONS AND RISKS (CONTINUED)
(b) Organization (continued)
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, Tarena International 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 Agreement is found to be in violation of any existing or future PRC laws and regulations, the PRC
government could:
● revoke the business and operating licenses of the WFOE, its subsidiaries and Beijing Tarena;
● discontinue or restrict the conduct of any transactions between the WFOE, its subsidiaries and Beijing
Tarena;
● impose fines, confiscate the income from Beijing Tarena, or impose other requirements with which the
Company may not be able to comply;
● require Tarena International to restructure its ownership structure or operations, including terminating the
contractual arrangements with Beijing Tarena and deregistering the equity pledges of Beijing Tarena; and
● restrict or prohibit the use of the proceeds of future offering to finance the Company’s business and
operations in the PRC.
If the imposition of any of these government actions causes Tarena International to lose its right to direct the
activities of Beijing Tarena or its right to receive substantially all the economic benefits and residual returns from
Beijing Tarena and Tarena International is not able to restructure its ownership structure and operations in a
satisfactory manner, Tarena International would no longer be able to consolidate the financial results of Beijing
Tarena and its subsidiaries. In the opinion of management, the likelihood of deconsolidation of the Beijing Tarena
and its subsidiaries is remote based on current facts and circumstances.
The equity interests of Beijing Tarena are legally held by Mr. Han and Mr. Li as nominee equity holders on behalf
of the Company. Mr. Han and Mr. Li are also directors of Tarena International. Mr. Han and Mr. Li each holds
67.8% and 0.1% of the total voting rights as of December 31, 2020, respectively, assuming the exercise of all
outstanding options held by Mr. Han and Mr. Li as of such date. The Company cannot assure that when conflicts
of interest arise, either of the nominee equity holders will act in the best interests of the Company or such conflicts
will be resolved in the Company’s favor. Currently, the Company does not have any arrangements to address
potential conflicts of interest between the nominee equity holders and the Company, except that Tarena
International could exercise the purchase option under the exclusive option agreement with the nominee equity
holders to request them to transfer all of their equity ownership in Beijing Tarena to a PRC entity or individual
designated by Tarena International. The Company relies on the nominee equity holders, who are both Tarena
International’s directors and who owe a fiduciary duty to Tarena International, to comply with the terms and
conditions of the contractual arrangements. Such fiduciary duty requires directors to act in good faith and in the
best interests of Tarena International and not to use their positions for personal gains. If the Company cannot
resolve any conflict of interest or dispute between the Company and the nominee equity holders of Beijing Tarena,
the Company would have to rely on legal proceedings, which could result in disruption of the Company’s business
and subject the Company to substantial uncertainty as to the outcome of any such legal proceedings.
F-12
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
1 DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT
CONCENTRATIONS AND RISKS (CONTINUED)
(b) Organization (continued)
The Company’s involvement with Beijing Tarena under the VIE Agreement affected the Company’s consolidated
financial position, results of operations and cash flows as indicated below.
The assets and liabilities of Beijing Tarena and its subsidiaries that were included in the accompanying
consolidated financial statements as of December 31, 2019 and 2020 are as follows:
Cash
Amounts due from Tarena International and its wholly-owned subsidiaries
Amounts due from a related party
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Long term investments, net
Deferred income tax assets
Right-of-use assets
Other non-current assets
Total assets
Accounts payable
Deferred revenue-current
Operating lease liabilities-current
Income taxes payable
Accrued expenses and other current liabilities
Amounts due to Tarena International and its wholly-owned subsidiaries
Amounts due to related parties
Total current liabilities
Deferred revenue-non current
Operating lease liabilities-non current
Other non-current liabilities
Total liabilities
F-13
December 31,
2019
2020
RMB RMB
211
39,464
4
2,269
41,948
2,121
48,380
—
7,083
363
99,895
282
51,808
2,574
2,049
17,397
74,991
130
149,231
215
3,843
122
153,411
1,332
113,394
4
4,103
118,833
1,552
48,380
74
5,540
539
174,918
8,610
138,529
3,377
8,037
13,909
21,072
—
193,534
133
1,536
122
195,325
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
1 DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT
CONCENTRATIONS AND RISKS (CONTINUED)
(b) Organization (continued)
The financial performance and cash flows of Beijing Tarena and its subsidiaries that were included in the
accompanying consolidated financial statements for the years ended December 31, 2018, 2019 and 2020 are as
follows:
Net revenues
Net (loss) income
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Year Ended December 31,
2020
2019
2018
RMB RMB RMB
4,232
(16,900)
1,540
(24,083)
23,625
32,013
(37,565)
36,902
(34,226)
(3,841)
127,043
32,869
122,813
—
(121,692)
All of the assets of Beijing Tarena and its subsidiaries can be used only to settle obligations of Beijing Tarena and
its subsidiaries. None of the assets of Beijing Tarena and its subsidiaries have been pledged or collateralized. The
creditors of Beijing Tarena and its subsidiaries do not have recourse to the general credit of Tarena International
and its wholly-owned subsidiaries. Assets of Beijing Tarena and its subsidiaries that can be used only to settle
obligations of Beijing Tarena and its subsidiaries and liabilities of Beijing Tarena and its subsidiaries for which
creditors (or beneficial interest holders) do not have recourse to the general credit of Tarena International and its
wholly owned subsidiaries have been presented parenthetically alongside each balance sheet caption on the face of
the consolidated balance sheets.
During the periods presented, Tarena International and its wholly-owned subsidiaries provided financial support to
Beijing Tarena that it was not previously contractually required to provide in the form of advances. To the extent
Beijing Tarena requires financial support, pursuant to the exclusive business cooperation agreements, the WFOE
may, at its option and to the extent permitted under the PRC law, provide such support to Beijing Tarena through
loans to Beijing Tarena’ nominee equity holders or entrustment loans to Beijing Tarena.
(c) Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”). All amounts in the accompanying consolidated financial
statements and notes are expressed in Renminbi (“RMB”). Amounts in United States dollars (“US$”) are
presented solely for the convenience of readers and use an exchange rate of RMB6.5250, representing the
exchange rate as set forth in the H.10 statistical release of the U.S. Federal Reserve Board as of December 31,
2020. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such
rate.
F-14
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
1 DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT
CONCENTRATIONS AND RISKS (CONTINUED)
(d) Significant concentrations and risks
Revenue concentration
A substantial portion of the Company’s total net revenues are generated from K-12 Computer Programming,
Digital Arts, K-12 Robotics Programming and Java courses. The percentages of the Company’s total net revenues
from K-12 Computer Programming, Digital Arts, K-12 Robotics Programming and Java courses are as follows:
K-12 Computer Programming
Digital Arts
K-12 Robotics Programming
Java
Total
Year Ended December 31,
2018
7.1 %
28.7 %
2.1 %
18.3 %
56.2 %
2019
12.8 %
22.9 %
9.3 %
19.0 %
64.0 %
2020
20.6 %
16.8 %
15.7 %
13.8 %
66.9 %
The Company expects net revenues from these four training courses to continue to represent a majority portion of
its total net revenues in the future. Negative factors that adversely affect net revenues generated by these four
training courses will have a material adverse effect on the Company’s business, financial condition and results of
operations. There were no other courses that represented revenues greater than 10% of total revenues.
A substantial portion of the Company’s students financed their tuition fees through the loans offered to them by
financial service providers including Baidu Small Loan Co., Ltd., Bank of China Consumer Finance Co., Ltd. and
Beijing Ronglian Century Information Technology Co., Ltd., during the 3-year period ended December 31, 2020.
The Company expects students financed by these companies to continue to represent a major portion of its total
students in the future. The Company believes other companies could provide similar loans to its students on
comparable terms. However, negative factors that adversely affect these companies will have a material adverse
effect on the Company’s business, financial condition and results of operations.
Geographic concentration
The percentages of the Company’s total net revenues generated from its business operations in Beijing are 13.5%,
13.8% and 17.2% for the years ended December 31, 2018, 2019 and 2020, respectively.
The Company expects revenues derived from its business operations in Beijing to continue to be greater than 10%
of total revenue in the future. Negative factors that adversely affect professional education services in Beijing will
have a material adverse effect on the Company’s business, financial condition and results of operations.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
The consolidated financial statements include the financial statements of Tarena International, its wholly-owned
subsidiaries, VIE in which Tarena International is the primary beneficiary and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated upon consolidation.
F-15
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Liquidity Condition and going concern
The Company incurred net losses from operations of RMB592 million, RMB1,039 million and RMB771 million
for the year ended December 31, 2018, 2019 and 2020, respectively. For the years ended December 31, 2018, the
Company generated net cash inflow from operating activities amounting to RMB163 million. For the year ended
December 31, 2019 and 2020, the Company generated net cash outflows from operating activities amounting to
RMB32 million and RMB109 million, respectively. As of December 31, 2020, the Company’s net current liability
was RMB2,133 million. The Company’s cash balance as of December 31, 2020 is not sufficient to meet its cash
obligations or liabilities when they become due over the next twelve months from the date of issuance of the
consolidated financial statements. The Company’s operating results for future periods are subject to numerous
uncertainties and it is uncertain if the Company will be able to reduce or eliminate its net losses for the foreseeable
future. If management is not able to increase revenue and/or manage operating expenses in line with revenue
forecasts, the Company may not be able to achieve profitability.
As of December 31, 2020, the Company’s deferred revenue amounted to RMB1,998 million and does not
represent potential cash outflows in the future but is expected to be recognized in revenues in the end.
These adverse conditions and events indicate there could be substantial doubt about the Company’s ability to
continue as a going concern. For the next 12 months from the issuance date of this report, the Company plans to
continue implementing various measures to boost revenue and controlling the cost and expenses within an
acceptable level by offering online courses to all students, implementing comprehensive budget control and
operation assessment, implementing enhanced vendor review and selection processes as well as enhancing
internal controls on payable management, creating synergy of the Company’s resources and improving cash
inflow by debt financing and the sale of properties and treasury stocks. As of the date of issuance of the
consolidated financial statements, the Company has unused the line of credit of RMB200 million with expiration
date June 2021. Besides, the Company has two office buildings, which locate in Qingdao and Beijing, total
amounted to RMB133 million available for sale for future operating fund shortage if any. In addition, the
Company has treasury stocks of 7,099,141 Class A ordinary shares, which were purchased in prior years. The
treasury stock can be resold by a purchase price of $4.00 per ADS if the privatization process of the Company has
completed, or sold to public through stock exchange without restriction. The total amount of such treasury stocks
will be around RMB185 million with the exchange rate of the RMB against the U.S. dollar at 6.5250. Given the
considerable gross margin ratio in its operations, the balance of deferred revenue mentioned above and the three
available funding sources mentioned above, the Company assesses current working capital is sufficient to meet its
obligations for the next 12 months from the issuance date of this report. Accordingly, management continues to
prepare the Company’s consolidated financial statements on going concern basis.
F-16
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Use of estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant
items subject to such estimates and assumptions include the estimated stand-alone selling price under ASC 606,
the guarantee liability under ASC Topic 460, the fair values of share-based compensation awards, goodwill
impairment and long term investments, the allowance for credit losses of accounts receivable, amounts due from
related parties, prepaid expenses and other current assets and other non-current assets under ASC 326, the
realizability of deferred income tax assets, the accruals for other contingencies, the useful lives and the
recoverability of the carrying amounts of property and equipment. The current economic environment has
increased the degree of uncertainty inherent in those estimates and assumptions.
The preparation of these financial statements requires the Company to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates based on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
To allocate the transaction price for contracts with multiple deliverables and estimate the standalone selling price,
the Company considers market data, including its pricing strategies for the products being evaluated and other
similar products it offers, competitor pricing to the extent data is available, and costs to determine whether the
estimated selling price yields an appropriate profit margin.
(d) Business combinations
Business combinations are recorded using the acquisition method of accounting. The purchase price of the
acquisition is allocated to the identifiable assets and liabilities based on their estimated fair values as of the
acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-
related expenses and restructuring costs are expensed as incurred.
(e) Foreign currency
The functional currency of Tarena International and Tarena Hong Kong Limited (“Tarena HK”) is the USD. The
functional currency of Techarena Canada Inc. is the CAD. The functional currency of Taiwan Tarena Counseling
Software Co., Ltd. is the TWD. The functional currency of Tarena International’s PRC subsidiaries, consolidated
VIE, and the subsidiaries of the 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 date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using
the applicable exchange rate at the balance sheet date. The resulting exchange differences are recorded in foreign
currency exchange gains (losses) in the consolidated statements of comprehensive loss.
Assets and liabilities of entities with functional currencies other than RMB are translated into RMB using the
exchange rate on the balance sheet date. Revenues and expenses are translated into RMB at average rates
prevailing during the reporting period. The resulting foreign currency translation adjustment are recorded in
accumulated other comprehensive loss within shareholders’ equity.
F-17
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Foreign currency (continued)
Since the RMB is not a fully convertible currency, all foreign exchange transactions involving RMB must take
place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell
foreign exchange. The exchange rates adopted for the foreign exchange transactions are the rates of exchange
quoted by the PBOC.
(f) Cash, cash equivalents, restricted cash and time deposits
Cash consists of cash in bank and deposits place in third party payment processors of Alipay, Wechat wallet and
Baidu wallet, which are unrestricted as to withdrawal. Cash equivalents consist of interest-bearing certificates of
deposit with initial term of no more than three months when purchased.
Time deposits, which mature within one year as of the balance sheet date, represent interest-bearing certificates of
deposit with an initial term of greater than three months when purchased. Time deposits which mature over one
year as of the balance sheet date are included in non-current assets.
The Company has no restricted cash as of December 31, 2019. Restricted cash is the cash received from financial
service provider for students’ tuition fee, which will release to cash along with the service provided to the
students. The balance as of December 31, 2020 is RMB38.4 million.
Cash, cash equivalents, time deposits and restricted cash maintained at financial institutions consist of the
following:
RMB denominated bank deposits with financial institutions in the PRC
US dollar denominated bank deposits with financial institutions in the PRC
US dollar denominated bank deposits with financial institutions in Hong Kong
Special Administrative Region (“HK SAR”)
HK dollar denominated bank deposits with financial institutions in HK SAR
RMB denominated bank deposits with a financial institution in HK SAR
US dollar denominated bank deposits with a financial institution in the U.S.
TWD denominated bank deposits with a financial institution in Taiwan
CAD denominated bank deposits with a financial institution in Canada
Total
December 31,
2019
2020
RMB RMB
470,673
136,640
278,789
81,283
9,939
74
132
135
24
3,571
621,188
793
50
2,022
117
579
1,172
364,805
To limit exposure to credit risk relating to bank deposits, the Company primarily places bank deposits only with
large financial institutions in the PRC, HK SAR, Taiwan, Canada and the U.S. with acceptable credit rating.
F-18
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Accounts receivable
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of
Credit Losses on Financial Statements. This ASU requires a financial asset (or group of financial assets) measured
at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses
is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net
carrying value at the amount expected to be collected on the financial asset. The amendments affect loans, debt
securities, trade receivables, net investments in leases, exposures on guarantee liabilities, reinsurance receivables,
and any other financial assets not excluded from the scope that have the contractual rights to receive cash. We
adopted this guidance on January 1, 2020 with no material impact on our consolidated financial statements and
related disclosures as a result of adopting the new standard.
Accounts receivable primarily represent tuition fees due from students, universities and colleges and financial
service providers. Accounts receivable which are due over one year as of the balance sheet date are presented as
non-current assets. The unearned interest on accounts receivable which are due over one year is reported in the
consolidated balance sheets as a direct deduction from the principal amount of accounts receivable. The Company
maintains an allowance for credit losses for estimated losses resulting from the inability of its students,
universities and colleges or financial service providers to make required payments. Accounts receivable is
considered past due based on its contractual terms. In establishing the allowance, management considers historical
losses, the financial condition, the accounts receivables aging, the payment patterns and the forecasted information
in pooling basis upon the use of the Current Expected Credit Loss Model (“CECL Model”) in accordance with
ASC topic 326, Financial Instruments - Credit Losses. Accounts receivable that are deemed to be uncollectible are
charged off against the allowance after all means of collection have been exhausted and the potential for recovery
is considered remote. There is a time lag between when the Company estimates a portion of or the entire account
balances to be uncollectible and when a write off of the account balances is taken. The Company takes a write off
of the account balances when the Company can demonstrate all means of collection on the outstanding balances
have been exhausted.
(h) Property and equipment
Property and equipment are recorded at cost. Depreciation is calculated on the straight-line method over the
estimated useful lives of the assets. The estimated useful life of property and equipment is as follows:
Office buildings
Furniture
Office equipment
Leasehold improvements
45 years
5 years
3 to 4 years
Shorter of the lease term or the estimated useful life of the assets
Ordinary maintenance and repairs are charged to expenses as incurred, while replacements and betterments are
capitalized. When items are retired or otherwise disposed of, income is charged or credited for the difference
between net book value of the item disposed and proceeds realized thereon. Property and equipment are reviewed
for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be
recoverable. Recoverability of a long-lived asset or asset group to be held and used is measured by a comparison
of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be
generated by the asset or asset group. If the carrying value of an asset or asset group exceeds its estimated
undiscounted future cash flows, an impairment loss is recognized by the amount that the carrying value exceeds
the estimated fair value of the asset or asset group. Fair value is determined through various valuation techniques
including discounted cash flow models, quoted market values and third-party independent appraisals, as
considered necessary. Assets to be disposed are reported at the lower of carrying amount or fair value less costs to
sell, and are no longer depreciated. No impairment of long-lived assets was recognized for any of the years
presented.
F-19
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Goodwill
In January 2017, the FASB issued ASU 2017-04, simplifying the Test for Goodwill Impairment, which simplifies
the accounting for goodwill impairment by eliminating Step two from the goodwill impairment test. If the
carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount
equal to that excess, versus determining an implied fair value in Step two to measure the impairment loss. We
adopted this guidance on a prospective basis on January 1, 2020 with no material impact on its consolidated
financial statements and related disclosures as a result of adopting the new standard.
We assess goodwill for impairment on annual basis in accordance with ASC 350-20, Intangibles – Goodwill and
Other: Goodwill, which permits the Company to first assess qualitative factors to determine whether it is “more
likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining
whether it is necessary to perform the quantitative impairment test. If this is the case, the quantitative goodwill
impairment test is required. If it is more likely-than-not that the fair value of a reporting unit is greater than its
carrying amount, the quantitative goodwill impairment test is not required.
Quantitative goodwill impairment test is used to identify both the existence of impairment and the amount of
impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the
fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired. If the fair
value of the reporting unit is less than its carrying amount, an impairment loss shall be recognized in an amount
equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
The Company performs the annual goodwill impairment assessment using qualitative and quantitative impairment
test on September 30 and no goodwill impairment was identified.
(j) Long-term investments
● Equity investments without readily determinable fair values
Equity investments without readily determinable fair values are measured and recorded using a measurement
alternative that measures the securities at cost minus impairment, if any, plus or minus changes resulting from
qualifying observable price changes in accordance with ASC topic 321, Investments – Equity Securities.
F-20
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Long-term investments (continued)
● Equity method investments
Under the equity method, the Company’s share of the post-acquisition profits or losses of the equity investment is
recognized in the consolidated statements of comprehensive loss; and the Company’s share of post-acquisition
movements in equity is recognized in equity in the consolidated balance sheets. Unrealized gains on transactions
between the Company and an entity in which it has recorded an equity investment are eliminated to the extent of
the Company’s interest in the entity. To the extent of the Company’s interest in the investment, unrealized losses
are eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the
Company’s share of losses in an entity in which it has recorded an equity investment equals or exceeds the
Company’s interest in the entity, it does not recognize further losses, unless it has incurred obligations or made
payments on behalf of the equity investee.
The Company evaluates the equity method investments for impairment. An impairment loss on the equity method
investments is recognized in earnings when the decline in value is determined to be other-than-temporary.
● Available-for-sale debt securities
Debt securities that the Company has positive intent and ability to hold to maturity are classified as held-to-
maturity debt securities and are stated at amortized cost. Debt securities that the Company has the intent to hold
the security for an indefinite period or may sell the security in response to the changes in economic conditions are
classified as available for sale and reported at fair value. Unrealized gains and losses (other than impairment
losses) are reported, net of the related tax effect, in other comprehensive income (OCI). Upon sale, realized gains
and losses are reported in net income. The Company monitors the investments for other-than-temporary
impairment by considering factors including, but not limited to, current economic and market conditions, the
operating performance of the companies including current earnings trends and other company-specific
information.
(k) Revenue recognition
The Company adopted ASC Topic 606 (“ASC 606”), Revenue from Contracts with Customers, with effect from
January 1, 2018, using the modified retrospective method applied to those contracts which were not completed as
of January 1, 2018. Accordingly, revenues for the years ended December 31, 2018, 2019 and 2020 were presented
under ASC 606.
F-21
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Revenue recognition (continued)
The Company evaluated and recognized revenue based on the five steps set forth in ASC 606 by:
● identifying the contract(s) with the customer;
● identifying the performance obligations in the contract;
● determining the transaction price;
● allocating the transaction price to performance obligations in the contract; and
● recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or
service to a customer (i.e., “transfer of control”).
These criteria as they relate to each of the following major revenue generating activities are described below.
Revenue is presented net of business tax and value added taxes (“VAT”) at rates ranging between 3% and 6%, and
surcharges. VAT and business tax to be collected from customers, net of VAT paid for purchases, is recorded as a
liability in the consolidated balance sheets until it is paid to the tax authorities.
Tuition revenue
The Company provides IT and non-IT related training courses to both adult and K-12. The Company also
cooperate with universities and colleges in China to offer joint-major degree programs in accordance with the
higher education reform policies of each province. The Company integrates its selected courses into universities
and colleges’ standard undergraduate curriculum for students enrolled in such joint-major programs. Students can
attend part of the courses in our established on-campus learning sites and part of the courses at the Company’s
learning centers.
A majority of contract of tuition service is accounted for as a single performance obligation which is satisfied
proportionately over the service period. Tuition fees are recognized as revenue proportionately as the training
courses are delivered, with unearned portion of tuition fees being recorded as deferred revenue. For certain
students who borrow the tuition fee from financial service providers, the Company also provides a guarantee
service to financial service providers whereas in the event of default, the financial service providers are entitled to
receive unpaid interest and principal from the Company. Given that the Company effectively takes on all of the
credit risk of the borrowers and are compensated by the tuition fees charged, the guarantee is deemed as a service
and the guarantee exposure is recognized as a stand-ready obligation in accordance with ASC Topic 460,
Guarantees (see accounting policy for Guarantee Liabilities). The Company first allocates the transaction price to
the guarantee liabilities, if any, in accordance with ASC Topic 460, Guarantees, which requires the guarantee to be
measured initially at fair value based on the stand ready obligation. Then the remaining considerations are
allocated to the tuition fees consistent with the guidance in ASC 606.
Certain qualified students are allowed to pay their tuition fees on installment for a period of time exceeding one
year. When tuition services are sold on installment terms that exceeds one year beyond the point in time that
revenue is recognized, the contract contains a significant financing component, and the consideration promised by
the customer is variable. The receivable, and therefore the revenue is recorded at the present value of the
payments. The difference between the present value of the receivable and the nominal or principal value of the
tuition fees is recognized as interest income over the contractual repayment period using the effective interest rate
method. The interest rate used to determine the present value of total amount receivable is the rate subject to
management decision on the date of the transaction and it reflects the rate that the students can obtain financing of
a similar nature from other sources at the date of the transaction.
F-22
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Revenue recognition (continued)
The Company enters into arrangements with certain students that purchase multiple services. The performance
obligations identified include tuition service and practical tutoring service. The Company treats training contracts
with multiple performance obligations as separate units of accounting for revenue recognition purposes and
recognizes revenue during the contract period when each performance obligation is satisfied. The Company
allocates the transaction price to each performance obligations based on stand-alone selling price.
Refunds are provided to students if they withdraw from classes, and usually only those unearned portions of the
fee which is available will be refunded. A refund liability represents the amounts of consideration received but are
not expected to be entitled to earn, and thus are not included in the transaction price because these amounts are
expected to be eventually refunded to students. The Company determines the transaction price to be earned by
estimating the refund liability based on historical refund ratio on a portfolio basis using the expected value
method. Reclassification was made from deferred revenue to refund liabilities, which was recorded under accrued
expenses and other current liabilities.
Certification service revenue
The Company provides certification service to students who complete the training course and enroll for the exams.
The Company is responsible for the certification service, including organization, proctoring and grading of exams,
and providing the certificates to students. All certificates are issued by third parties to the students who pass the
exam.
The Company is the principal to end customers. The Company acts as the principal in providing the certificate
service to the students and recognizes revenue on gross basis because the Company is able to determine the price,
acts as the main obligor in the arrangement, and, is responsible for fulfilling the services ordered by the students.
Cash received before the students taking the exam is recorded as deferred revenue.
Each contract of certification service is accounted for as a single performance obligation which is satisfied at a
point in time. The performance obligation is satisfied when the certificates are provided to the students and the
consideration are received, then the received consideration is recognized as certification service revenue.
Loan referral service revenue
The Company promotes loan products of financial service providers to its students, who need financial assistance
for the payment of their tuition fees, in exchange for a referral fee generally at a rate of the principal amount of the
loans. Each contract of loan referral service is accounted for as a single performance obligation which is satisfied
at a point in time.
Generally, the early repayment and default loan are excluded from the effective principal amount of the loans, and
thus are not included in the transaction price because these amounts are expected to be eventually refunded to
financial service providers. The Company determines the transaction price to be earned by estimating the refund
liability based on historical refund ratio on a portfolio basis using the expected value method. Refund liability was
recorded under accrued expenses and other current liabilities. Historically, the Company has not had material
refunds.
Loan referral service revenue is recognized upon the initiation of the loans as the performance obligation is
satisfied and confirmed with the financial service providers on a monthly basis.
F-23
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Revenue recognition (continued)
Contract acquisition costs
The Company has used practical expedients as allowed under ASC 606 to generally expenses sales commissions
when incurred, because the amortization period would be one year or less. These costs are recorded as sales and
marketing expenses.
Contract liability
The Company does not have amounts of contract assets since revenue is recognized as the transferred control of
promised services to customers.
The contract liabilities consist of deferred revenue, which represent the Company has received consideration but
has not satisfied the related performance obligations. The revenue recognized for years ended December 31, 2019
and 2020 that was previously included in the deferred revenue balances as of December 31, 2018 and December
31, 2019 was RMB648,050 and RMB905,867, respectively.
The Company’s deferred revenue amounting to RMB1,585,970 and RMB1,998,198 as of December 31, 2019 and
2020, respectively. Starting from second half year 2019, the Company enters into contracts that have an original
expected length of more than one year with certain students. The remaining performance obligations of these
contracts are as following:
For the years ended December 31,
Revenue expected to be recognized on these contracts
112,786
18,549
2021
RMB
2022
RMB
Total
RMB
131,335
The Company has selected to apply the practical expedient in paragraph ASC 606-10-50-14 and does not disclose
information about remaining performance obligations in contracts that have an original expected length of one
year or less.
Refund liability mainly related to the estimated refunds that are expected to be provided to students if they decide
they no longer want to take the course. Refund liability estimates are based on historical refund ratio on a portfolio
basis using the expected value method.
Guarantee service revenue recognized under ASC 460
At the inception of each loan, the guarantee liabilities recorded at fair value based on ASC Topic 460 is
determined on a loan by loan basis. The guarantee liabilities are generally reduced by recording a credit to
guarantee service revenue as the guarantor is released from the underlying guaranteed risk. Subsequent to initial
recognition, the guarantee obligation’s release from risk has typically been recognized over the term of the
guarantee using a rational amortization method.
(l) Cost of revenues
Cost of revenues consists of payroll and employee benefits, rent expenses of learning centers, depreciation relating
to property and equipment used for operating the learning centers, and other operating costs that are directly
attributed to the provision of training services.
F-24
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TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m) Guarantee liabilities
For certain students who borrow the tuition fee from financial service providers, the Company provides a
guarantee service to financial service providers whereas in the event of default, the financial service providers are
entitled to receive unpaid interest and principal from the Company. In general, any unpaid interest and principal
are paid when the borrower does not repay as scheduled.
For accounting purposes, at the inception of each loan, the Company recognizes the guarantee liability in accrued
expenses and other current liabilities at fair value in accordance with ASC 460-10, which incorporates the
expectation of potential future payments under the guarantee and takes into both non-contingent and contingent
aspects of the guarantee. Subsequent to the loan’s inception, the guarantee liability is composed of two
components: (i) ASC Topic 460 component; and (ii) ASC Topic 450 component. The liability recorded based on
ASC Topic 460 is determined on a loan by loan basis and it is reduced when the Company is released from the
underlying risk, i.e. as the loan is repaid by the borrower or when the investor is compensated in the event of a
default. This component is a stand ready obligation which is not subject to the probable threshold used to record a
contingent obligation. The guarantee liabilities are generally reduced by recording a credit to guarantee service
revenue as the guarantor is released from the underlying guaranteed risk. Subsequent to initial recognition, the
guarantee obligation’s release from risk has typically been recognized over the term of the guarantee using a
rational amortization method. The other component is a contingent liability determined based on probable loss
considering the actual historical performance and current conditions, representing the obligation to make future
payouts under the guarantee liability in excess of the stand-ready liability, measured using the guidance in ASC
Topic 450, loans with similar risk characteristics are pooled into cohorts. The ASC 450 contingent component is
recognized as part of operating expenses. At all times the recognized liability (including the stand ready liability
and contingent liability) is at least equal to the probable estimated losses of the guarantee portfolio.
(n) Advertising costs
Advertising costs are expensed as incurred and included in selling and marketing expenses. Advertising costs
were RMB339,385, RMB416,814 and RMB297,484 for the years ended December 31, 2018, 2019 and 2020,
respectively.
(o) Operating lease
The Company adopted Accounting Standards Update (“ASU”) 2016-02 Leases (“ASC 842”) as of January 1,
2019, using the non-comparative transition option pursuant to ASU 2018-11. Therefore, the Company has not
restated comparative period financial information for the effects of ASC 842, and will not make the new required
lease disclosures for comparative periods beginning before January 1, 2019. The Company elected the package of
practical expedients permitted under the transition guidance within the new standard, which among others things
(i) allowed the Company to carry forward the historical lease classification; (ii) did not require the Company to
reassess whether any expired or existing contracts are or contain leases; (iii) did not require the Company to
reassess initial direct costs for any existing leases.
F-25
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) Operating lease (continued)
The Company identifies lease as a contract, or part of a contract, that conveys the right to control the use of
identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. For
all operating leases except for short-term leases, the Company recognizes operating right-of-use assets and
operating lease liabilities. Leases with an initial term of 12 months or less are short-term lease and not recognized
as right-of-use assets and lease liabilities on the consolidated balance sheet. The Company recognizes lease
expense for short-term leases on a straight-line basis over the lease term. The operating lease liabilities are
recognized based on the present value of the lease payments not yet paid, discounted using the Company’s
incremental borrowing rate over a similar term of the lease payments at lease commencement. Some of the
Company’s lease agreements contain renewal options; however, the Company do not recognize right-of-use assets
or lease liabilities for renewal periods unless it is determined that the Company is reasonably certain of renewing
the lease at inception or when a triggering event occurs. The right-of-use assets consist of the amount of the
measurement of the lease liabilities and any prepaid lease payments. Lease expense for lease payments is
recognized on a straight-line basis over the lease term. The Company’s lease agreements do not contain any
material residual value guarantees or material restrictive covenants.
(p) Government grant
Government grant is recognized when there is reasonable assurance that the Company will comply with the
conditions attached to it and the grant will be received. Government grant for the purpose of giving immediate
financial support to the Company with no future related costs or obligation is recognized in the Company’s
consolidated statements of comprehensive loss when the grant becomes receivable. Government grants of
RMB2,292, RMB1,665 and RMB4,735 were recognized and included in other income (loss) for the years ended
December 31, 2018, 2019 and 2020, respectively.
(q) Research and development expense
Research and development costs are expensed as incurred.
(r) Employee benefits
Pursuant to relevant PRC regulations, the Company is required to make contributions to various defined
contribution plans organized by municipal and provincial PRC governments. The contributions are made for each
PRC employee at rates ranging from 20.7% to 51.1% on a standard salary base as determined by local social
security bureau. Contributions to the defined contribution plans are charged to the consolidated statements of
comprehensive loss when the related service is provided. For the years ended December 31, 2018, 2019, and
2020, the costs of the Company’s obligations to the defined contribution plans amounted to RMB129,455,
RMB143,438, and RMB53,750, respectively. The Company has no other obligation for the payment of employee
benefits associated with these plans beyond the contributions described above.
(s) Income taxes
The Company follows the asset and liability method in accounting for income taxes in accordance to ASC topic
740 “Taxation” (“ASC 740”), Income Taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax
rates that will be in effect in the period in which the differences are expected to reverse. The Company records a
valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-
than-not that some portion, or all, of the deferred tax assets will not be realized.
F-26
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TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s) Income taxes (continued)
The Company adopted ASC 740 to account for uncertainty in income taxes. ASC 740 clarifies the accounting for
uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being
recognized in the consolidated financial statements. The Company 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 Company has elected to classify interest and
penalties related to an unrecognized tax benefits, if and when required, as part of income tax expense in the
consolidated statements of comprehensive loss. For the year ended December 31, 2020, there were no uncertain
tax positions and the Company does not expect that the position of unrecognized tax benefits will materially
change within the next twelve months.
In accordance with PRC Tax Administration Law on the Levying and Collection of Taxes, the PRC authorities
generally have up to five years to assess underpaid tax plus penalties and interest for PRC entities’ tax filings. In
case of tax evasion, which is not clearly defined in the law, there is no limitation on the tax years open for
investigation. Accordingly, the PRC entities remain subject to examination by the tax authorities based on above.
(t) Share based compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award and recognizes the cost over the period the employee is required to
provide service in exchange for the award, which generally is the vesting period. The Company recognizes
compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line
basis over the requisite service period for the entire award, net of estimated forfeitures, provided that the
cumulative amount of compensation cost recognized at any date at least equals the portion of the grant-date value
of such award that is vested at that date. Forfeiture rates are estimated based on historical of employee turnover
rates.
(u) Commitments and contingencies
In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and
claims arising out of its business, that cover a wide range of matters, including, among others, government
investigations, shareholder lawsuits, and non-income tax matters. An accrual for a loss contingency is recognized
when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If a
potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if
determinable and material, is disclosed.
(v) Loss per share
Basic loss per Class A and Class B ordinary share is computed by dividing net loss attributable to Tarena
International’s Class A and Class B ordinary shareholders by the weighted average number of Class A and Class
B ordinary shares outstanding during the year using the two-class method. Under the two-class method, net loss
attributable to Tarena International’s Class A and Class B ordinary shareholders is allocated between Class A and
Class B ordinary shares and other participating securities, if any, based on participating rights in undistributed
loss.
F-27
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(v) Loss per share (continued)
Diluted loss per share is calculated by dividing net loss attributable to Tarena International’s Class A and Class B
ordinary shareholders as adjusted for the effect of dilutive Class A and Class B ordinary share equivalents, if any,
by the weighted average number of Class A and Class B ordinary and dilutive Class A and Class B ordinary share
equivalents outstanding during the year. Class A and Class B ordinary share equivalents include the Class A and
Class B ordinary shares issuable upon the exercise of the outstanding share options (using the treasury stock
method). Potential dilutive securities are not included in the calculation of diluted loss per Class A and Class B
ordinary share if the impact is anti-dilutive. If there is a loss from continuing operations, diluted EPS would be
computed in the same manner as basic EPS is computed, even if an entity has net income after adjusting for a
discontinued operation or an extraordinary item.
(w) Segment reporting
The Company uses the management approach in determining its operating segments. The management approach
considers the internal reporting used by the Company’s chief operating decision maker for making decisions about
the allocation of resources to and the assessment of the performance of the segments of the Company.
Management has determined that the Company has two operating segments, which is the Adult Training segment
and Kid Training segment. The majority of the Company’s operations and customers are located in the PRC.
Consequently, no geographic information is presented.
(x) Fair value measurements
The Company applies the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, for fair value
measurements of financial assets and financial liabilities and for fair value measurements of non-financial items
that are recognized or disclosed at fair value in the financial statements on a recurring and non-recurring basis.
ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers
the principal or most advantageous market in which it would transact and it considers assumptions that market
participants would use when pricing the asset or liability. ASC Topic 820 also establishes a framework for
measuring fair value and expands disclosures about fair value measurements.
ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. ASC Topic 820 establishes three levels
of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to
measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair
value hierarchy are as follows:
● Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the
Company has the ability to access at the measurement date.
● Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly.
● Level 3 inputs are unobservable inputs for the asset or liability.
F-28
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(x) Fair value measurements (continued)
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the
lowest level input that is significant to the fair value measurement in its entirety. In situations where there is little,
if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects
management’s own judgments about the assumptions that market participants would use in pricing the asset or
liability. Those judgments are developed by management based on the best information available in the
circumstances.
The carrying amounts of cash and cash equivalents, current time deposits, accounts receivable, loans to
employees, amounts due from related parties, accounts payable, amounts due to related parties, accrued expenses
and other current liabilities as of December 31, 2019 and 2020 approximate their fair value because of short
maturity of these instruments.
The carrying amounts of non-current time deposits as of December 31, 2019 and 2020 approximates their fair
value since the interest rates of the time deposits did not differ significantly from the market interest rates for
similar types of time deposits.
The fair values of time deposits as of December 31, 2019 and 2020 are categorized as Level 2 measurement.
(y) Recently issued accounting standards
In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-
Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the
Interactions between Topic 321, Topic 323, and Topic 815. The amendments clarify that an entity should consider
observable transactions that require it to either apply or discontinue the equity method. The updated guidance is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early
adoption is permitted for public business entities for periods for which financial statements have not yet been
issued. The Company has considered the financial and operational situations of equity method investees and does
not expect the adoption of this guidance to have a material impact on the Company’s financial statements.
Recently issued ASUs by the FASB, except for the ASU mentioned above, have no material impact on the
Company’s consolidated results of operations or financial position.
F-29
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
3 ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following:
Accounts receivable:
Gross
Unearned interest
Total accounts receivable
Less: allowance for credit losses
Accounts receivable, net
The classification of accounts receivable is as follows:
Accounts receivable – current portion
Accounts receivable – non-current portion
Total accounts receivable, net
The movements of the allowance for doubtful accounts are as follows:
December 31,
2019
2020
RMB RMB
34,634
(217)
34,417
2,251
32,166
43,191
(995)
42,196
9,214
32,982
December 31,
2019
RMB
2020
RMB
31,442
724
32,166
32,790
192
32,982
Year Ended December 31,
2019
2020
RMB RMB RMB
2018
Balance at the beginning of the year
Additions charged to bad debt expense
Balance at the end of the year
—
—
—
—
2,251
2,251
2,251
6,963
9,214
F-30
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
4 PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
Prepaid expenses and other current assets:
Prepaid rental expenses
Interest receivable from time deposits
Prepaid deposits
Prepaid advertising expenses
Prepaid value-added tax
Loans made to employees
Professional fee
Inventory
Others
Total prepaid expenses and other current assets
(a)
It mainly included prepaid advertising deposits.
December 31,
2020
2019
RMB RMB
15,290
2,206
26,913
8,878
28,545
17,947
13,859
5,325
13,576
132,539
12,304
894
25,238
7,656
40,352
20,421
11,169
4,626
15,693
138,353
(a)
(b)
(b) The Company provides short-term interest-free loans to employees for their purchase of residence or other
personal needs.
5 PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
Office buildings
Furniture
Office equipment
Leasehold improvements
Total property and equipment
Less: accumulated depreciation
Property and equipment, net
December 31,
2019
2020
RMB RMB
285,867
53,223
474,839
242,122
1,056,051
479,418
576,633
285,867
48,253
409,682
243,407
987,209
522,719
464,490
The office buildings with a total carrying value of RMB197,737 as of December 31, 2020 have been pledged for the
Company’s short-term bank loans (see note 8).
Depreciation expense for property and equipment was allocated to the following:
Cost of revenues
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Total
F-31
Year Ended December 31,
2020
2019
2018
RMB RMB RMB
132,898
18,137
18,867
1,354
171,256
150,188
19,303
22,314
733
192,538
127,850
11,211
16,511
1,335
156,907
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
6 LONG-TERM INVESTMENTS, NET
Long-term investments consist of the following:
Equity investments without readily determinable fair values
A company providing mechanic training
A company providing intelligent robot products
A company providing information sharing IT platform
Other equity investments without readily determinable fair values
Impairment of equity investments without readily determinable fair values
Total equity investments without readily determinable fair values, net
Equity method investments
Companies providing hockey program management
A company providing Internet product solutions
Impairment of equity method investments
Total equity method investments, net
Available-for-sale investment
Impairment of available-for-sale investments
Total available-for-sale investment, net
Total long-term investments, net
December 31,
2020
2019
RMB RMB
12,000
24,000
22,500
30,880
(37,000)
52,380
2,223
13,694
(524)
15,393
15,000
(15,000)
—
67,773
12,000
24,000
22,500
30,880
(37,000)
52,380
2,132
13,604
(524)
15,212
15,000
(15,000)
—
67,592
(a)
(b)
(c)
(d)
(e)
(f)
(f)
(a)
In October 2015, the Company paid RMB12,000 in cash to acquire 2.86% of the total equity interest in an
education company, which provides training for senior mechanic in vehicle maintenance and repair. No
impairment loss was recognized as of December 31, 2019 and 2020, and for the years then ended.
(b) In May 2017, the Company paid RMB24,000 in cash to acquire 6% of the total equity interest in a company,
which provides intelligent robot product. Based on the fact that the business conditions of this investee
deteriorated, the Company recognized impairment loss of RMB24,000 for the years ended December 31, 2018,
and with an impairment balance of RMB 24,000 as of December 31, 2019 and 2020, respectively.
(c)
In July 2017, the Company paid RMB22,500 in cash to acquire 15% of the total equity interest in a company,
which provides an information sharing IT platform. No impairment loss was recognized as of December 31, 2019
and 2020, and for the years then ended.
(d) During the years ended December 31, 2018 and 2019, the Company acquired minority equity interest in several
third-party companies. The Company recognized impairment loss of RMB2,000 and nil for the years ended
December 31, 2019 and 2020, respectively, and with an impairment balance of RMB13,000 as of December 31,
2019 and 2020, respectively.
(e)
(f)
In January 2018, the Company paid RMB14,000 in cash to acquire 20% of equity interest of a company which
provides IT consulting services and programming account for the investment using equity method. No
impairment loss was recognized as of December 31, 2019 and 2020, and for the years then ended.
In October 2016, the Company paid RMB10,000 in cash to acquire 13.9% equity interest in a private company,
which provides employment course trainings and recruitment services. As it was found that the investee provided
overstated financial statements to the new investors during the private placement in 2017 and lost in a lawsuit
sued by one of the shareholders. Accordingly, the Company determined it to be fully impaired in 2017. The
Company recognized no impairment loss for the years ended December 31, 2019 and 2020, respectively, and with
an impairment balance of RMB 15,000 as of December 31, 2019 and 2020, respectively.
F-32
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
7 OTHER NON-CURRENT ASSETS, NET
Other non-current assets consist of the following:
Other non-current assets:
Rent and property management deposits
Loans made to employees
Prepayment for equipment and leasehold improvement
Others
Total other non-current assets, net
December 31,
2019
2020
RMB RMB
55,607
43,546
14,506
7,858
121,517
51,786
30,284
10,276
3,479
95,825
(a)
(a) Starting from 2016, the Company began to provide five-year loans with the annual interest rate of 3.325% and
5.0% to the employees for their purchase of houses and employees pledged by their share options respectively.
The interest was paid monthly and the principal was repaid upon maturity.
8 SHORT-TERM BANK LOANS
On August 9, 2019, the Company entered into two lines of credit contracts with Bank of Beijing to borrow
RMB190,000 in total with validity period on August 8, 2021. The loan bears a fixed interest rate of one-year Loan
Prime Rate (“LPR”) plus 1.15% per annum on the date of drawing.
As of December 31, 2019, the Company has drawn RMB89,162, which will mature in 12 months from the drawdown
date. The applicable interest rate for the loan is 5.3% per annum. The carrying value of office buildings pledged for the
borrowing was RMB197,737. The loan was subsequently repaid in November and December 2020. In February 2021,
the office buildings pledged were released.
As of December 31, 2020, the Company has drawn RMB10,710, which will mature in 12 months from the drawdown
date. The applicable interest rate for the loan is 5.3% per annum.
The interest expenses of the loans were RMB19, RMB565 and RMB5,047 for the years ended December 31, 2018,
2019 and 2020, respectively.
9 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued payroll and employee benefits
Refund liability
Professional service fee
Payable for advertisement
Rental fee
VAT and other tax payables
Guarantee liability
Payable to a third-party individual
Others
Total
F-33
December 31,
2019
2020
RMB RMB
141,955
67,625
28,357
40,652
9,943
11,111
10,921
51,380
35,614
397,558
194,862
71,843
30,165
23,287
11,153
9,535
5,808
—
45,251
391,904
Table of Contents
10 NET REVENUES
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
(a) Net revenues recognized under ASC Topic 606 for the years ended December 31, 2018, 2019 and 2020 consist of
the following:
Tuition fee
Certification service fee
Loan referral service fee
Others
Business taxes and surcharges
Total net revenues
Others mainly include franchise fee and miscellaneous revenues.
Timing of revenue recognition
Services transferred at a point in time
Services transferred over time
Total net revenues
2018
Year Ended December 31,
2019
2020
RMB RMB RMB
1,896,642
82,376
18,096
12,444
(13,878)
1,995,680
1,877,242
75,403
19,939
42,786
(11,205)
2,004,165
1,786,230
41,961
7,801
53,135
(4,252)
1,884,875
Year Ended December 31,
2019
RMB
2018
RMB
2020
RMB
138,128
100,472
102,897
1,895,208 1,866,037 1,781,978
1,995,680 2,004,165 1,884,875
(b) Net revenues recognized under ASC Topic 460 for the years ended December 31, 2018, 2019 and 2020 consist of
the following:
Year Ended December 31,
2019
RMB
2018
RMB
2020
RMB
Guarantee service
11 INCOME TAXES
89,691
47,189
13,008
Under the current laws of the Cayman Islands, Tarena International is not subject to tax on its income or capital gains.
For the period from its inception on October 22, 2012 to December 31, 2020, Tarena HK did not have any assessable
profits arising in or derived from HK SAR. Tarena International’s PRC subsidiaries and consolidated VIEs and the
subsidiaries of the VIEs file separate tax returns in the PRC. Effective from January 1, 2008, the PRC statutory income
tax rate is 25% according to the Corporate Income Tax (“CIT”) Law which was passed by the National People’s
Congress on March 16, 2007.
Under the CIT Law, entities that qualify as “Advanced and New Technology Enterprise” (“ANTE”) are entitled to a
preferential income tax rate of 15%. In 2015, the WFOE renewed its ANTE qualification, which entitled it to the
preferential income tax rate of 15% from January 1, 2015 to December 31, 2017. In 2018, the WFOE renewed its
ANTE qualification, which entitled it to the preferential income tax rate of 15% from January 1, 2018 to December 31,
2020.
F-34
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
11 INCOME TAXES (CONTINUED)
One of the Chinese subsidiaries of the Company was established in 2013 and qualified as an eligible software
enterprise. As a result of this qualification, it is entitled to a tax holiday of a two-year full exemption followed by a
three-year 50% exemption, commencing from 2014 in which its taxable income is greater than zero. As a result, its
income tax rate for the years ended December 31, 2018 was 12.5%. For the year ended December 2019, the tax
holiday expired and the income tax rate was 25%. In 2020, the entity was qualified as “Advanced and New
Technology Enterprise” (“ANTE”) and its income tax rate was 15%.
In 2016, another Chinese subsidiary of the Company was qualified as an eligible software enterprise, and was entitled
to a tax holiday of a two-year full exemption followed by a three-year 50% exemption, commencing from the year in
which its taxable income is greater than zero. As a result, the income tax rate of this Chinese subsidiary for the year
ended December 31, 2017 was nil, and for the years ended December 31, 2018, 2019 and 2020 was 12.5%.
Certain Tarena International’s subsidiaries and branches in China qualified as “Small Profit Enterprises” in 2018, and
therefore are subject to the preferential income tax rate of 20% followed by a 50% exemption. From January 1, 2019
to December 31, 2021, the first RMB 1 million of assessable profit before tax are subject to the preferential income tax
rate of 20% followed by a 75% exemption, while the remaining assessable profit before tax are subject to the tax rate
of 20% followed by a 50% exemption.
In 2017, one of the Chinese subsidiaries of the Company was established in Horgus and qualified to be entitled to a
special tax holiday that from the tax year of the first operating income, the subsidiary would be exempted from
enterprise income tax for five years. As a result, the income tax rate of this Chinese subsidiary for the years ended
December 31, 2018, 2019 and 2020 was nil.
According to the approvals from the tax authorities in certain locations in the PRC, Tarena International’s subsidiaries
and consolidated VIEs and the subsidiaries of the VIEs that are based in these locations are required to use the deemed
profit method to determine their income tax. Under the deemed profit method, these subsidiaries are subject to income
tax at 25% on its deemed profit which is calculated based on revenues less deemed expenses equal to 85% and 90% of
revenues.
Since the Company wound up some PRC subsidiaries for the year ended December 31, 2020, deferred tax assets
consisting mainly of net operating loss carryforwards will no longer be utilizable in the future due to their cancellation.
As a result, these deferred tax assets along with related valuation allowance provided from prior years were written-off
by the management as of December 31, 2020.
The components of income (loss) before income taxes are as follows:
PRC
Hong Kong
Cayman Islands
Taiwan
Canada
Total loss before income taxes
F-35
2020
RMB
2018
RMB
Year Ended December 31,
2019
RMB
(986,464)
(876)
(87,470)
(2,292)
(3,335)
(1,080,437)
(467,953)
(2,031)
(126,887)
(166)
(27)
(597,064)
(739,036)
(8,280)
(54,913)
(1,549)
(2,449)
(806,227)
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
11 INCOME TAXES (CONTINUED)
Income tax (expense) benefit consists of the following:
Current income tax expense
Withholding tax expense
Deferred income tax benefit
Total
Year Ended December 31,
2019
2018
2020
RMB RMB RMB
(16,058)
(25,672)
46,595
4,865
(4,478)
—
46,037
41,559
(7,397)
—
42,431
35,034
The actual income tax expense reported in the consolidated statements of comprehensive loss for each of the years
ended December 31, 2018, 2019 and 2020 differs from the amount computed by applying the PRC statutory income
tax rate to income before income taxes due to the following:
PRC statutory income tax rate
Increase (decrease) in effective income tax rate resulting from:
Impact of different tax rates in other jurisdictions
Research and development bonus deduction
Non-deductible expenses
Preferential tax rates
Change of tax rates
Change in valuation allowance
Withholding tax
Actual income tax expense
Year Ended December 31,
2018
25.0 %
2019
25.0 %
2020
25.0 %
(5.3)%
1.4 %
(1.4)%
(0.3)%
0.0 %
(14.3)%
(4.3)%
0.8 %
(2.1)%
0.8 %
(1.3)%
(10.8)%
(2.2)%
(5.6)%
—
3.8 %
(1.8)%
2.0 %
(1.6)%
(11.2)%
(2.9)%
(5.2)%
—
4.3 %
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of
the Company’s deferred tax assets and liabilities were as follows:
Deferred income tax assets:
Impairment of long-term investments
Tax loss carry forwards
Advertising expense
Others
Total deferred income tax assets
Valuation allowance
Deferred income tax assets, net
Deferred income tax liabilities:
Valuation appreciation of intangible assets
Deferred income tax liabilities*
* Deferred income tax liabilities are combined in other non-current liabilities.
F-36
December 31,
2019
2020
RMB RMB
11,750
209,716
15,232
2,268
238,966
(139,177)
99,789
11,750
253,796
19,805
3,240
288,591
(146,371)
142,220
1,701
1,701
1,384
1,384
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
11 INCOME TAXES (CONTINUED)
The movements of the valuation allowance are as follows:
Balance at the beginning of the year
Additions of valuation allowance
Reduction of valuation allowance
Change of tax rates
Change of decrease related to subsidiary disposals and expiration
Balance at the end of the year
Year Ended December 31,
2020
2019
2018
RMB RMB RMB
139,177
46,755
(4,643)
(30,671)
(4,247)
146,371
169,543
63,309
(2,553)
— (71,090)
— (20,032)
139,177
72,271
97,776
(504)
169,543
The valuation allowance as of December 31, 2019 and 2020 was primarily provided for the deferred income tax assets
of certain Tarena International’s PRC subsidiaries, consolidated VIE, and the subsidiaries of the VIE, which were at
cumulative loss positions. In assessing the realizability of deferred income tax assets, management considers 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 utilizable. Management considers projected future taxable
income and tax planning strategies in making this assessment. As of December 31, 2020, the Company had tax losses
carryforwards of RMB2,353,755, including which from Hong Kong subsidiary of RMB7,468 that does not have an
expiring date. Tax losses of RMB5,164, RMB54,792, RMB420,616, RMB1,026,407, and RMB839,308 will expire, if
unused, by 2021, 2022, 2023, 2024, and 2025, respectively.
The CIT Law and its implementation rules impose a withholding income tax at 10%, unless reduced by a tax treaty or
arrangement, on the amount of dividends distributed by a PRC-resident enterprise to its immediate holding company
outside the PRC that are related to earnings accumulated beginning on January 1, 2008. Dividends relating to
undistributed earnings generated prior to January 1, 2008 are exempt from such withholding income tax. The
Company did not distribute any dividend for the year ended December 31, 2019 and 2020.
The Company has considered temporary differences on the book to tax differences pertaining to all investment in
subsidiaries including the determination of the indefinite reinvestment assertion that would apply to each foreign
subsidiary. The Company evaluated each entity’s historical, current business environment and plans to indefinitely
reinvest all earnings accumulated in its respective jurisdiction for purpose of future business expansion.
12 RELATED PARTY TRANSACTIONS
The following is a list of related parties which the Company has transactions with:
(1) Chuanbang Business Consulting (Beijing) Co., Ltd. (“Chuanbang”), a company wholly owned by Mr. Han
Shaoyun (“Mr. Han”), the founder, chairman of our board of directors and former chief executive officer of the
Company.
(2) Xi’an Beilin District Bolton vocational skill training school (“Bolton School”), a company controlled by
Mr. Han’s brother-in-law.
(3) Ningxia Tarena Technology Co., Ltd (“Ningxia Company”), a company wholly owned by Ms.Han Liping, a sister
of Mr. Han.
(4) Ms. Han Lijuan, a sister of Mr. Han.
F-37
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
12 RELATED PARTY TRANSACTIONS (CONTINUED)
(5) Connion Capital Limited is a company ultimately owned by our chairman, Mr. Han through a trust. In 2018, the
Company wired funds to and shortly received same funds back from Connion Capital Limited in five separate
occasions with each no more than US$1 million in order for the Company to maintain the requisite minimum
level of activity in its bank account. No amount was due from Connion Capital Limited as of December 31, 2019
and 2020, respectively.
(6) Beijing Huimoer Technology Co., Ltd (“Beijing Huimoer”), a company provides IT consulting services and
programming, which is 20% owned by the Company in January 2018.
The Company had the following balances and transactions with related parties:
Related party balances
Amounts due from related parties
Chuanbang
Ms. Han Lijuan
Ningxia Tarena Technology Co., Ltd
Xi 'an Tongchengtongchuang Education Technology Co., LTD
Others
Total
Notes:
December 31,
2020
2019
RMB RMB
(i)
(ii)
(iii)
9,938
6,512
—
38
4
16,492
—
—
204
60
41
305
(i) The balance resulted from the service fee to Chuanbang for providing cash collection service.
(ii) The balance as of December 31, 2019 represented a long-term loan to Ms. Han Lijuan and upon the Company’s
request to avoid any risk of possible violation of Sarbanes-Oxley Act, all of the balance was repaid to the
Company on April 2, 2020.
(iii) The balance resulted from the franchise service income.
F-38
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
12 RELATED PARTY TRANSACTIONS (CONTINUED)
Related party transactions
The major related party transactions for the years ended December 31, 2018, 2019 and 2020 are summarized as
follows:
Cash collection service expense to Chuanbang
Franchise and training service income from Bolton School
Franchise, training and consulting service income from Ningxia
(a)
Company
Training service expense to Bolton School
Technical consulting service expenses and labor expenses to Beijing
Huimoer
Interest income from loan to Ms. Han Lijuan
Notes:
Year Ended December 31,
2020
2019
2018
RMB RMB RMB
79
518
3,489
529
1,379
790
493
798
75
325
143
1,112
1,333
325
(11)
305
148
81
(a) Pursuant to an agreement between Chuanbang and the Company, beginning August 2013, Chuanbang provides
cash collection service on the Company’s accounts receivable. The fee for the service is calculated based on
2%~20% of the amount collected.
13 ORDINARY SHARES AND STATUTORY RESERVE
(a) Treasury shares
In the second quarter of 2018, the board of directors authorized an increase to the size of the share repurchase plan
from US$30 million to US$70 million and an extension of the term of the plan to June 20, 2019. For the year
ended December 31, 2018, 3,768,495 ordinary shares were repurchased on the open market in the amount of
RMB202,066.
No ordinary shares were repurchased for the year ended December 31, 2019.
For the year ended December 31, 2020, 100,729 ordinary shares were repurchased with the amount of RMB2,646.
F-39
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
13 ORDINARY SHARES AND STATUTORY RESERVE (CONTINUED)
(b) Statutory reserves and restricted net assets
Under PRC rules and regulations, Tarena International’s PRC subsidiaries, consolidated VIEs, and the subsidiaries
of the VIEs (the “PRC Entities”) are required to appropriate 10% of their net profit, as determined in accordance
with PRC accounting rules and regulations, to a statutory surplus reserve until the reserve balance reaches 50% of
their registered capital. In addition, private schools (held by the PRC Entities) which require reasonable returns
are required to appropriate 25% of their net profit, as determined in accordance with PRC accounting rules and
regulations, to a statutory development fund, whereas in the case of private schools which do not require
reasonable return, 25% of the annual increase of their net assets. The appropriation to these statutory reserves
must be made before distribution of dividends to Tarena International can be made.
For the years ended December 31, 2018, 2019 and 2020, the PRC Entities made appropriations to the statutory
reserves of RMB12,943, RMB313 and RMB5,307, respectively. As of December 31, 2019 and 2020, the
accumulated balance of the statutory reserves was RMB153,521 and RMB158,828, respectively.
Relevant PRC laws and regulations restrict the WFOE, VIE and VIE’s subsidiary from transferring a portion of
their net assets, equivalent to the balance of their paid-in-capital, additional paid-in-capital and statutory reserves
to the Company in the form of loans, advances or cash dividends. Relevant PRC statutory laws and regulations
restrict the payments of dividends by the Company’s VIE and VIE’s subsidiary from their respective retained
earnings, if any, as determined in accordance with PRC accounting standards and regulations.
The balances of restricted net assets as of December 31, 2019 and 2020 were RMB1,438,505 and RMB1,483,411
respectively. Under applicable PRC laws, loans from PRC companies to their offshore affiliated entities require
governmental approval, and advances by PRC companies to their offshore affiliated entities must be supported by
bona fide business transactions.
(c) Dividend
On March 6, 2018, the Company’s board of directors approved to declare a cash dividend of RMB0.76 (US$0.12)
per ordinary share to shareholders as of the close of trading on April 5, 2018. The aggregate amount of cash
dividends was approximately RMB42,955, which was paid in June 2018.
No cash dividend was declared for the years ended December 31, 2019 and 2020.
14 SHARE BASED COMPENSATION
Share incentive plans
On September 22, 2008, Tarena International adopted the 2008 Share Plan (the “2008 Plan”), pursuant to which Tarena
International is authorized to issue share options and other share-based awards to key employees, directors and
consultants of the Company to purchase up to 6,002,020 of its Class A ordinary shares (being retroactively adjusted to
reflect the effect of the share split) under the 2008 Plan. On November 28, 2012, the Company increased the number
of Class A ordinary shares authorized for issuance under the 2008 Plan to 8,184,990 Class A ordinary shares. Share
options issued before September 22, 2008 are also administered under the 2008 Plan. The plan was terminated in 2018.
According to its terms and there were no outstanding granted options by the termination date.
F-40
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
14 SHARE BASED COMPENSATION (CONTINUED)
Share incentive plans (continued)
On February 1, 2014, Tarena International adopted the 2014 Share Plan (the “2014 Plan”), pursuant to which Tarena
International was authorized to issue options, non-vested shares and non-vested share units to qualified employees,
directors and consultants of the Company. The maximum aggregate number of shares which may be issued pursuant to
all awards under the 2014 Plan, or the Award Pool, is 1,833,696, provided that the shares reserved in the Award Pool
shall be increased on the first day of each fiscal year, commencing with January 1, 2015, if the unissued shares
reserved in the Award Pool on such day account for less than 2% of the total number of shares issued and outstanding
on a fully-diluted basis on December 31 of the immediately preceding fiscal year, as a result of which increase the
shares unissued and reserved in the Award Pool immediately after each such increase shall equal 2% of the total
number of shares issued and outstanding on a fully-diluted basis on December 31 of the immediately preceding
fiscal year.
Share options
During the year ended December 31, 2018, the board of the directors of Tarena International approved the grant of
options to certain officers and employees to purchase 1,085,094 ordinary shares of Tarena International at exercise
prices ranging from US$0.06 to US$1.00 per share. These options vest over a period ranging between 0.33 and 1 year.
The options have a contractual term of ten years.
During the year ended December 31, 2019, the board of the directors of Tarena International approved the grant of
options to certain officers and employees to purchase 1,028,728 ordinary shares of Tarena International at exercise
prices ranging from US$0.89 to US$1.00 per share. These options vest over a period ranging between 0.25 and 5
years. The contractual term of options ranges from 9 to 10 years.
During the year ended December 31, 2020, the board of the directors of Tarena International approved the grant of
options to certain officers and employees to purchase 1,236,146 ordinary shares of Tarena International at exercise
prices ranging from US$1.00 to US$2.51 per share. These options vest over a period ranging between 0.25 and 5
years. The options have a contractual term of ten years.
F-41
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
14 SHARE BASED COMPENSATION (CONTINUED)
Share options (continued)
A summary of share options activity for the years ended December 31, 2018, 2019 and 2020 is as follows:
Outstanding at December 31, 2018
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2019
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2020
Vested and expected to vest as of December 31,
2020
Exercisable as of December 31, 2020
Number of
Share
Options
3,396,797
1,028,728
(753,936)
(235,225)
—
3,436,364
1,236,146
(1,485,763)
(363,940)
—
2,822,807
2,572,024
2,099,922
Weighted
Average
Weighted
Average
Exercise Price Contractual
Years
Remaining Aggregate
Intrinsic
Value US$
15,919
—
—
—
—
1,815
—
—
—
—
4,311
6.47
—
—
—
—
5.99
—
—
—
—
6.85
6.45
5.72
3,717
3,261
US$
1.61
0.10
0.64
0.63
—
1.43
1.26
0.33
1.64
—
1.91
1.87
1.82
The total intrinsic value of options exercised during the years ended December 31, 2018, 2019 and 2020 were
RMB22,710, RMB7,936 and RMB26,301, respectively.
The Company calculated the fair value of the share options on the grant date using the Binomial option-pricing
valuation model. The assumptions used in the valuation model are summarized in the following table.
Expected volatility
Expected dividends yield
Exercise multiple
Risk-free interest rate per annum
The fair value of underlying ordinary shares
2018
53.52%-55.70%
0%
2.2-2.8
Year Ended December 31,
2019
52.05%-59.74%
0%
2.2-2.8
2.54%-3.23%
1.58%-2.89%
2020
72.22%-78.51%
0%
2.2-2.8
0.79%-2.08%
(per share)
US$6.97-US$14.99 US$0.59-US$6.48 US$1.71-US$4.65
The expected volatility was based on the historical volatilities of the Company and comparable publicly traded
companies engaged in the similar industry.
No income tax benefit was recognized in the consolidated statements of comprehensive loss as the share-based
compensation expense was not tax deductible.
F-42
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
14 SHARE BASED COMPENSATION (CONTINUED)
Share options (continued)
The fair values of the options granted for the years ended December 31, 2018, 2019 and 2020 are as follows:
Weighted average grant date fair value of option per share
Aggregate grant date fair value of options
Year Ended December 31,
2020
2019
2018
US$
US$
US$
12.35
13,402
4.84
4,980
2.52
3,115
As of December 31, 2020, there was approximately RMB13,376 of total unrecognized compensation cost related to
unvested share options and the unrecognized compensation costs are expected to be recognized over a weighted
average period of approximately 1.42 years.
Non-vested shares
On April 3, 2018, the board of directors of Tarena International approved the grant of 18,181 non-vested shares to
three independent directors, 25% of which vest at the end of every quarter within one year. On April 1, 2018, the board
of directors of Tarena International approved the grant of 193,796 non-vested shares to employees, of which the
vesting period is five years. Grantees of non-vested shares have no voting rights or dividend rights with respect to
shares that have not been vested.
On January 1, 2019, the board of directors of Tarena International approved the grant of 136,581 shares to employees,
of which 135,381 non-vested shares shall vest in a five-year period, and 1,200 shares shall vest immediately on the
grant date. On April 3, 2019, the board of directors of Tarena International approved the grant of 41,666 non-vested
shares to 1 independent director, 1 director and executive officer and 2 former independent directors, of which the
vesting period is one year. On August 13, 2019, the board of directors of Tarena International approved the grant of
47,380 non-vested shares to employees, of which the vesting period is five years.
On January 1, 2020, the board of directors of Tarena International approved the grant of 35,912 non-vested shares to 1
independent director, of which the vesting period is one year. On March 1, 2020, the board of directors of Tarena
International approved the grant of 74,000 non-vested shares to 1 independent director and 1 executive officer, of
which the vesting period is one year. On April 9, 2020, the board of directors of Tarena International approved the
grant of 143,628 non-vested shares to 1 independent director, 1 director and executive officer, of which the vesting
period is one year.
F-43
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
14 SHARE BASED COMPENSATION (CONTINUED)
Non-vested shares (continued)
A summary of the non-vested shares activity under the 2014 Share Plan for the years ended December 31, 2018, 2019,
2020 is summarized as follows:
Outstanding as of December 31, 2017
Granted
Vested
Forfeited
Outstanding as of December 31, 2018
Granted
Vested
Forfeited
Outstanding as of December 31, 2019
Granted
Vested
Forfeited
Outstanding as of December 31, 2020
Number of Non-
Weighted Average
vested Shares Grant Date Fair Value
US$
106,767
211,977
(16,557)
(22,541)
279,646
225,627
(80,020)
(60,475)
364,778
253,540
(253,957)
(53,923)
310,438
14.75
11.20
14.22
12.39
12.28
5.12
8.53
8.01
9.39
3.28
5.44
9.25
7.66
As of December 31, 2020, there was approximately RMB14,771 of total unrecognized compensation cost related to
non-vested shares, which is expected to be recognized over a weighted average period of approximately 2.63 years.
The total fair value of shares vested during the years ended December 31, 2018, 2019 and 2020 was RMB1,557,
RMB4,707 and RMB9,013, respectively.
15 LOSS PER SHARE
Basic and diluted loss per share is calculated as follows:
Numerator:
Net loss attributable to Class A and Class B ordinary shareholders
Net loss for basic and diluted earnings per share
Denominator:
Denominator for basic earnings per share:
Weighted average number of Class A and Class B ordinary shares
outstanding
Dilutive effect of outstanding share options
Denominator for diluted loss per share
Basic loss per Class A and Class B ordinary share
Diluted loss per Class A and Class B ordinary share
F-44
Year Ended December 31,
2019
2020
RMB RMB RMB
2018
(590,174)
(590,174)
(1,036,086)
(1,036,086)
(766,643)
(766,643)
—
54,929,910 53,386,075 54,341,213
—
54,929,910 53,386,075 54,341,213
(14.11)
(14.11)
(10.74)
(10.74)
(19.41)
(19.41)
—
Table of Contents
16 LEASES
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
The Company’s leases consist of operating leases for learning centers and office spaces in different cities in the PRC.
The Company reviews all options to extend, terminate, or purchase its right-of-use assets at the inception of the lease
and accounts for these options when they are reasonably certain of being exercised. As of December 31, 2020, the
Company had no long-term leases that were classified as a financing lease, and the Company’s lease contracts only
contain fixed lease payments and do not contain any residual value guarantee. Leases with an initial term of twelve
months or less are not recorded on the consolidated balance sheets. The Company recognizes rental expense on a
straight-line basis over the lease term.
The components of rental expense for the year ended December 31, 2019 and 2020 consist as follows:
Short-term rental expense
Operating lease expense excluding short-term rental expense
Other information related to operating leases is as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Non-cash right-of-use assets in exchange for new lease liabilities:
Weighted average remaining lease term
Weighted average discount rate
Year Ended
December 31,
2019
RMB
93,548
218,314
2020
RMB
114,723
170,022
Year Ended
December 31,
2019
RMB
314,300
432,898
3.74
5.86 %
2020
RMB
244,491
484,202
3.20
5.72 %
The Company’s lease agreements do not have a discount rate that is readily determinable. The incremental borrowing
rate is determined at lease commencement or lease modification and represents the rate of interest the Company would
have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar
economic environment. The weighted-average discount rate was calculated using the discount rate for the lease that
was used to calculate the lease liability balance for each lease and the remaining balance of the lease payments for
each lease as of December 31, 2020.
The weighted-average remaining lease terms were calculated using the remaining lease term and the lease liability
balance for each lease as of December 31, 2020.
F-45
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
16 LEASES (CONTINUED)
As of December 31, 2020, maturities of lease liabilities were as follows:
Year ending December 31,
2021
2022
2023
2024
2025
2026 and thereafter
Total lease payments
Less: imputed interest
Total
Less: current portion
Non-current portion
RMB
243,857
197,984
142,412
71,696
22,277
8,467
686,693
81,359
605,334
199,083
406,251
Gross rental expenses incurred under operating leases were RMB262,440, RMB311,862 and RMB284,745 for the
years ended December 31, 2018, 2019, and 2020, respectively. Sublease rental income of RMB1,533, RMB1,587, and
RMB971 for the years ended December 31, 2018, 2019, and 2020, respectively, were recognized as reductions of gross
rental expenses.
17 CONTINGENCIES
From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the
ordinary course of business. Although the outcomes of these legal proceedings cannot be predicted, the Company does
not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of
operations or liquidity.
18 BUSINESS COMBINATION
On March 1, 2018, the Company acquired 100% of equity interest of Wuhan Haoxiaozi Robot Technology Co., Ltd,
(“RTEC”), which provides K-12 robotics programming education services. The total consideration was RMB58,200 in
cash.
F-46
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
18 BUSINESS COMBINATION (CONTINUED)
On the acquisition date, the allocation of the consideration of the assets acquired and liabilities assumed based on their
fair value was as follows:
RMB Amortization period
Cash and cash equivalents
Financial receivables
Prepaid and other current assets
Inventory, net
Property and equipment
Intangible assets
Goodwill
Other non-current assets
Total assets
Deferred revenue
Accounts payable and other current liabilities
Deferred tax liabilities
Total
3,874
7,550
6,138
803
12,851
12,688
49,417
114
93,435
(31,906)
(1,046)
(2,283)
58,200
10
The excess of the purchase price over the tangible assets and identifiable intangible assets acquired reduced by
liabilities assumed was initially recorded as goodwill and the goodwill is not deductible for tax purposes. The amount
of goodwill resulted from the acquisition was RMB49,417 as of March 1, 2018. The acquired identifiable intangible
assets were valued using discounted cash flow method. The goodwill acquired resulted primarily from the Company’s
expected synergies from the integration of businesses acquired into the Company’s existing K-12 programs.
19 SEGMENT INFORMATION
The Company has organized its operations into two segments: Adult Training and Kid Training, which reflects the way
the Company evaluates its business performance and manages its operations by the Company’s chief operating
decision maker (“CODM”). The Company’s CODM has been identified as the CEO who reviews the financial
information of separate operating segments when making decisions about allocating resources and assessing
performance of the Company.
The accounting policies of the segments are the same as those described in the summary of significant accounting
policies. The CODM evaluates performance based on each reporting segment’s revenues, cost of revenues, and gross
profit. The CODM does not review balance sheet information to measure the performance of the reportable segments,
nor is this part of the segment information regularly provided to the CODM.
It is not practicable to restate the information for year ended December 31, 2017 due to that the Kid Training business
was launched by the end of 2015 and the Company’s internal operation structure, personnel structure and financial
reporting structure was not setup to support the segments separately until early 2018, therefore the management
determines that it applies to the practicality exception and does not present the numbers of year ended December 31,
2017.
F-47
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
19 SEGMENT INFORMATION (CONTINUED)
Revenues, cost of revenues, and gross profit by segment for the years ended December 31, 2019 and 2020 were as
follows.
Revenue
Cost
Gross profit
Revenue
Cost
Gross profit (loss)
Year Ended December 31, 2020
Kid
Adult
Training
Training
Total
RMB RMB RMB
1,136,043
(420,349)
715,694
761,840
(646,493)
115,347
1,897,883
(1,066,842)
831,041
Year Ended December 31, 2019
Kid
Adult
Training
RMB
1,527,185
(627,765)
899,420
Training
RMB
524,169
(546,069)
(21,900)
Total
RMB
2,051,354
(1,173,834)
877,520
F-48
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
20 PARENT ONLY FINANCIAL INFORMATION
The following presents condensed parent company financial information of Tarena International.
Condensed Balance Sheets
December 31,
2020
2019
2020
RMB RMB US$
ASSETS
Current assets:
Cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term bank loan
Accrued expenses and other current liabilities (1)
Total current liabilities
Total liabilities
7,599
259
7,858
7,858
—
8,132
8,132
8,132
3,793
699
4,492
4,492
—
7,208
7,208
7,208
581
107
688
688
—
1,105
1,105
1,105
Commitments and contingencies
—
—
—
Shareholders’ equity:
Class A ordinary shares (US$0.001 par value,860,000,000 shares
authorized, 53,806,534 and 55,546,254 shares issued, 46,707,393 and
48,346,384 shares outstanding as of December 31, 2019 and 2020,
respectively)
Class B ordinary shares (US$0.001 par value, 40,000,000 shares
authorized, 7,206,059 shares issued and outstanding as of December
31, 2019 and 2020, respectively)
Treasury shares (7,099,141 and 7,199,870 Class A ordinary shares as of
December 31, 2019 and 2020, at cost)
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total shareholders’ deficit
Total liabilities and shareholders’ equity
(1) Mainly related to repurchase of treasury shares.
337
349
74
74
53
11
(457,169)
1,284,573
51,386
(879,475)
(274)
7,858
(459,815)
1,324,161
49,120
(916,605)
(2,716)
4,492
(70,470)
202,937
7,528
(140,476)
(417)
688
F-49
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
20 PARENT ONLY FINANCIAL INFORMATION (CONTINUED)
Condensed Statements of Comprehensive Loss
Year Ended December 31,
Selling and marketing expenses
General and administrative expenses
Operating loss
Equity in loss of subsidiaries
Foreign currency exchange (loss) gains
Interest income (expense)
Other income
Loss before income taxes
Income tax expense
Net loss
Other comprehensive income (loss)
Foreign currency translation adjustment
Comprehensive loss
2018
2020
2019
2020
RMB RMB RMB US$
—
(29,011)
(29,011)
(608,015)
115
(67)
665
(636,313)
—
(636,313)
(403)
(5,536)
(5,939)
(589,564)
341
413
2,550
(592,199)
—
(592,199)
(693)
(35,380)
(36,073)
—
(1,112)
55
—
(37,130)
—
(37,130)
(106)
(5,422)
(5,528)
—
(170)
8
—
(5,690)
—
(5,690)
11,100
(581,099)
914
(635,399)
(2,266)
(39,396)
(347)
(6,037)
Condensed Statements of Cash Flows
Year Ended December 31,
2018
2020
RMB RMB RMB US$
2019
2020
Operating activities:
Net cash provided by (used in) operating activities
165,098
(3,249)
(8,010)
(1,228)
Investing activities:
Proceeds from maturity of time deposits
Foreign currency exchange losses
Net cash provided by investing activities
Financing activities:
Proceeds from bank loan
Issuance of Class A ordinary shares in connection with exercise of
share options
Payment of dividends
Repayment of bank borrowings
Repurchase of treasury shares
Net cash (used in) provided by financing activities
Changes in cash and cash equivalents
Effect of foreign currency exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Non-cash financing activities:
Payable for repurchase of treasury shares
63,452
1,890
65,342
13,229
—
—
—
—
2,951
(42,955)
—
(196,957)
(223,732)
6,708
3,335
—
(13,792)
(5,058)
(15,515)
(18,764)
1,141
7,849
17,658
25,507
856
(17,908)
25,507
7,599
—
—
—
—
3,354
—
—
—
3,354
(4,656)
850
(3,806)
7,599
3,793
—
—
—
—
514
—
—
—
514
(714)
130
(584)
1,165
581
5,109
—
—
—
F-50
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
21 SUBSEQUENT EVENTS
The Company has not identified any events with material financial impact on the Company’s consolidated financial
statements.
F-51
List of Subsidiaries and Variable interest entity
Exhibit 8.1
Name
Jurisdiction of Incorporate
Tarena Hong Kong Limited
Hong Kong
Taiwan Tarena Information Software Co., Ltd.
Taiwan
Kids IT Education Inc.
TECHARENA CANADA INC.
Cayman
Canada
Kids IT Education (HK) Limited
Hong Kong
Tarena Technologies Inc.
Beijing Tongcheng Tarena Jinqiao Technology
Co., Ltd
Tarena software Technology (Hangzhou) Co.,
Ltd.
Hangzhou Tarena Weishang Technology Co.,
Ltd.
Hangzhou Hanru Education Technology Co.,
Ltd.
Beijing Tarena Jinqiao Technology Co., Ltd.
Guangzhou Tarena Huicai Software Co., Ltd.
Hangzhou Tarena Technology Co., Ltd.
Gaohuiqiangxue Software (Hainan）Co., Ltd.
Beijing Yingcai Tianyi Technology Co., Ltd.
Zhengzhou Tarena Technology Co., Ltd.
Gansu Tarena Information Technology Co.,
Ltd.
Luoyang Tarena Software Technology Co.,
Ltd.
Chengdu Tarena Technology Co., Ltd.
Heilongjiang Tarena Software Technology Co.,
Ltd.
Harbin Tarena Technology Co., Ltd.
Changchun Tarena Technology Co., Ltd.
Shenyang Tarena Technology Co., Ltd.
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
Affiliate Relationship
with The Registrant
Wholly-owned subsidiary of Tarena
International, INC
Wholly-owned subsidiary of Tarena
International, INC
Wholly-owned subsidiary of Tarena
International, INC
Wholly-owned subsidiary of Tarena Hong
Kong Limited
Wholly-owned subsidiary of Kids IT
Education Inc.
Wholly-owned subsidiary of Tarena
International, INC
Wholly-owned subsidiary of Kids IT
Education (HK) Limited
Wholly-owned subsidiary of Tarena Hong
Kong Limited
Wholly-owned subsidiary of Tarena
Software Technology (Hangzhou) Co., Ltd.
Wholly-owned subsidiary of Tarena
Software Technology (Hangzhou) Co., Ltd.
Variable interest entity
Wholly-owned subsidiary of Beijing
Tarena Jinqiao Technology Co., Ltd.
Wholly-owned subsidiary of Beijing
Tarena Jinqiao Technology Co., Ltd.
Wholly-owned subsidiary of Beijing
Tarena Jinqiao Technology Co., Ltd.
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Name
Dalian Tarena Software Co., Ltd.
Beijing Tongcheng Technology Co., Ltd.
Huhehaote Tarena Technology Co., Ltd.
Nanyang Tarena Softare Co., Ltd.
Beijing Tarena Weishang Technology Co., Ltd.
Nanjing Tarena Weishang Information
Technology Co., Ltd.
Nanjing Tarena Software Co., Ltd.
Kunming Tarena Technology Co., Ltd.
Shenzhen Tarena Software Co., Ltd.
Jinan Tarena Software Co., Ltd.
Qingdao Tarena Software Technology Co., Ltd.
Shenzhen Tarena Weishang Software Co., Ltd.
Wuxi Tarena Technology Co., Ltd.
Suzhou Tarena Information Technology Co.,
Ltd.
Linyi Tarena Technology Software Co., Ltd.
Yantai Tarena Software Technology Co., Ltd.
Weifang Tarena Software Co., Ltd.
Hefei Tarena Software Co., Ltd.
Zibo Tarena Software Co., Ltd.
Wuhu Tarena Software Technology Co., Ltd.
Xuzhou Tarena Information Technology Co.,
Ltd.
Nanchang Tarena Technology Co., Ltd.
Changsha Tarena Software Co., Ltd.
Ningbo Tarena Information Technology Co.,
Ltd.
Fuzhou Tarena Information Technology Co.,
Ltd.
Guangxi Nanning Tarena Software Technology
Co., Ltd.
Zhuhai Tarena Software Co., Ltd.
Guangzhou Tarena Information Technology
Co., Ltd.
Xiamen Tarena Information Technology Co.,
Ltd.
Dongguan Tarena Software Co., Ltd.
Haikou Tarena Technology Co., Ltd.
Wuhan Tarena Software Co., Ltd.
Wuhan Tarena Technology Consulting Service
Co., Ltd.
Tarena (Wuhan) Technology Co., Ltd.
Wenzhou Tarena information Technology Co.,
Ltd.
Jurisdiction of Incorporate
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
Affiliate Relationship
with The Registrant
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Jurisdiction of Incorporate
with The Registrant
Affiliate Relationship
Name
Zhongshan Tarena Software Technology Co.,
Ltd.
Foshan Tarena Technology Co., Ltd.
Jiaxing Tarena Software Technology Co., Ltd.
Ganzhou Tarena Technology Co., Ltd.
Shanghai Tarena Weishang Software
Technology Co., Ltd.
Chongqing Tarena Software Co., Ltd.
Tianjin Tarena Technology Co., Ltd.
Shijiazhuang Tarena Software Technology Co.,
Ltd.
Xi’an Tarena Software Technology Co., Ltd.
Taiyuan Tarena Technology Co., Ltd
Guizhou Tarena Technology Co., Ltd.
Yuncheng Tarena Information Technology Co.,
Ltd.
Tangshan Tarena Technology Co., Ltd.
Baoding Tarena Software Co., Ltd.
Tianjin Weiying Information Technology Co.,
Ltd.
Huoerguosi Weiying Information Technology
Co., Ltd.
Changzhou Tarena Information Technology
Co., Ltd.
Zhengzhou Tarena Professional Education
School
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
Chengdu Tarena Professional Education School
PRC
Harbin Tarena Professional Education School
PRC
Shenyang Tarena Professional Education
School
Shenyang Tarena Times Professional Education
School
Dalian High-Tech Zone Tarena Professional
Education School
Changchun Tarena Professional Education
School
PRC
PRC
PRC
PRC
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
Wholly-owned subsidiary
School sponsored by Zhengzhou Tarena
Technology Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Chengdu Tarena
Technology Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Harbin Tarena
Technology Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Shenyang Tarena
Technology Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Shenyang Tarena
Technology Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Dalian Tarena
Software Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Changchun Tarena
Technology Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
Name
Jurisdiction of Incorporate
Changchun Nanguanqu Yingcai Tianyi
Professional Education School
PRC
Nanjing Tarena Weishang Education School
PRC
Kunming Guandu Tarena Professional
Education School
Jinan lixia Tongcheng Tongmei Training
School Co., Ltd.
Shenzhen Bao’an Tarena Professional
Education School
PRC
PRC
PRC
Qingdao Tarena Professional Education School
PRC
Weifang Tarena Professional Education School
PRC
Shenzhen Longhua Xinqu Tarena Professional
Education School
Guangzhou Tarena Software Professional
Education School
PRC
PRC
Wuhan Tarena Professional Education School
PRC
Wuhan Technology Tarena Professional
Education School
PRC
Ningbo Tarena Professional Education School
PRC
Nanchang Xihu Tarena Technology Digital Art
School
PRC
Affiliate Relationship
with The Registrant
School sponsored by Changchun Yingcai
Tianyi Technology Co., Ltd.., a wholly-
owned subsidiary of Tarena International,
Inc.
School sponsored by Nanjing Tarena
Weishang Information Technology Co.,
Ltd., a wholly-owned subsidiary of Tarena
International, Inc.
School sponsored by Kunming Tarena
Technology Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Jinan Tarena Software
Co., Ltd., a wholly-owned subsidiary of
Tarena International, Inc.
School sponsored by Shenzhen Tarena
Software Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Qingdao Tarena
Software Technology Co., Ltd., a wholly-
owned subsidiary of Tarena International,
Inc.
Wholly-owned subsidiary
School sponsored by Shenzhen Tarena
Software Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Guangzhou Tarena
Information Technology Co., Ltd., a
wholly-owned subsidiary of Tarena
International, Inc.
School sponsored by Wuhan Tarena
Software Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Wuhan Tarena
Software Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Ningbo Tarena
Information Technology Co., Ltd.., a
wholly-owned subsidiary of Tarena
International, Inc.
School sponsored by Nanchang Tarena
Technology Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
Name
Jurisdiction of Incorporate
Chongqing Jiulongpo Tarena Professional
Education School
Changsha Kaifu KxueXiaoZi Robot Education
Training School
Shijiazhuang Tarena Professional Education
School Co., Ltd.
Shijiazhuang Tongcheng Education School
Co., Ltd.
Qingdao Shinan Tongcheng Technology
Education Co., Ltd.
Jinan lixia Tongcheng Tongmei Training
School Co., Ltd.
Wuhan Wuchang Tarena Zhixing Professional
Education School
Tianjin Tongcheng Tongmei Education
Training School Co., Ltd.
Xi'an Lianhu Tongcheng Tongmei Tonghui
Training Center Co., Ltd.
Shijiazhuang Yuhuaqu Tongxincheng
Education Training School
Shijiazhuang Changanqu Tongzhicheng
Education Training School
Shenyang Hengping Tongcheng Educational
Center
Shenyang Tiexi Tongchengtongmei
Educational Center
Tianjin Tarena Professional Education School
Co., Ltd.
Jinan Gaoxin Tongcheng Tongmei Training
School Co., Ltd.
Kunming Wuhua Tongcheng Tongmei
Education Training School Co., Ltd.
Shijiazhuang Xinhuaqudarenzhinei Tarena
Professional Education School Co.,Ltd.
Wuhan Hongshan Tarena Professional
Education School Co.,Ltd.
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
Affiliate Relationship
with The Registrant
School sponsored by Chongqing Tarena
Software Co., Ltd., a wholly-owned
subsidiary of Tarena International, Inc.
School sponsored by Wuhan HaoXiaoZi
Robot Technology Co., Ltd., a wholly-
owned subsidiary of Tarena International,
Inc.
School sponsored by Shijiazhuang Tarena
Software Technology Co., Ltd.
School sponsored by Shijiazhuang
Tongcheng Technology Co., Ltd.
School sponsored by Beijing Tongcheng
Technology Co., Ltd.
School sponsored by Beijing Tongcheng
Technology Co., Ltd.
School sponsored by Wuhan Tarena
Software Co., Ltd.
School sponsored by Tianjin Tongcheng
Technology Co., Ltd.
School sponsored by Xi'an TongCheng
Technology Co., Ltd.
School sponsored by Shijiazhuang Tarena
TongCheng Technology Co., Ltd. and
Shijiazhuang Tongcheng Education School
Co., Ltd.
School sponsored by Shijiazhuang Tarena
TongCheng Technology Co., Ltd.and
Shijiazhuang Tongcheng Education School
Co., Ltd.
School sponsored by Shenyang Tongcheng
Technology Co., Ltd.
School sponsored by Shenyang Tongcheng
Educational Counseling Co., Ltd. and
Zhanghaiying
School sponsored by Tianjin Tarena
Technology Co., Ltd.
School sponsored by Beijing Tongcheng
Technology Co., Ltd.
School sponsored by Beijing Tarena Jinqiao
Technology Co., Ltd.
School sponsored by Shijiazhuang Tarena
Software Technology Co., Ltd. and
Shijiazhuang Tarena Professional Education
School Co., Ltd.
School sponsored by Wuhan Tarena
Technology Consulting Service Co., Ltd.
Name
Fuzhou Gulou Tarena Professional Education
Co.,Ltd.
Shenyang Shenhe Tongchengtongmei
Education School Co.,Ltd.
Taiyuan Xinghualing Tongcheng Tongmei
training school Co., Ltd
Nanning qingxiu district tonghui training
school co., ltd
Kunming Xishan District Tongcheng Tongmei
Culture and Art Training School Co. , Ltd.
Kunming Guandu Tongcheng Tongmei
Education Training School Co., Ltd.
Qingdao Shibei District Tongcheng
Tongchuang Computer Training School Co.,
Ltd
Jurisdiction of Incorporate
PRC
PRC
PRC
PRC
PRC
PRC
PRC
Tarena Hong Kong Limited
Hongkong
Taiwan Tarena Information Software Co.,Ltd.
Taiwan
Kids IT Education Inc.
TECHARENA CANADA INC.
Cayman
Canada
Kids IT Education (HK) Limited
Hongkong
Affiliate Relationship
with The Registrant
School sponsored by Beijing Tongcheng
Technology Co.,Ltd.
School sponsored by Beijing Tongcheng
Technology Co.,Ltd.
School sponsored by Taiyuan Tongcheng
Technology Co.,Ltd.
School sponsored by Beijing Tongcheng
Technology Co.,Ltd.
School sponsored by Beijing Tarena Jinqiao
Technology Co.,Ltd.
School sponsored by Beijing Tarena Jinqiao
Technology Co.,Ltd.
School sponsored by Taiyuan Tongcheng
Technology Co.,Ltd.
Wholly-owned subsidiary of Tarena
International, INC
Wholly-owned subsidiary of Tarena
International, INC
Wholly-owned subsidiary of Tarena
International, INC
Wholly-owned subsidiary of Tarena Hong
Kong Limited
Wholly-owned subsidiary of Kids IT
Education Inc.
Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 12.1
I, Ying Sun, certify that:
1.
I have reviewed this annual report on Form 20-F of Tarena International, Inc.;
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: April 13, 2021
/s/ Ying Sun
Name: Ying Sun
Title: Chief Executive Officer
Certification by the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 12.2
I, Wing Kee Lau, certify that:
1.
I have reviewed this annual report on Form 20-F of Tarena International, Inc.;
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: April 13, 2021
/s/ Wing Kee Lau
Name:Wing Kee Lau
Title: Chief Financial Officer
Certification by the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Tarena International, Inc. (the “Company”) on Form 20-F for the fiscal year ended
December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ying Sun, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Exhibit 13.1
Date: April 13, 2021
/s/ Ying Sun
Name:Ying Sun
Title: Chief Executive Officer
Certification by the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Tarena International, Inc. (the “Company”) on Form 20-F for the fiscal year ended
December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wing Kee Lau, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Exhibit 13.2
Date: April 13, 2021
/s/ Wing Kee Lau
Name: Wing Kee Lau
Title: Chief Financial Officer
Exhibit 15.1
Christopher.bickleyl@conyersdill.com
April 13, 2021
Tarena International, Inc.
6/F, No. 1 Andingmenwai Street,
Lychee Plaza,
Chaoyang District, Beijing 100011,
The People’s Republic of China
Dear Sirs,
Re: Tarena International, Inc.
We consent to the reference to our firm under the heading “Item 10. Additional Information — E. Taxation — Cayman Islands Taxation”
in Tarena International, Inc.’s Annual Report on Form 20-F for the year ended 31 December 2020 (the “Annual Report”), which will be
filed with the Securities and Exchange Commission (the “SEC”) in the month of April 2021, and further consent to the incorporation by
reference into the Registration Statements on Form S-8 (File No.: 333-197226) filed on July 3, 2014, Form S-8 (File No.: 333-204494)
filed on May 28, 2015 and Form S-8 (File No.: 333-228771) filed on December 13, 2018, in each case pertaining to Tarena International,
Inc.’s 2008 share plan and 2014 share incentive plan of the summary of our opinion under the heading “Item 10. Additional Information
— E. Taxation — Cayman Islands Taxation” in the Annual Report. We also consent to the filing with the SEC of this consent letter as an
exhibit to the Annual Report.
In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated
thereunder.
Yours faithfully,
/s/ Conyers Dill & Pearman
Conyers Dill & Pearman
[Han Kun Law Offices Letterhead]
Exhibit 15.2
April 13, 2021
Tarena International, Inc.
6/F, No. 1 Andingmenwai Street, Lychee Plaza,
Chaoyang District, Beijing 100011,
The People’s Republic of China
Dear Sir/Madam:
We hereby consent to the reference of our name under the heading “Item 3. Key Information—D. Risk Factors—Risks Relating to Our
Corporate Structure,” “Item 4. Information on the Company—C. Organizational Structure” and “Item 10. Additional Information—E.
Taxation—People’s Republic of China Taxation” in Tarena International, Inc.’s Annual Report on Form 20-F for the year ended
December 31, 2020 (the “Annual Report”), which will be filed with the Securities and Exchange Commission (the “SEC”) in the month
of April 2021, and further consent to the incorporation by reference into the Registration Statements on Form S-8 (File No.: 333-197226)
filed on July 3, 2014, Form S-8 (File No.: 333-204494) filed on May 28, 2015 and Form S-8 (File No.: 333-228771) filed on December
13, 2018, in each case pertaining to Tarena International, Inc.’s 2008 share plan and 2014 share incentive plan of the summary of our
opinion under the heading “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure,” “Item 4.
Information on the Company—C. Organizational Structure” and “Item 10. Additional Information—E. Taxation—People’s Republic of
China Taxation” in the Annual Report. We also consent to the filing of this consent letter with the SEC as an exhibit to the Annual
Report.
In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated
thereunder.
Very truly yours,
/s/ Han Kun Law Offices
Han Kun Law Offices
Consent of Independent Registered Public Accounting Firm
Exhibit 15.3
The Board of Directors
Tarena International, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-204494, No. 333-197226 and No. 333-228771) on
Form S-8 of Tarena International, Inc. of our report dated April 13, 2021, with respect to the consolidated balance sheets of the Company
as of December 31, 2019 and 2020, and the related consolidated statements of comprehensive loss, cash flows and changes in equity for
the years ended December 31, 2018, 2019 and 2020, and the related notes (collectively, the consolidated financial statements), which
report appears in the December 31, 2020 annual report on Form 20-F of Tarena International, Inc.
/s/ Marcum Bernstein & Pinchuk LLP
Marcum Bernstein & Pinchuk LLP
Beijing, China
April 13, 2021