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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, 2021.
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
Email: 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, Email 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 five Class A ordinary shares,
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 five
Class A ordinary shares.
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, 2021, there were 56,599,346 ordinary shares outstanding, par value $0.001 per share, being the sum of 49,393,287 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.
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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INTRODUCTION
PART I.
TABLE OF CONTENTS
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4.A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II.
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
CONTROLS AND PROCEDURES
PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 14.
ITEM 15.
ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16.B. CODE OF ETHICS
ITEM 16.C.
ITEM 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16.E.
ITEM 16.F.
ITEM 16.G. CORPORATE GOVERNANCE
ITEM 16.H. MINE SAFETY DISCLOSURE
ITEM 16.I.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III.
ITEM 17.
ITEM 18.
ITEM 19.
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
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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 and consolidated financial information, risk factors and financial
results, also include the variable interest entity Beijing Tarena Jinqiao Technology Co., Ltd. and its subsidiaries;
“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$0.001 per share, which include both Class A ordinary
shares and Class B ordinary shares;
“ADSs” refers to our American depositary shares, each of which represents five Class A ordinary shares;
“IT” refers to information technology;
“STEAM education” refers to science, technology, engineering, arts, and mathematics education;
“student enrollments” for a certain period refers to, for adult professional education, the total number of courses enrolled in by
students during that period, including multiple courses enrolled in by the same student; for childhood and adolescent quality
education, the total number of students who attended at least one paid lesson during that period or have deposit balances in
their accounts at the end of that period;
“variable interest entity,” or “VIE,” refers to Beijing Tarena Jinqiao Technology Co., Ltd., which is a domestic PRC company
in which we do not have any equity interests but whose financial results have been consolidated into our consolidated financial
statements in accordance with U.S. GAAP because we have effective financial control over, and Tarena International, Inc. is
the primary beneficiary of, such company; and
all references to “RMB” or “Renminbi” refer to the legal currency of China; all references to “US$,” “dollars” and “U.S.
dollars” refer to the legal currency of the United States.
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 of RMB6.3726 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 30, 2021 (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;
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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 professional education services to the childhood and adolescent
quality 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 pandemic 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.
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.
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ITEM 3.
KEY INFORMATION
Our Holding Company Structure and Contractual Arrangements with the Variable Interest Entity
Tarena International, Inc. is not an operating company incorporated in China, but rather a Cayman Islands holding company with no
equity ownership in its variable interest entity. Our Cayman Islands holding company does not conduct business operations directly. We
conduct our operations in China through (i) our PRC subsidiaries and (ii) the variable interest entity with which we have maintained
contractual arrangements and its subsidiaries. PRC laws and regulations restrict and impose conditions on foreign investment in certain
internet value-added businesses. Accordingly, we operate these businesses in China through the variable interest entity, and rely on
contractual arrangements among our PRC subsidiaries, the variable interest entity and its shareholders to control the business operations
of the variable interest entity. The variable interest entity is consolidated for accounting purposes, but is not an entity in which our
Cayman Islands holding company, or our investors, own equity. Revenues contributed by the variable interest entity accounted for 1.6%,
6.7% and 5.9% of our total revenues for the years of 2019, 2020 and 2021, respectively. As used in this annual report, “we,” “us,” “our
company” and “our” refers to Tarena International, Inc. and its subsidiaries, and, in the context of describing our operations and
consolidated financial information, the variable interest entity in China, Beijing Tarena Jinqiao Technology Co., Ltd., or Beijing Tarena,
which holds our ICP license as an internet information provider and operates our TMOOC.cn, 61it.cn, and goto211.com websites and its
subsidiaries. Investors in our ADSs are not purchasing any equity interest in the variable interest entity in China, but instead are
purchasing equity interest in a holding company incorporated in the Cayman Islands.
A series of contractual agreements, including exclusive business cooperation agreement, power of attorney, equity interest pledge
agreements, exclusive option agreements, and loan agreements, have been entered into by and among our subsidiaries, the variable
interest entity and their respective shareholders. Despite the lack of legal majority ownership, our Cayman Island holding company is
considered the primary beneficiary of the variable interest entity and consolidates the variable interest entity as required by Accounting
Standards Codification topic 810, Consolidation. Accordingly, we treat the variable interest entity as our consolidated entities under U.S.
GAAP, and we consolidate the financial results of the variable interest entity in our consolidated financial statements in accordance with
U.S. GAAP. For more details on these contractual arrangements, see “Item 4. Information on the Company—A. History and
Development of the Company.”
However, the contractual arrangements may not be as effective as direct ownership in providing us with control over the variable interest
entity, and we may incur substantial costs to enforce the terms of the arrangements. Uncertainties in the PRC legal system may limit our
ability, as a Cayman Islands holding company, to enforce these contractual arrangements. Meanwhile, there are very few precedents as to
whether contractual arrangements would be judged to form effective control over the variable interest entity through the contractual
arrangements, or how contractual arrangements in the context of a variable interest entity should be interpreted or enforced by the PRC
courts. Should legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability of the variable
interest entity contractual arrangements. In the event we are unable to enforce these contractual arrangements, or if we suffer significant
delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the
variable interest entity, and our ability to conduct our business may be materially adversely affected. See “Item 3. Key Information—D.
Risk Factors—Risks Related to Our Corporate Structure—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” and “Item 3. Key Information—D. Risk
Factors—Risks Related to Our Corporate Structure—The shareholders of Beijing Tarena may have potential conflicts of interest with us,
which may materially and adversely affect our business and financial condition.”
If the PRC government deems that our contractual arrangements with the variable interest entity do not comply with PRC regulatory
restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or
are interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
Our holding company, our PRC subsidiaries and variable interest entity, and investors of our company face uncertainty about potential
future actions by the PRC government that could affect the enforceability of the contractual arrangements with the variable interest entity
and, consequently, significantly affect the financial performance of the variable interest entity and our company as a whole. For a
detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “Item 3. Key Information—
D. Risk Factors—Risks Related to Our Corporate Structure.”
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Other Risks Related to Our PRC Business Operations
There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules
regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with the variable
interest entity and its shareholders. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures
will be adopted or if adopted, what they would provide. If we or the variable interest entity is found to be in violation of any existing or
future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory
authorities would have broad discretion to take action in dealing with such violations or failures. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Our Corporate Structure—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 the consolidated VIE), our business may be disrupted and we may be
exposed to increased risks associated with the contractual arrangements relating to the consolidated VIE” and “Item 3. Key Information
—Risks Related to Our Corporate Structure—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.”
We face various risks and uncertainties related to doing business in China. Our business operations are primarily conducted in China, and
we are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on
offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact our ability to
conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange. These risks could result in a
material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to
offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks related to
doing business in China, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Doing
Business in China.”
The PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas
by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer
securities to investors. Implementation of industry-wide regulations, including data security or anti-monopoly related regulations, of this
nature may cause the value of such securities to significantly decline or become worthless. For more details, see “Item 3. Key
Information—D. Risk Factors—Risks Related to Our Business—Our business is subject to complex and evolving Chinese and
international laws and regulations regarding data privacy and cybersecurity. Failure to protect the confidential information of our
customers and our network against security breaches could damage our reputation and brand and substantially harm our business and
results of operations” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval of and
filing with the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law,
and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and
quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs.
For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related 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” and “Item 3. Key
Information—D. Risk Factors—Risks Related 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 production and operation, internet publication, human
resources intermediary service and filing requirements for commercial franchise.”
Permissions Required from the PRC Authorities for Our Operations
We conduct our business primarily through our subsidiaries and the variable interest entity in China. Our operations in China are
governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries and the variable interest entity have
obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of our
holding company and the variable interest entity in China, including, among others, ICP licenses. Given the uncertainties of
interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we
may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future.
For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related 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
production and operation, internet publication, human resources intermediary service and filing requirements for commercial franchise.”
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Furthermore, under current PRC laws, regulations and regulatory rules, we, our PRC subsidiaries and the variable interest entity may be
required to fulfill filing procedures and obtain approval from the China Securities Regulatory Commission, or the CSRC, in connection
with offering and listing in an overseas market, and may be required to go through cybersecurity review by the Cyberspace
Administration of China, or the CAC. As of the date of this annual report, we have not been subject to any cybersecurity review made by
the CAC. If we fail to obtain the relevant approval or complete other filing procedures for any future offshore offering or listing, we may
face sanctions by the CSRC or other PRC regulatory authorities, which may include fines and penalties on our operations in China,
limitations on our operating privileges in China, restrictions on or prohibition of the payments or remittance of dividends by our
subsidiaries in China, restrictions on or delays to our future financing transactions offshore, or other actions that could have a material
and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our
ADSs. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The
approval of and filing with the CSRC or other PRC government authorities may be required in connection with our offshore offerings
under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such
filing” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Our business is subject to complex and
evolving Chinese laws and regulations regarding cybersecurity, information security, privacy and data protection. Many of these laws and
regulations are subject to change and uncertain interpretation, and any failure or perceived failure to comply with these laws and
regulations could result in claims, changes to our business practices, negative publicity, legal proceedings, increased cost of operations,
or declines in student base, or otherwise harm our business.”
Cash and Asset Flows through Our Organization
Tarena International, Inc. is a holding company with no operations of its own. We conduct our operations in China primarily through our
subsidiaries and the variable interest entity. As a result, although other means are available for us to obtain financing at the holding
company level, Tarena International, Inc.’s ability to pay dividends to the shareholders and to service any debt it may incur may depend
upon dividends paid by our PRC subsidiaries and service fees paid by the variable interest entity and its subsidiaries. If any of our
subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to
Tarena International, Inc. In addition, our PRC subsidiaries are permitted to pay dividends to Tarena International, Inc. only out of their
retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Further, our PRC subsidiaries and
the variable interest entity are required to make appropriations to certain statutory reserve funds or may make appropriations to certain
discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. For more
details, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.”
Under PRC law, Tarena International, Inc. may provide funding to our PRC subsidiaries only through capital contributions or loans, and
to the variable interest entity only through loans or payment for inter-group transactions, subject to satisfaction of applicable government
registration and approval requirements. Prior to December 31, 2018, Tarena International, Inc., through its intermediate holding
companies, provided capital contribution of RMB448.0 million accumulatively to its subsidiaries in China. Subsequently, there was no
additional capital contribution from Tarena International, Inc. to its subsidiaries or variable interest entity. For the years ended December
31, 2019, 2020 and 2021, Tarena International, Inc. did not extend any loans to, or receive any repayments from, its intermediate holding
companies and subsidiaries or its variable interest entity.
The variable interest entity may transfer cash to Tarena International, Inc. by paying service fees according to the exclusive business
cooperation agreements. For the years ended December 31, 2019, 2020 and 2021, no such service fees were paid by the variable interest
entity. If there is any amount payable to Tarena International, Inc. under the exclusive business cooperation agreements, we intend to
settle them accordingly, but do not intend to otherwise distribute earnings.
For the years ended December 31, 2019, 2020 and 2021, no dividends or distributions were made to Tarena International, Inc. by our
subsidiaries or the variable interest entity. Under PRC laws and regulations, our PRC subsidiaries and the variable interest entity are
subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. Remittance of
dividends by a wholly foreign-owned enterprise out of China is also subject to examination by the banks designated by SAFE. The
amounts restricted include the paid-up capital and the statutory reserve funds of our PRC subsidiaries and the net assets of the variable
interest entity in which we have no legal ownership, totaling RMB1,438.5 million, RMB1,483.4 million and RMB1,523.2 million
(US$239.0 million) as of December 31, 2019, 2020 and 2021, respectively. For risks related to the fund flows of our operations in China,
see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends and other
distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the
ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”
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For the years ended December 31, 2019, 2020 and 2021, no assets other than cash were transferred through our organization.
Tarena International, Inc. has not declared or paid any cash dividends since the beginning of 2019, nor does it have any present plan to
pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available
funds and any future earnings to operate and expand our business. See “Item 8. Financial Information—A. Consolidated Statements and
Other Financial Information—Dividend Policy.” For the Cayman Islands, PRC and United States federal income tax considerations of an
investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”
For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid within mainland
China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future:
Hypothetical pre-tax earnings(2)
Tax on earnings at statutory rate of 25%(3)
Net earnings available for distribution
Withholding tax at standard rate of 10%(4)
Net distribution to Parent/Shareholders
Notes:
Tax calculation (1)
100 %
(25)%
75 %
(7.5)%
67.5 %
(1) For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount, not
considering timing differences, is assumed to equal taxable income in China.
(2) Under the terms of VIE agreements, our PRC subsidiary may charge the VIE for services provided to VIE. These service fees
shall be recognized as expenses of the VIE, with a corresponding amount recognized as service income by our PRC subsidiary
and eliminated in consolidation. For income tax purposes, our PRC subsidiary and the VIE file income tax returns on a separate
company basis. The service fees paid are recognized as a tax deduction by the VIE and as income by our PRC subsidiary and
thus are tax neutral.
(3) Certain of our subsidiaries qualify for a 15% preferential income tax rate in China. However, such rate is subject to
qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For purposes of
this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be
effective.
(4) The PRC Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a foreign invested
enterprise, or FIE, to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if
the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with
China, subject to a qualification review at the time of the distribution. For purposes of this hypothetical example, the table
above assumes a maximum tax scenario under which the full withholding tax would be applied.
The table above has been prepared under the assumption that all profits of the variable interest entity will be distributed as fees to our
PRC subsidiaries under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the variable interest entity
exceed the service fees paid to our PRC subsidiaries (or if the current and contemplated fee structure between the intercompany entities
is determined to be non-substantive and disallowed by Chinese tax authorities), the variable interest entity could make a non-deductible
transfer to our PRC subsidiaries for the amounts of the stranded cash in the variable interest entity. This would result in such transfer
being non-deductible expenses for the variable interest entity but still taxable income for the PRC subsidiaries. Such a transfer and the
related tax burdens would increase our after-tax loss by less than 1% of the pre-tax loss. Our management believes that there is only a
remote possibility that this scenario would happen.
6
Table of Contents
Financial Information Related to the Consolidated Variable Interest Entity
The separated VIE and Non-VIE financial information for the year ended December 31, 2021, was as follows:
Selected Condensed Consolidated Statements of Income, Balance Sheets, and Cash Flows Information
Parent
VIE and VIE
Subsidiaries
Non-VIE
Subsidiaries
VIE
Other Inter-
Company
Group
Company
Consolidated Consolidated Elimination Elimination Consolidation
For the Year Ended December 31, 2021
RMB
(In thousands)
Cash and cash equivalents
Inter-Group balances due from the VIE and its
subsidiaries/Non-VIE
Other current assets
Equity method investments
Investment deficit in the VIE and its subsidiaries and
Non-VIE
Other non-current assets
Total Assets
Inter-Group balances due to the VIE and its
subsidiaries/Non-VIE
Other current liabilities
Non-current liabilities
Total liabilities
Equity
Net Revenue
Net profit/(loss)
Net cash provided by/(used in) operating activities
Net cash provided in investing activities
Net cash provided by/(used in) financing activities
23,506
8,204
392,056
—
—
423,766
407,795
24
128,185
141,104
27,439
—
365,293
186,523
—
(141,104)
—
—
(773,088)
(18,420)
(128,185)
—
195,566
—
(1,828,408)
—
(1,268,898)
—
44,846
221,593
—
977,604
1,921,476
—
—
(141,104)
1,828,408
—
908,715
—
1,022,450
1,641,782
309,241
5,781
—
315,022
(1,583,920)
—
(474,547)
14,458
—
3,947
56,052
195,882
6,209
258,143
(36,550)
140,541
(39,072)
10,308
—
(3,437)
548,899
2,756,383
287,907
3,593,189
(1,671,713)
2,262,538
37,839
(16,156)
33,693
22,727
(56,052)
(17,960)
—
(74,012)
12,960
—
16,559
(161)
—
3,437
(858,140)
—
—
(858,140)
1,686,803
(16,559)
(16,559)
161
—
(3,437)
—
2,940,086
294,116
3,234,202
(1,592,420)
2,386,520
(475,780)
8,610
33,693
23,237
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Cash and cash equivalents
Inter-Group balances due from the VIE and its
subsidiaries/Non-VIE
Other current assets
Equity method investments
Investment deficit in the VIE and its subsidiaries and
Non-VIE
Other non-current assets
Total Assets
Inter-Group balances due to the VIE and its
subsidiaries/Non-VIE
Other current liabilities
Non-current liabilities
Total liabilities
Equity
Net Revenue
Net profit/(loss)
Net cash provided by/(used in) operating activities
Net cash used in investing activities
Net cash provided by/(used in) financing activities
For the Year Ended December 31, 2020
Parent
VIE and VIE
Subsidiaries Subsidiaries
Non-VIE
VIE
Other Inter-
Company
Group
Company Consolidated Consolidated Elimination Elimination Consolidation
RMB
(In thousands)
3,793
1,332
315,054
—
—
320,179
410,910
699
131,184
113,021
4,480
—
330,187
219,187
—
(113,021)
(161)
—
(741,097)
(8,131)
(131,184)
—
216,074
—
(1,372,593)
—
(826,007)
—
—
56,011 1,366,985
174,844 2,231,413
—
—
(113,182)
1,372,593
—
492,181
—
1,422,996
1,959,249
298,782
7,213
—
305,995
(1,132,002)
—
(766,643)
(8,010)
—
3,354
Parent
Company
1,791
523,932
31,405
156,137 2,514,067
427,602
189,333 3,465,601
(14,489) (1,234,188)
127,043 1,780,038
32,869
(37,419)
112,106 1,034,589
(657)
(110,985) (1,155,394)
—
(31,405)
(8,131)
—
(39,536)
3,131
(156)
(34,515)
(7,970)
—
120,274
(822,714)
(161)
—
(822,875)
1,238,279
(9,042)
34,515
(1,239,536)
—
1,074,452
—
2,669,125
429,393
3,098,518
(1,139,269)
1,897,883
(771,193)
(108,821)
(657)
(68,299)
For the Year Ended December 31, 2019
VIE and VIE Non-VIE
Subsidiaries
Subsidiaries
VIE
Consolidated Consolidated Elimination Elimination Consolidation
Group
Other Inter-
Company
Net Revenue
Net profit/(loss)
Net cash provided by/(used in) operating activities
Net cash used in investing activities
Net cash provided by/(used in) financing activities
—
(1,036,086)
(3,315)
—
(15,449)
32,013
(37,565)
36,902
(34,226)
(3,841)
2,020,225
34,773
(65,317)
(16,991)
93,687
—
884
—
—
—
(884)
(884)
—
—
—
2,051,354
(1,038,878)
(31,730)
(51,217)
74,397
RMB
(In thousands)
8
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Selected Consolidated Financial Data
The following selected consolidated statements of comprehensive income data for the years ended December 31, 2019, 2020 and 2021,
and the selected consolidated balance sheet data as of December 31, 2020 and 2021, have been derived from our audited consolidated
financial statements included elsewhere in this annual report. The following selected consolidated statements of comprehensive income
data for the year ended December 31, 2017 and 2018, and the selected consolidated balance sheet data as of December 31, 2017, 2018
and 2019 have been derived from our audited consolidated financial statements which are not included in this annual report. 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.
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 loss
Interest income (expenses)
Other income (loss)
Loss on foreign currency forward contract
Foreign currency exchange gains (loss)
Income/(loss) before income taxes
Net loss
Net 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
Losses per Class A ordinary share, and per
Class B ordinary share(4)
Basic
Diluted
For the Year ended December 31,
2017
RMB
2018
RMB
2019
RMB
2020
RMB
2021
RMB
2021
USD
(in thousands, except for share and per share)
1,753,695
(592,946)
1,160,749
(707,157)
(354,832)
(100,032)
(1,272)
16,097
16,702
—
(6,284)
25,243
(147)
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)
(592,199)
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)
(1,038,878)
1,897,883
(1,066,842)
831,041
(906,337)
(630,618)
(100,466)
(806,380)
(199)
5,201
—
(4,849)
(806,227)
(771,193)
2,386,520
(1,201,419)
1,185,101
(878,130)
(569,985)
(106,098)
(369,112)
2,335
5,572
—
(518)
(361,723)
(475,780)
374,497
(188,529)
185,968
(137,798)
(89,443)
(16,649)
(57,922)
366
875
—
(81)
(56,762)
(74,660)
(147)
1.10
(590,174)
0.76
(1,036,086)
—
(766,643)
—
(474,547)
—
(74,467)
—
56,849,332
56,849,332
54,929,910
54,929,910
53,386,075
53,386,075
54,341,213
54,341,213
56,260,925
56,260,925
56,260,925
56,260,925
0
0
(10.74)
(10.74)
(19.41)
(19.41)
(14.11)
(14.11)
(8.43)
(8.43)
(1.32)
(1.32)
Notes:
(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:
For the Year Ended December 31,
2017
2021
RMB RMB RMB RMB RMB USD
2020
2021
2019
2018
Cost of revenues
Sales and marketing expenses
General and administrative expenses
Research and development expenses
1,285
4,863
60,491
10,776
2,265
8,866
84,645
28,477
(in thousands)
983
379
6,502
36,719
14,968
1,842
26,242
7,783
70
2,785
14,840
1,408
11
437
2,329
221
(2) 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.
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(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 rights and the same participation rights 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.
The following table presents our selected consolidated balance sheet data as of the dates indicated.
2017
RMB
2018
RMB
As of December 31,
2020
RMB
2019
RMB
(in thousands)
2021
RMB
2021
USD
686,691
433,041
—
530,984
159,102
14,700
537,701
83,487
—
320,179
6,257
38,369
423,766
6,380
255
66,498
1,001
40
51,643
502,339
77,170
2,018,427
352,260
748,918
39,901
626,068
59,651
1,878,047
830,019
1,306,404
31,442
576,633
67,773
2,512,020
1,585,970
2,915,084
32,790
464,490
67,592
1,959,249
1,998,198
3,098,518
48,458
299,441
46,449
1,641,782
2,024,852
3,234,202
7,604
46,989
7,289
257,631
317,743
507,517
1,269,509
1,269,509
572,618
571,643
(400,047)
(403,064)
(1,132,002)
(1,139,269)
(1,583,920)
(1,592,420)
(248,552)
(249,886)
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.
D.
Risk Factors
Summary of Risk Factors
An investment in our ADSs involves significant risks. Below is a summary of material risks we face, organized under relevant headings.
These risks are discussed more fully in Item 3. Key Information—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.
● 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.
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● 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.
Risks Related to Our Business
● We incurred net losses from 2017 to 2021, and we may continue to incur net losses 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.
● 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.
● 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.
● 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 since 2020. Despite the rapid COVID-19 vaccine rollout,
uncertainties remain due to the emerging new variants, and our learning centers across China may undergo closure or class-size
reduction subject to the restriction measures within China in the future. Although we have arranged online webcasts for our
students to study at home, we may not be able to achieve the same effectiveness and service quality without the disciplined and
focused learning environment at our learning centers.
● The operations of certain of our learning centers providing professional education services or certain learning centers providing
after-school childhood and adolescent quality 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. 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 professional education services market in China is fragmented, rapidly evolving and highly competitive. Furthermore, we
also face competition from other childhood and adolescent quality education service providers. 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 the changing market conditions and trends.
● Our business is subject to complex and evolving Chinese laws and regulations regarding cybersecurity, information security,
privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and any
failure or perceived failure to comply with these laws and regulations could result in claims, changes to our business practices,
negative publicity, legal proceedings, increased cost of operations, or declines in student base, or otherwise harm our business.
Risks Related to Our Corporate Structure
● TMOOC.cn is important for our business operations. 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, or if these laws and regulations
or the interpretation of existing laws and regulations change in the future, our ability to provide online education services and
conduct our marketing and promotional activities through TMOOC.cn may be negatively impacted.
● If the relevant PRC authorities determine that we can no longer own and operate certain of our learning centers through our
PRC subsidiaries, which are considered ineligible to act as sponsors of private schools, we may need to restructure the
ownership and operation of these learning centers (including possibly transferring these learning centers to the consolidated
VIE), our business may be disrupted and we may be exposed to increased risks associated with the contractual arrangements
relating to the consolidated VIE.
11
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Risks Related to Doing Business in China
● The PCAOB may be unable to inspect or fully investigate our auditors as required under the Holding Foreign Companies
Accountable Act, or the HFCA Act. If the PCAOB is unable to conduct such inspections for three consecutive years beginning
in 2021, or for two consecutive years if proposed changes to the law are enacted, the SEC will prohibit the trading of our ADSs.
The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your
investment. Additionally, the inability of the PCAOB to conduct inspections of our auditors would deprive our investors of the
benefits of such inspections.
● Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to
you and us.
● Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our
business and operations.
● We conduct our business primarily in China. Our operations in China are governed by PRC laws and regulations. The PRC
government has significant oversight and discretion over the conduct of our business, and it may influence our operations,
which could result in a material adverse change in our operation, and our ordinary shares and ADSs may decline in value or
become worthless.
Risks Related to Our ADSs
● The trading prices of our ADSs have fluctuated and may be volatile, which could result in substantial losses to investors. 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.
● We received a notice from Nasdaq indicating that we no longer meet the continued listing requirement of minimum Market
Value of Publicly Held Shares (MVPHS) for the Nasdaq Global Select Market, and we have not regained compliance with this
minimum MVPHS requirement as of the date of this annual report. If we fail to meet Nasdaq’s minimum bid price or minimum
market value of publicly held shares requirement in the future, our ADSs could be subject to delisting, which may significantly
reduce the liquidity of our ADSs and cause further declines to the market price of our ADSs.
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 Independent 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, regardless of the outcome, will likely consume a significant amount of our internal resources and result
in additional costs.
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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.
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 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 rights to authorized users commensurate with 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 to the effectiveness of our internal control
reported that our internal control over financial reporting was ineffective as of December 31, 2019.
13
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During 2020, we took the remedial steps to address the material weaknesses in our internal control over financial reporting. 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 and 2021. Based on this evaluation, we
did not note or identify any deficiencies that we believe to be material weaknesses as of December 31, 2020 and 2021.
Even though we did not note or identify any deficiencies that we believe to be material weaknesses as of December 31, 2020 and
2021,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.
Risks Related to Our Business
We incurred net losses from 2017 to 2021, and we may continue to incur net losses in the future.
While we achieved positive net income between 2014 and 2016, we incurred net losses of RMB147 thousand, RMB592.2 million,
RMB1,038.9 million, RMB771.2 million and RMB475.8 million (US$74.7 million) in 2017, 2018, 2019, 2020 and 2021, respectively.
We cannot assure you that we will be able to generate positive net income 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, and 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 a 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. 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 childhood and adolescent quality
education program continues to develop, we will need to recruit more instructors and teaching assistants. We recruit dedicated instructors
and teaching assistants primarily from outstanding graduates of our courses as well as experienced development engineers. 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.
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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.
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. In December 2015, we
launched IT and non-IT training courses customized for young children, 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 childhood and adolescent robotics programming and computer programming, and adult java courses and digital arts for a
major part of our total net revenues, and a decrease in the popularity and usage of childhood and adolescent robotics programming
and computer programming, and adult java courses and digital arts 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 childhood and adolescent robotics programming and computer programming
courses, and adult java courses and digital arts. In 2021, childhood and adolescent robotics programming and computer programming
courses, and adult java courses and digital arts contributed to 27.9%, 19.4%, 11.8% and 11.0% 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 major 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, childhood and adolescent robotics 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
childhood and adolescent computer programming courses and childhood and adolescent robotics programming, such as a decrease in the
popularity and usage of Adobe design, java technology or childhood and adolescent 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 conferences and product launch events. 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.
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 since 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. Since the second half of 2020, many of the quarantine measures within China have been relaxed, and we
have resumed normal operations. While the spread of COVID-19 was substantially controlled in China in 2021 and the number of new
cases in China remained relatively low, restrictions were re-imposed from time to time in certain cities to combat outbreaks. In 2021 and
the first quarter of 2022, due to the occurrence of COVID-19 cases in mainland China, some of our learning centers in certain cities
underwent temporary closure and suspension from operation. Despite the rapid COVID-19 vaccine rollout, uncertainties remain due to
the emerging new variants, and our learning centers across China may undergo closure or class-size reduction subject to the restriction
measures within China in the future. Although we have arranged online webcasts for our students to study at home, which covered most
of our 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, especially in the Shanghai and Jilin provinces, are
still in place as of the date of this annual report, and some of our learning centers are required to close or suspend classes, and cancel
offline activities in some areas of mainland China. More learning centers may be ordered to close or suspend classes and cancel offline
activities again if China fails to fully contain COVID-19 or suffers a COVID-19 relapse.
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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 to conduct 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. Due to the repeated outbreaks in certain areas
of mainland China, our ability to recruit students from cooperative universities and colleges is also negatively impacted as many
universities and colleges experienced temporary closure from time to time. Even if most universities and colleges reopen after the
periodic outbreaks, our ability to recruit students may not quickly or fully recover, or at all. The repeated outbreak of COVID-19 in
China also caused temporary closure of some of our offices, and adjustment of operation hours and flexible work-from-home
arrangements in our Beijing headquarters and other offices in China.
The COVID-19 global pandemic has resulted in, and may intensify, global economic distress, and the duration and extent of the impact
of the 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, the possibility of new waves in China and other countries, the development
and progress of distribution of COVID-19 vaccines and other medical treatment, the potential change in consumer behavior due to the
prolonged impact of COVID-19, and the actions taken by government authorities to contain the outbreak and stimulate the economy to
improve business conditions, 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 2019, 2020
and 2021 was approximately 91%. When calculating such job placement rates for 2019, 2020 and 2021, 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 2018, 2019 and 2020 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 2018, 2019 and
2020, 88%, 96% and 88% 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, 75%,
65% and 57% of such students, respectively, were deemed to be job-seeking students. The decrease was primarily because the ratio of
non-job-seeking students (e.g., those who already have a full-time or part-time job) who graduated from our programs has been steadily
increasing over the recent years.
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 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.
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Our childhood and adolescent quality education programs may not be successful due to our limited experience in providing education
services to minors.
In December 2015, we launched our childhood and adolescent quality education programs under the brand name TongchengTongmei
featuring IT training courses and non-IT training courses for students aged between three and eighteen. In March 2016, we rolled out
another quality education program to offer childhood and adolescent robotics programming courses. In 2017, we continued to roll out a
new coding mathematics course to further diversify our course offerings in childhood and adolescent quality education. In 2018 and
2019, our computer coding and robotics programming courses were popular among our students, and the revenues from childhood and
adolescent computer programming courses exceeded 10% of our total revenues in 2019. In 2020 and 2021, we launched the Creative
Programming Starter course and robotics programming courses including SPIKE Starter and SPIKE Advanced, which have gained
popularity among our students aged between three and eighteen. Our childhood and adolescent quality education programs target
students aged between three and eighteen, and are the most important part of our efforts to enter into the childhood and adolescent
STEAM education market. As of the date of this annual report, we have discontinued all childhood and adolescent non-IT training
courses, which contributed less than 1% of our net revenue generated from our childhood and adolescent quality education business in
2021. As we have been primarily engaging in adult professional education programs since our inception, we have limited experience in
providing quality education programs to minors, who have distinct learning preferences and a distinct mentality as compared to adult
students and require tailored courses and dedicated class management.
Our student enrollment rate could be impacted by the operations of childhood and adolescent academic or quality education and tutoring
service providers, given that our target students have limited time and energy and they need to choose among different courses and
programs. The childhood and adolescent quality 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 or other quality 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 childhood and adolescent
quality education business in the past few years, 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 results of operation will be adversely impacted.
If the level of performance by the students of our childhood and adolescent quality 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 childhood and adolescent quality 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, childhood and adolescent 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 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 arising 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 incidents in the
future.
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Other than the liability insurance for part of our adult students and travel insurance, accident insurance, and medical insurance for our
students aged between three and eighteen participating in our camp or event-related activities, 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
participating in our activities. We could also face claims alleging that we should be liable for the accidents or injuries, or we were
negligent, or 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.
Our business, financial condition and results of operations may be adversely affected by a downturn in the global or Chinese
economy.
Because the 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 childhood and
adolescent quality education programs, our student enrollment may depend on the parents’ disposable income and willingness to spend.
The growth of the Chinese economy has slowed in recent years. Even before the COVID-19 pandemic, the global macroeconomic
environment was facing challenges, such as the economic slowdown in the Eurozone since 2014, uncertainties over the impact of Brexit
and the ongoing global trade disputes and tariffs. There is considerable uncertainty over the long-term effects of the monetary and fiscal
policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and
China. In addition, there have been concerns about the relationship between China and the United States resulting from the current trade
tension between the two countries. Any further escalation in trade tensions between China and the U.S. or a trade war, or the perception
that such escalation or trade war could occur, may have negative impact on the economies of not only the two countries concerned, but
the global economy as a whole. There have been further uncertainties related to the U.S. Federal Reserve’s monetary policies in response
to market conditions under the impact of COVID-19. Recently, the Russia-Ukraine war has caused, and continues to intensify, significant
geopolitical tensions in Europe and across the world. The resulting sanctions are expected to have significant impacts on the economic
conditions of the targeted countries and may disrupt global markets. It is unclear whether these challenges and uncertainties will be
contained or resolved and what effects they may have on the global political and economic conditions in the long term. 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 professional education services to the childhood and
adolescent quality 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;
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● 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 our existing businesses or expand our operations due to governmental regulations and policy
restrictions;
● 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.
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 non-performing learning centers and did not open any new centers in 2020. We closed 9 non-performing learning centers and
opened 5 new centers in 2021. There were 130, 104 and 100 learning centers for professional education services as of December 31,
2019, 2020 and 2021, respectively. We also significantly increased the number of our learning centers exclusively for childhood and
adolescent quality education programs from 217 as of December 31, 2019, to 236 as of December 31, 2020, and further to 238 as of
December 31, 2021. 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.
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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 “Item 4. Information on the Company—B. Business Overview
—Government Regulations—Regulations on Private Education—The Law for Promoting Private Education and its Implementation
Rules.”
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 above-mentioned 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).
On December 29, 2018, the Standing Committee of the National People’s Congress enacted the Amended Private Education Law. On
April 7, 2021, the State Council published the Amendment to the Private Education Law Implementation Rules of the PRC, or the
Amendment to Private Education Law Implementation Rules, which became effective on September 1, 2021. According to the Amended
Private Education Law and Amendment to Private Education Law Implementation Rules, 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 a filing with the education authorities. If such institutions use the internet technology to conduct training for professional
qualifications or skills, they shall comply with the requirements related to internet management. Under the Amendment to the Private
Education Law and the Amendment to 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 relevant detailed rules by national and some of the local
government authorities have not been officially issued, there remain uncertainties about the registration process for the newly established
private schools (including the private training institutions) or the re-registration process for pre-existing private schools. In practice, there
still exist 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 approach has been widely used before the promulgation of the Amendment to the Private
Education Law. In the latter approach, 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” or similar statements in their business scope as specified in their
business licenses, but in certain other cities, entities are not permitted to add, or are prohibited from adding, “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.
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We use both ways discussed above to establish our learning centers. As of December 31, 2021, we had a total of 338 learning centers, of
which 59 and 272 learning centers were operated by schools and subsidiaries owned by Tarena Tech or Tarena Hangzhou, respectively,
whilst 5 and 2 learning centers were operated by schools and subsidiaries owned by the VIE, respectively. Among the 338 learning
centers, 105 have neither professional education services nor education information-related consultation as an authorized scope of
business in the licenses or their registered branches operating these learning centers as of December 31, 2021, and these learning centers
in the aggregate accounted for 23.7% of our student enrollments in 2021. We were not able to include professional education services in
these companies’ authorized business scope mainly because the relevant local branch of SAMR has formulated general local policies
prohibiting the inclusion of “professional education services” or similar services in the business scope of any entity. In addition, 54
learning centers 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 15.9% of our student enrollments in 2021. 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.
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, 2021, 17 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 17 learning centers in the aggregate accounted
for 4.8% of our total student enrollments in 2021. As of March 31, 2022, all of our 54 schools have the school permit, among which 5
schools need to apply for updating their principal’s information. Separately, as of December 31, 2021, we have set up 32 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.
During the 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 a 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.
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The operations of certain learning centers providing after-school childhood and adolescent quality 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.
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 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. Although the Online After-School
Training Opinions remains effective as of the date of this annual report, such filing requirements may be superseded by an approval
scheme pursuant to Amendment to the Private Education Law Implementation Rules and the Alleviating Burden Opinions, according to
which private online training institutions are mandated to obtain school operation permits. 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. 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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According to the Amendment to the Private Education Law Implementation Rules, private training institutions utilizing internet
technology to conduct training and educational activities shall obtain corresponding school operation permits and comply with the
requirements of laws and regulations related to internet management. In addition, the Opinions on Further Alleviating the Burden of
Homework and Off-campus Training on Students in Compulsory Education Stage, or the Alleviating Burden Opinions, issued by the
General Office of the CPC Central Committee and the General Office of the State Council on July 24, 2021, proposes certain measures
intended to ease the workload of students in compulsory education and regulate the relevant after-school tutoring services that aim at
students in compulsory education in the PRC, including (i) institutions providing after-school education service on academic subjects in
China’s compulsory education system, or academic training institutions, need to be registered as non-profit, no approval will be granted
to new academic training institutions, and an approval mechanism will be adopted for online academic training institutions; (ii) foreign
ownership in academic training institutions is prohibited, including through contractual arrangements, and companies with existing
foreign ownership need to rectify such status; (iii) listed companies are prohibited from raising capital to invest in businesses that teach
academic subjects in compulsory education; (iv) academic training institutions are prohibited from providing tutoring services on
academic subjects in compulsory education during public holidays, weekends and school breaks; and (v) academic training institutions
must follow the fee standards to be established by relevant authorities. For non-academic subject training institutions, Alleviating Burden
Opinions provides that (i) local authorities shall formulate respective standards, and conduct strict examination and approval upon non-
academic-subject training institutions based on classification of the training subjects such as sports, culture and arts, and science and
technology; (ii) non-academic-subject training institutions are strictly prohibited from engaging in academic-subject training as well as
providing overseas education courses. For online training, each session shall not exceed 30 minutes, the interval between courses shall
not be less than ten minutes, and the training shall end no later than 9:00 p.m. Furthermore, online training and offline academic-subject
training (including foreign language training and academic-subject training carried out under the names of preschool classes,
kindergarten transition classes or thinking training classes) for preschool children from 3 to 6 years old are banned by the Alleviating
Burden Opinions. The MOE, the NDRC and the SAMR issued the Announcement on Regulating Non-academic Off-campus Tutoring on
March 3, 2022, providing principles and requirements that non-academic off-campus tutoring institutions shall follow, such as
requirements with regard to pricing, prohibition of price fraudulent activities and unfair-competitions, and prepaid tuition fees. See “Item
4. Information on the Company—B. Business Overview—Government Regulation—Regulations on Off-Campus Training for Students
Aged Between Three and Eighteen” for more details.
Our childhood and adolescent quality education programs, which currently provide IT training courses to students aged between three
and eighteen, were operated through our 238 learning centers in 54 cities in China as of December 31, 2021, as well as through the
internet. According to the rules mentioned above, our learning centers providing childhood and adolescent quality education programs
may be deemed as after-school education institutions which are required to obtain school operation permits and business licenses. As of
December 31, 2021, 31 of our leaning centers has obtained school operation permits from the local education authorities for our
childhood and adolescent quality education programs, and 121 of our learning centers have either professional education services or
education information-related consultation as an authorized scope of business in the licenses or their registered branches operating these
learning centers. However, since there has been a lack of further implementing rules related to the Circular 80, the Amendment to the
Private Education Law Implementation Rules and the Alleviating Burden Opinions, there remain uncertainties about the application and
approval process for school operation permits with respect to after-school childhood and adolescent quality education programs. We have
been communicating, and will continue to communicate, with the competent provincial education regulatory authorities to obtain school
operation permits. 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 childhood and adolescent quality
education programs, if we fail to cure any non-compliance in a timely manner, we may be subject to mandatory rectifications, 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, our online programming courses provided to pre-school
children may be materially and adversely affected by the Alleviating Burden Opinions.
The Ministry of Education issued the Notice on Further Clarifying the Scope of Academic Subjects and Non-Academic Subjects of After-
School Tutoring in the Compulsory Education in July, 2021, according to which IT education off-campus training is classified as a non-
academic subject. The Guidelines for Classification and Identification of Off-campus Training Programs in Compulsory Education
issued in November 2021 further set forth specific criteria to differentiate academic and non-academic subject training courses. Although
we believe that our childhood and adolescent quality education programs are not classified as academic subject training under the current
regulatory schemes since the programs only involve IT courses, we cannot guarantee IT training will not be deemed as academic subject
training or that the authorities will not impose similar restrictions on non-academic subject training, in which case our business may be
materially and adversely affected. Moreover, our services to pre-school children may be substantially impaired under the Alleviating
Burden Opinions.
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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 the 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
childhood and adolescent quality 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 childhood and adolescent quality education programs, some of our competitors may have more
experience in designing courses based on minors’ 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 is subject to complex and evolving Chinese laws and regulations regarding cybersecurity, information security, privacy
and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and any failure or
perceived failure to comply with these laws and regulations could result in claims, changes to our business practices, negative
publicity, legal proceedings, increased cost of operations, or declines in student base, or otherwise harm our business.
Our business generates and processes a large quantity of data. We face risks inherent in handling and protecting large volume of data. In
particular, we face a number of challenges relating to data from transactions and other activities on our platforms, including:
● protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent
behavior or improper use by our employees;
● addressing concerns related to privacy and sharing, safety, security and other factors; and
● complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security of
personal information, including any requests from regulatory and government authorities relating to these data.
We have adopted security policies and measures, including encryption technology, to protect our proprietary data and customer
information. However, advances in technology, the expertise of hackers, improper use or sharing of data, new discoveries in the field of
cryptography or other events or developments could result in a compromise or breach of the technology that we use to protect
confidential information. We may not be able to prevent third parties, especially hackers or other individuals or entities engaging in
similar activities, from illegally obtaining such confidential or private information we hold as a result of our customers’ visits to our
websites. Such individuals or entities obtaining our customers’ confidential or private information may further engage in various other
illegal activities using such information. In addition, we have limited control or influence over the security policies or measures adopted
by business partners, including strategic partners or third-party providers of online payment services through which some of our
customers may choose to make payment for purchases. Any negative publicity on our websites’ safety or privacy protection mechanisms
and policies, and any claims asserted against us or fines imposed upon us as a result of actual or perceived failures, could have a material
and adverse effect on our public image, reputation, financial condition and results of operations. We have not experienced breaches of
our information security measures in the past. We cannot assure you that such events will not occur in the future. If we give third parties
greater access to our technology platform in the future, it may become more challenging for us to ensure the security of our systems. Any
compromise of our information security or the information security measures of third-party online payment service providers or other
business partners could have a material and adverse effect on our reputation, business, prospects, financial condition and results of
operations. Practices regarding the collection, use, storage, transmission and security of personal information by companies operating
over the internet and mobile platforms are under increased public scrutiny.
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We expect that data security and data protection compliance will receive greater attention and focus from regulators, as well as attract
continued or greater public scrutiny and attention going forward, which could increase our compliance costs and subject us to heightened
risks and challenges associated with data security and protection. If we are unable to manage these risks, we could become subject to
penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could
be materially and adversely affected.
The PRC regulatory and enforcement regime with regard to data security and data protection is evolving and may be subject to different
interpretations or significant changes. Moreover, different PRC regulatory bodies, including the Standing Committee of the NPC, the
Ministry of Industry and Information Technology, or the MIIT, the CAC, the Ministry of Public Security, or the MPS, and the State
Administration for Market Regulation, or the SAMR, have enforced data privacy and protections laws and regulations with varying
standards and applications. See “Item 4. Information on the Company—B. Business Overview—Government Regulation—Regulations
on Internet Information Security and Privacy Protection.” The following are examples of certain recent PRC regulatory activities in this
area:
Data Security
In November 2016, the Standing Committee of the National People’s Congress promulgated the PRC Cybersecurity Law, which requires,
among others, that network operators take security measures to protect the network from unauthorized interference, damage and
unauthorized access and prevent data from being divulged, stolen or tampered with. Network operators are also required to collect and
use personal information in compliance with the principles of legitimacy, properness and necessity, and strictly within the scope of
authorization by the subject of personal information unless otherwise prescribed by laws or regulations. Significant capital, managerial
and human resources are required to comply with legal requirements, enhance information security and to address any issues caused by
security failures.
In June 2021, the Standing Committee of the NPC promulgated the Data Security Law, which took effect in September 2021. The Data
Security Law, among other things, provides for security review procedure for data-related activities that may affect national security. In
July 2021, the state council promulgated the Regulations on Protection of Critical Information Infrastructure, which became effective on
September 1, 2021. Pursuant to this regulation, critical information infrastructure means key network facilities or information systems of
critical industries or sectors, such as public communication and information service, energy, transportation, water conservation, finance,
public services, e-government affairs and national defense science, the damage, malfunction or data leakage of which may endanger
national security, people’s livelihoods and the public interest. In December 2021, the CAC, together with other authorities, jointly
promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022 and replaces its predecessor regulation.
Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services
must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures
further stipulates that critical information infrastructure operators or network platform operators that hold personal information of over
one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any initial public offering at a
foreign stock exchange. On July 30, 2021, the state council promulgated the Regulations on Protection of Critical Information
Infrastructure, which became effective on September 1, 2021. Pursuant to the Regulations on Protection of Critical Information
Infrastructure, critical information infrastructure shall mean any important network facilities or information systems of the important
industry or field such as public communication and information service, energy, transportation, water conservation, finance, public
services, e-government affairs and national defense science, which may endanger national security, people’s livelihood and public
interest in case of damage, function loss or data leakage. In addition, relevant administration departments of each critical industry and
sector, or Protection Departments, shall be responsible to formulate eligibility criteria and determine the critical information
infrastructure operator in the respective industry or sector. The operators shall be informed about the final determination as to whether
they are categorized as critical information infrastructure operators. As of the date of this annual report, no detailed rules or
implementation rules have been issued by any authority and we have not been informed that we are a critical information infrastructure
operator by any government authorities. Furthermore, the exact scope of “critical information infrastructure operators” under the current
regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement
of the applicable laws. Therefore, it is uncertain whether we would be deemed to be a critical information infrastructure operator under
PRC law. If we are deemed to be a critical information infrastructure operator under the PRC cybersecurity laws and regulations, we may
be subject to obligations in addition to what we have fulfilled under the PRC cybersecurity laws and regulations, and we may be subject
to cybersecurity review when purchasing internet products and services or engaging in data processing activities.
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In November 2021, the CAC released the Regulations on the Network Data Security (Draft for Comments), or the Draft Regulations. The
Draft Regulations provide that data processors refer to individuals or organizations that, during their data processing activities such as
data collection, storage, utilization, transmission, publication and deletion, have autonomy over the purpose and the manner of data
processing. In accordance with the Draft Regulations, data processors shall apply for a cybersecurity review for certain activities,
including, among other things, (i) the listing abroad of data processors that process the personal information of more than one million
users and (ii) any data processing activity that affects or may affect national security. However, there have been no clarifications from the
relevant authorities as of the date of this annual report as to the standards for determining whether an activity is one that “affects or may
affect national security.” In addition, the Draft Regulations requires that data processors that process “important data” or are listed
overseas must conduct an annual data security assessment by itself or commission a data security service provider to do so, and submit
the assessment report of the preceding year to the municipal cybersecurity department by the end of January each year. As of the date of
this annual report, the Draft Regulations was released for public comment only, and their respective provisions and anticipated adoption
or effective date may be subject to change with substantial uncertainty.
Personal Information and Privacy
The Civil Code promulgated in 2020 provides specific provisions regarding the protection of personal information. The Anti-monopoly
Guidelines for the Platform Economy Sector published by the Anti-monopoly Committee of the State Council, effective on February 7,
2021, prohibits collection of user information through coercive means by online platforms operators.
In August 2021, the Standing Committee of the NPC promulgated the Personal Information Protection Law, which integrates the
scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. We update our
privacy policies from time to time to meet the latest regulatory requirements of PRC government authorities and adopt technical
measures to protect data and ensure cybersecurity in a systematic way. Nonetheless, the Personal Information Protection Law elevates the
protection requirements for personal information processing, and many specific requirements of this law remain to be clarified by the
CAC, other regulatory authorities, and courts in practice. We may be required to make further adjustments to our business practices to
comply with the personal information protection laws and regulations.
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Many of the data-related legislations are relatively new and certain concepts thereunder remain subject to interpretation by the regulators.
If any data that we possess belongs to data categories that are subject to heightened scrutiny, we may be required to adopt stricter
measures for protection and management of such data. The Cybersecurity Review Measures and the Draft Regulations remain unclear on
whether the relevant requirements will be applicable to companies that are already listed in the United States, such as us, if we were to
pursue another listing outside of the PRC. We cannot predict the impact of the Cybersecurity Review Measures and the Draft
Regulations, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If the
Cybersecurity Review Measures and the enacted version of the Draft Regulations mandate clearance of cybersecurity review and other
specific actions to be taken by issuers like us, we face uncertainties as to whether these additional procedures can be completed by us
timely, or at all, which may delay or disallow our future listings (should we decide to pursue them), subject us to government
enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, and materially and adversely affect
our business and results of operations. As of the date of this annual report, we have not been involved in any formal investigations on
cybersecurity review made by the CAC on such basis. In addition to the cybersecurity review, the Draft Regulations require that data
processors processing “important data” or listed overseas shall conduct an annual data security assessment by themselves or commission
a data security service provider to do so, and submit the assessment report of the preceding year to the municipal cybersecurity
department by the end of January each year. If a final version of the Draft Regulations is adopted, we may be subject to review when
conducting data processing activities and annual data security assessment and may face challenges in meeting its requirements or making
necessary changes to our internal policies and practices in data processing.
In general, compliance with the existing PRC laws and regulations, as well as additional laws and regulations that PRC regulatory bodies
may enact in the future, related to data security and personal information protection, may be costly and result in additional expenses to
us, and subject us to negative publicity, which could harm our reputation and business operations. It may place restrictions on the
conduct of our business and the manner in which we interact with our customers. Any failure to comply with applicable regulations
could also result in regulatory enforcement actions against us, and misuse of or failure to secure personal information could also result in
violation of data privacy laws and regulations, proceedings against us by governmental authorities or other authorities or damage to our
reputation and credibility and could have a negative impact on revenues and profits. Significant capital and other resources may be
required to protect against information security breaches or to alleviate problems caused by such breaches or to comply with our privacy
policies or privacy-related legal obligations. The resources required may increase over time as the methods used by hackers and others
engaged in online criminal activities are increasingly sophisticated and constantly evolving. Any failure or perceived failure by us to
prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of
security that results in the unauthorized release or transfer of personally identifiable information or other customer data, could cause our
customers to lose trust in us and could expose us to legal claims. There are also uncertainties with respect to how such laws and
regulations will be implemented and interpreted in practice.
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 2019, 2020 and 2021, a portion of our adult students relied on loans provided or arranged by a number of financing service providers
to pay our tuition fees. Since 2018, we collaborated with well-known personal financing service providers such as Baidu Small Loan Co.,
Ltd., Bank of China Consumer Finance Co., Ltd., Shanghai Shimiao Financial Information Service Co., Ltd. (formerly known as
“Beijing Ronglian Shiji Information Technology Co., Ltd.”) and Beijing Youfei Jinxin Digital Technology Co., Ltd., whereby they
assisted our students in obtaining loans to pay for our tuition fees. In 2019, 2020 and 2021, 30.1%, 28.1% and 26.3% of our adult
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 adult 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 adult 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 have 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 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, 2021, we established various kinds of cooperative relationships with 659 universities and colleges in China. We
enroll a portion 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, 2021, 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 has 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, 2019,
2020 and 2021, our outstanding accounts receivable, net of allowance for doubtful accounts, were RMB32.2 million, RMB33.0 million
and RMB48.5 (US$7.6 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 receivable. Our bad debt allowance
amounted RMB2.3 million, RMB6.9 million and RMB5.8 million (US$0.9 million) in 2019, 2020 and 2021, respectively. Our balance of
bad debt allowance amounted RMB2.3 million, RMB9.2 million and RMB15.0 million (US$2.4 million) as of December 31, 2019, 2020
and 2021, 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, 2021, our outstanding accounts receivable for such loans was RMB20.6 million (US$3.2 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 childhood and adolescent quality 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 purposes, and to a lesser extent for administrative functions. We, through our wholly owned subsidiary in the PRC, sold one of
the two office buildings and received the full payment of the sales proceed amounting to RMB92.0 million (US$14.4 million) in 2021
and incurred a loss on disposal amounting to RMB22.3 million (US$3.5 million). We continued to use the building until December 31,
2021. 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 the local market and
to take advantage of favorable local 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 our business
operations, 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:
● 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 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 and Hangzhou. Revenue derived from the entities in
Beijing accounted for 13.8%, 17.2% and 16.2% of our net revenues in 2019, 2020 and 2021, respectively. Revenue derived from the
entities in Hangzhou accounted for 18.8%, 13.9% and 11.1% of our net revenues in 2019, 2020 and 2021, respectively. As a result of this
geographic concentration, our results of operations are significantly affected by economic conditions in Beijing and Hangzhou.
Furthermore, any natural disaster or health epidemics affecting the Beijing and Hangzhou 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 and Hangzhou 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 childhood and adolescent quality 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. 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.
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 of China Telecom and China Unicom on third-party live broadcasting
platforms 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.
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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 our building in Yizhuang, Beijing for losses due to disasters, including fire, earthquake, and 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 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 10,009 employees in China as of December 31, 2021. The increases in
labor cost may erode our profitability and materially harm our business, financial condition and results of operations. In addition, the
PRC government has promulgated laws and regulations to enhance labor protection, 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 practices 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.
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.
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We have granted share-based awards and may grant more share-based awards in the future, which may reduce our net income.
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 on 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
2014 Plan, we have incurred and will continue to incur share-based compensation expenses. As of December 31, 2021, the unrecognized
compensation cost related to unvested options and non-vested shares amounted to RMB3.6 million (US$0.6 million) and RMB4.9
million (US$0.8 million), respectively, which will be recognized over a weighted average period of 0.42 year and 1.97 years,
respectively. Expenses associated with share-based compensation awards granted under our share plan may 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 Related 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, or if these laws and regulations or the interpretation of existing laws and regulations change in
the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
Prior to 2012, we conducted a substantial portion of our operations through the 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 the
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 one of our learning centers was transferred
back to the VIE for business operation purpose in 2018. In 2019, three of our learning centers, which provide online education services,
were transferred back to the VIE for business operation purpose, and one school was newly set up through the VIE. In 2020 and 2021,
three and two schools were newly set up through the VIE, respectively.
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) (2021
Edition), or the Negative List, jointly issued by the NDRC and the MOFCOM on December 27, 2021, and effective from January 1,
2022, and Circular of the Ministry of Industry and Information Technology on Liberalizing the Restrictions on Foreign Shareholding
Percentages in Online Data Processing and Transaction Processing Business (For-profit E-commerce Business), or the Circular 196,
promulgated by the MIIT in June 2015, allow 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,
61it.cn, and goto211.com websites through the VIE, Beijing Tarena, and such three 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.” Investors in our ADSs thus are not purchasing equity interest in the
variable interest entity in China but instead are purchasing equity interest in a Cayman Islands holding company with no equity
ownership in the variable interest entity.
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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 “Item.3. Key Information—D. Risk Factors—Risks Related 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.”
Our holding company in the Cayman Islands, the variable interest entity, and investments in our Company face uncertainty about
potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the variable
interest entity and, consequently, the business, financial condition, and results of operations of the variable interest entity and our
Company as a group. In addition, our ADSs may decline in value or become worthless if we are unable to assert our contractual control
rights over the assets of the variable interest entity, which contributed 5.9% of our revenues in 2021. 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 if we 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 class students the opportunity to complete a portion of
lessons online using TMOOC.cn, especially during the temporary closure of our learning centers due to the COVID-19 pandemic.
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 the consolidated VIE), our business may be disrupted and we may be exposed to increased risks associated with
the contractual arrangements relating to the consolidated VIE.
Prior to 2012, we operated a substantial portion of our learning centers through the consolidated VIE and its 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, foreign
investment in non-accredited 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 the 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 one of our learning centers
was transferred back to the VIE for business operation purpose in 2018. In 2019, three of our learning centers which provide online
education services were transferred back to the VIE for business operation purpose and one school was newly set up through the VIE. In
2020 and 2021, three and two schools were newly set up through the VIE, respectively. As of December 31, 2021, we operated 64 of our
learning centers through private schools owned by us. These 64 learning centers in the aggregate accounted for 36.1% of our adult
student enrollments and accounted for 13.8% of our childhood and adolescent student enrollments in 2021, 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 permits 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. The Amendment to the Private Education Law Implementation Rules provides that foreign-invested enterprises
established in the PRC and social organizations controlled by any foreign entity are prohibited from establishing or participating in
establishing private schools to provide compulsory education; and the establishment of any other type of private school is subject to the
provisions of the State on foreign investment. Moreover, the Alleviating Burden Opinions specifies that foreign capital is prohibited from
controlling or participating in any academic after-school tutoring institutions through mergers and acquisitions, entrusted operation,
joining franchise or variable interest entities, but has not expressly imposed restriction on non-academic after-school tutoring institutions.
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 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. It remains uncertain as
to how and to what extent the Alleviating Burden Opinions may affect the regulation and administration on non-academic after-school
tutoring institutions. In addition, there are substantial uncertainties regarding the interpretation and application of current and future PRC
laws and regulations. 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 subsidiaries incorporated in China to establish a
school under the Private Education Law without violating the Regulations on Operating Chinese-foreign Schools. As of March 31, 2022,
48 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 the consolidated VIE, which may severely disrupt our business and expose us
to increased risks associated with the contractual arrangements relating to the consolidated VIE. See “Item.3. Key Information—D. Risk
Factors—Risks Related 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. Meanwhile, there are very few precedents as to whether
contractual arrangements would be judged to form effective control over variable interest entities through the contractual arrangements,
or how contractual arrangements in the context of a variable interest entity should be interpreted or enforced by the PRC courts. Should
legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability of the variable interest entity
contractual arrangements. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other
obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the variable
interest entities, and our ability to conduct our business may be materially adversely affected. 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 them to
transfer all of their 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.
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Our contractual arrangements with the 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 the consolidated VIE did not represent an arms-length price and adjust the consolidated VIE’s
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 the 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 on the 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.
We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing
requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material
and adverse effect on our ability to conduct our business.
We are a holding company, and we may rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and
financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any
debt we may incur. If these 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 distributions to us. In addition, the PRC tax authorities may require any of our PRC subsidiaries to
adjust its taxable income under the contractual arrangements it currently has in place with the variable interest entity in a manner that
would materially and adversely affect its ability to pay dividends and other distributions to us. See “—Our contractual arrangements with
the 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, our wholly foreign-owned subsidiaries in China may pay dividends only out of their respective
accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a PRC enterprise is
required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the
aggregate amount of such fund reaches 50% of its registered capital.
Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely
limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and
conduct our business. See also “—Risks Related to Doing Business in China—We are affected by the PRC Enterprise Income Tax Law,
and 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.”
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.
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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 the 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 the 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 the consolidated VIE have signed employment agreements with us under
which they agree to abide by duties they owe to us.
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 the 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.
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Risks Related 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 sometime 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 has significant authority to exert influence
on the ability of a China-based company, such as us, to conduct its business. Therefore, investors of our company and our business face
potential uncertainty from China. 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.
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.
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COVID-19 has had a severe and negative impact on the Chinese and the global economy since 2020 and its impact in the future remains
uncertain. 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. There have been concerns over unrest, terrorist threats and potential wars in the Middle
East, Europe and Africa. Recently, the Russia-Ukraine war has caused, and continues to intensify, significant geopolitical tensions in
Europe and across the world. The resulting sanctions are expected to have significant impacts on the economic conditions of the targeted
countries and may disrupt global markets. 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.
The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in
our operations and the value of our ADSs.
We conduct our business primarily in China. Our operations in China are governed by PRC laws and regulations. The PRC government
has significant oversight and discretion over the conduct of our business, and may intervene or influence our operations. The PRC
government has recently published new policies that significantly affected certain industries and we cannot rule out the possibility that it
will in the future release regulations or policies that directly or indirectly affect our industry or require us to seek additional permission to
continue our operations, which could result in a material adverse change in our operation, and our ordinary shares and ADSs may decline
in value or become worthless.
The PCAOB may be unable to inspect or fully investigate our auditors as required under the Holding Foreign Companies
Accountable Act, or the HFCA Act. If the PCAOB is unable to conduct such inspections for three consecutive years beginning in
2021, or for two consecutive years if proposed changes to the law are enacted, the SEC will prohibit the trading of our ADSs. The
delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
Additionally, the inability of the PCAOB to conduct inspections of our auditors would deprive our investors of the benefits of such
inspections.
The Holding Foreign Companies Accountable Act, or the HFCA Act, was signed into law on December 18, 2020. The HFCA Act states
if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to
inspection for the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded
on a national securities exchange or in the over-the-counter trading market in the United States.
On June 22, 2021, the U.S. Senate passed a bill which would reduce the number of consecutive non-inspection years required for
triggering the prohibitions under the HFCA Act from three years to two. On February 4, 2022, the U.S. House of Representatives passed
a bill which contained, among other things, an identical provision. If this provision is enacted into law and the number of consecutive
non-inspection years required for triggering the prohibitions under the HFCA Act is reduced from three years to two, then our shares and
ADSs could be prohibited from trading in the United States in 2023.
On December 2, 2021, the SEC adopted final amendments implementing the disclosure and submission requirements under the HFCA
Act, pursuant to which the SEC will identify a “Commission-Identified Issuer” if an issuer has filed an annual report containing an audit
report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely
because of a position taken by an authority in the foreign jurisdiction, and will then impose a trading prohibition on an issuer after it is
identified as a Commission-Identified Issuer for three consecutive years.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB is unable to inspect or
investigate completely registered public accounting firms headquartered in mainland China and Hong Kong.
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The lack of access to the PCAOB inspection or investigation of auditors, including but not limited to inspection of auditors’ audit
working papers related to their clients, in China prevents the PCAOB from fully evaluating audits and quality control procedures of the
auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the
PCAOB to conduct inspections or investigations of auditors, including but not limited to inspection of auditors’ audit working papers
related to their clients, in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or
quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections and investigations, which
could cause existing and potential investors in our stock to lose confidence in our audit procedures and reported financial information
and the quality of our financial statements.
Our current auditor, Marcum Bernstein & Pinchuk LLP, or MBP, the independent registered public accounting firm that issues the audit
report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm
registered with the Public Company Accounting Oversight Board (United States), or the PCAOB, is subject to laws in the United States
pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. MBP,
whose audit report is included in this annual report on Form 20-F, is headquartered in New York, New York, and, as of the date of this
annual report, was not included in the list of PCAOB Identified Firms in the PCAOB Determination Report issued in December, 2021.
Our ability to retain an auditor subject to PCAOB inspection and investigation, including but not limited to inspection of the audit
working papers related to us, may depend on the relevant positions of U.S. and Chinese regulators. MBP’s audit working papers related
to us are located in China. With respect to audits of companies with operations in China, such as the Company, there are uncertainties
about the ability of our auditor to fully cooperate with a request by the PCAOB for audit working papers in China without the approval
of Chinese authorities.
Whether the PCAOB will be able to conduct inspections of our auditor, including but not limited to inspection of the audit working
papers related to us, in the future is subject to substantial uncertainty and depends on a number of factors out of our, and our auditor’s,
control. If our shares and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-
U.S. exchange or that a market for our shares will develop outside of the United States. Such a prohibition would substantially impair
your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a
negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms
acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.
We are affected by the PRC Enterprise Income Tax Law, and 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 seals, 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 the
“de facto management body” for a company like ours, or controlled by 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 Circular 59 in April 2009, and the SAT issued
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 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 a self-assessment as to 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, 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 any 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 operations, 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 filing requirements 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, amended on March 10, 2017, 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 recorded audio-video quality education programs through our TTS system and TMOOC.cn to enrolled course
participants. In addition, we provide live teaching services so that students can choose different learning modes. 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 PRC laws and regulations. We 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 the 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 must 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 to
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 must file 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 of more than RMB5,000 and
less than RMB10,000 if such correction is not made. Shanxi Zhimujiang Human Resource Management Co., Ltd. and Tarena Times
(Wuhan) Technology Co., Ltd., both wholly owned subsidiaries of Tarena Tech, obtained the License for Human Resources Services on
April 29, 2019 and July 6, 2020, respectively, for the job intermediary activities, and we are going to engage in job intermediary
activities through these two companies.
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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 Filing
Measures, on April 30, 2007, as amended on December 12, 2011. Under these regulations, “franchise operations” refers 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 pays
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 40 franchisees for childhood and adolescent quality education programs
and 1 franchisee for adult professional education programs in 2021. However, we have not filed with MOFCOM or its local office for the
franchise operations regarding adult professional education program as of the date of this annual report, and we have been
communicating, and will continue to communicate with the competent authorities to complete such filing. If we fail to complete such
filing, the competent authorities may order us to complete such filing 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.
The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our offshore
offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or
complete such filing.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC
regulatory agencies in 2006 and amended in 2009, require an overseas special purpose vehicle formed for listing purposes through
acquisitions of PRC domestic companies and controlled by PRC persons or entities to obtain the approval of the CSRC prior to the
listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. The interpretation and application of the
regulations remain unclear, and our offshore offerings may ultimately require approval of the CSRC. If the CSRC approval is required, it
is uncertain whether we can or how long it will take us to obtain the approval and, even if we obtain such CSRC approval, the approval
could be rescinded. Any failure to obtain or delay in obtaining the CSRC approval for any of our offshore offerings, or a rescission of
such approval if obtained by us, would subject us to sanctions imposed by the CSRC or other PRC regulatory authorities, which could
include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside China, and other
forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in
Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the
supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction
of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. As a follow-up, on
December 24, 2021, the State Council issued a draft of the Provisions of the State Council on the Administration of Overseas Securities
Offering and Listing by Domestic Companies, or the Draft Provisions, and the CSRC issued a draft of Administration Measures for the
Filing of Overseas Securities Offering and Listing by Domestic Companies, or the Draft Administration Measures, for public comments.
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The Draft Provisions and the Draft Administration Measures propose to establish a new filing-based regime to regulate overseas
offerings and listings by domestic companies. According to the Draft Provisions and the Draft Administration Measures, an overseas
offering and listing by a domestic company, whether directly or indirectly, shall be filed with the CSRC. Specifically, the examination
and determination of an indirect offering and listing will be conducted on a substance-over-form basis, and an offering and listing shall
be considered as an indirect overseas offering and listing by a domestic company if the issuer meets the following conditions: (i) the
operating income, gross profit, total assets, or net assets of the domestic enterprise in the most recent fiscal year was more than 50% of
the relevant line item in the issuer’s audited consolidated financial statement for that year; and (ii) senior management personnel
responsible for business operations and management are mostly PRC citizens or are ordinarily resident in the PRC, and the main place of
business is in the PRC or carried out in the PRC. According to the Draft Administration Measures, the issuer or its affiliated domestic
company, as the case may be, shall file with the CSRC for its initial public offering, follow-on offering and other equivalent offering
activities. Particularly, the issuer shall submit the filing with respect to its initial public offering and listing within three business days
after its initial filing of the listing application, and submit the filing with respect to its follow-on offering within three business days after
completion of the follow-on offering. Failure to comply with the filing requirements may result in fines to the relevant domestic
companies, suspension of their businesses, revocation of their business licenses and operation permits and fines on the controlling
shareholder and other responsible persons. The Draft Administration Measures also set forth certain regulatory red lines for overseas
offerings and listings by domestic enterprises. For more details of the Draft Provisions and the Draft Administration Measures, please
refer to “Item 4. Information on the Company— B. Business Overview— Government Regulations—Regulations Relating to Overseas
Listing and M&A.”
As of the date of this annual report, the Draft Provisions and the Draft Administration Measures were released for public comment only.
There are uncertainties as to whether the Draft Provisions and the Draft Administration Measures would be further amended, revised or
updated. Substantial uncertainties exist with respect to the enactment timetable and final content of the Draft Provisions and the Draft
Administration Measures. As the CSRC may formulate and publish guidelines for filings in the future, the Draft Administration
Measures do not provide for detailed requirements of the substance and form of the filing documents. In a Q&A released on its official
website, the respondent CSRC official indicated that the proposed new filing requirement will start with new companies and the existing
companies seeking to carry out activities like follow-on financing. As for the filings for the existing companies, the regulator will grant
an adequate transition period and apply separate arrangements. The Q&A also addressed the contractual arrangements and pointed out
that if relevant domestic laws and regulations have been observed, companies with a compliant VIE structure may seek overseas listing
after completion of the CSRC filings. Nevertheless, it does not specify what qualifies as compliant VIE structures and what relevant
domestic laws and regulations are required to be complied with. Given the substantial uncertainties surrounding the latest CSRC filing
requirements at this stage, we cannot assure you that we will be able to complete the filings and fully comply with the relevant new rules
on a timely basis, if at all.
Relatedly, on December 27, 2021, the NDRC and the Ministry of Finance, or the MOC, jointly issued the Special Administrative
Measures (Negative List) for Foreign Investment Access (2021 Version), or the 2021 Negative List, which became effective on January 1,
2022. Pursuant to such Special Administrative Measures, if a domestic company engaging in the prohibited business stipulated in the
2021 Negative List seeks an overseas offering and listing, it shall obtain the approval from the competent governmental authorities.
Moreover, the foreign investors of the company shall not be involved in the company’s operation and management, and their
shareholding percentage shall be subject, mutatis mutandis, to the relevant regulations on the domestic securities investments by foreign
investors. As the 2021 Negative List is relatively new, there remain substantial uncertainties as to the interpretation and implementation
of these new requirements, and it is unclear as to whether and to what extent listed companies like us will be subject to these new
requirements. If we are required to comply with these requirements and fail to do so on a timely basis, if at all, our business operations,
financial condition and business prospects may be adversely and materially affected.
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In addition, we cannot assure you that any new rules or regulations promulgated in the future will not impose additional requirements on
us. If it is determined in the future that approval and filing from the CSRC or other regulatory authorities or other procedures, including
the cybersecurity review under the Measures for Cybersecurity Review and the draft of Regulations on Network Data Security, are
required for our offshore offerings, it is uncertain whether we can or how long it will take us to obtain such approval or complete such
filing procedures and any such approval or filing could be rescinded or rejected. Any failure to obtain or delay in obtaining such approval
or completing such filing procedures for our offshore offerings, or a rescission of any such approval or filing if obtained by us, would
subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to seek CSRC approval or filing or other government
authorization for our offshore offerings. These regulatory authorities may impose fines and penalties on our operations in China, limit
our ability to pay dividends outside China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from
our offshore offerings into China or take other actions that could materially and adversely affect our business, financial condition, results
of operations, and prospects, as well as the trading price of our listed securities. The CSRC or other PRC regulatory authorities also may
take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery of the shares offered.
Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at
the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or
explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory procedures for our prior
offshore offerings, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain
such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially and adversely affect our
business, prospects, financial condition, reputation, and the trading price of our listed securities.
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 the
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 the 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 in other ways. Although M&A Rules have been 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 the operations, including related assets and liabilities, of the 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 one of our learning centers was transferred back to the VIE for business
operation purpose in 2018. In 2019, three of our learning centers which provide online education services were transferred back to the
VIE for business operation purpose and one school was newly set up through the VIE. In 2020 and 2021, three and two schools were
newly set up through the VIE, respectively. As Mr. Shaoyun Han is a shareholder of both Tarena and the consolidated VIEs, even though
the transfers of the companies from the 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 the 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 the 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 the 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 the 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 the consolidated
VIE. See “—Risks Related 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 the local branch of the 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 its 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 the SAFE to return the foreign
exchange remitted overseas within a period specified by the 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 SAFE
Circular No. 37, with qualified banks, instead of the SAFE. The qualified banks, under the supervision of the SAFE, directly examine the
applications and conduct the registration.
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.
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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 interests 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 a stock incentive plan in an overseas publicly listed company
are required to register with the 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, limit our PRC subsidiaries’ ability to
distribute dividends to us, or otherwise materially and adversely affect our business.
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.
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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 their foreign exchange capitals for expenditure beyond
their 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 offerings. 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
their 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 may restrict our ability to satisfy our liquidity requirements.
In addition, the EIT Law, and its implementation rules provide that a 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 a 25% share ownership in the PRC enterprise during the 12 consecutive months preceding its receipt of the dividends. However, a
transaction or an 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 took 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 12 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 a 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 an applicant who intends to prove his or her
status as 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 preapproval 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 to those of Circular 60 that non-
resident enterprises and their withholding agents shall enjoy treaty benefits 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. Moreover, 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, 2018 and again in 2021, and is eligible to enjoy a preferential tax rate of 15% until December 2024. 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 obtained its HNTE certificate in 2020, and is eligible to enjoy a preferential income tax rate of 15% from
December 2020 to December 2023. Tarena Hangzhou has also received financial subsidies from a PRC local government authority in
2013, 2015 and 2016. In 2016, Tarena Hangzhou acquired Hangzhou Hanru Education & Technology Co., Ltd., or Hanru Hangzhou,
which was qualified as a “newly established 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 is eligible to
enjoy a preferential tax rate of 15% until December 2022. If any of these entities 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.
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 an 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 of 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 “Item 3. Key Information—D.
Risk Factors—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.”
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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 depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows from 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 contracts 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 a contractual arrangement would not be interpreted as a type of indirect foreign investment
activity 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 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 an investment contract in relation to
the investment by a foreign investor in a field which is prohibited from foreign investment under the Negative List may be invalidated by
the courts. Although we believe a contractual arrangement would not be deemed as an “investment contract” under the Foreign
Investment Law Judicial Interpretations, we cannot assure you that the PRC courts would take the same view that we have. 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 the 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 in the relations 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.
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 the 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.
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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 Related 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, such as 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 a 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:
● 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;
● 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.
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If we fail to meet Nasdaq’s minimum bid price or minimum market value of publicly held shares requirements, our ADSs could be
subject to delisting, which may significantly reduce the liquidity of our ADSs and cause further declines to the market price of our
ADSs.
Our ADSs are currently listed on the Nasdaq Global Select Market, or Nasdaq. The Nasdaq Listing Rules have minimum requirements
that a company must meet for continued listing on Nasdaq. These requirements include maintaining a minimum closing bid price of
US$1.00 per ADS and a minimum market value of publicly held shares of US$15 million for a period of 30 consecutive trading days. On
December 10, 2021, we received a written notification from Nasdaq advising us that our ADS had been trading at a price that would
subject our ADSs to delisting if we fail to regain compliance with the Nasdaq minimum bid price requirements. We were granted a grace
period of 180 calendar days, expiring on June 8, 2022, in which to regain compliance. We have regained compliance by changing the
ratio of our ADS to our Class A ordinary shares since January 6, 2022, as the closing bid price of our ADSs was at least US$1.00 for a
minimum of ten consecutive business days during this 180-day period. We have regained compliance with the minimum bid requirement
as of the date of this annual report. However, there can be no assurance that we will meet the requirements for continued listing.
On January 20, 2022, we received a further notice from Nasdaq indicating that we no longer meet the continued listing requirement of
minimum Market Value of Publicly Held Shares (MVPHS) for Nasdaq because our MVPHS for the last 30 consecutive business days
was below the minimum MVPHS requirement of US$15 million. We were granted a grace period of 180 calendar days, expiring on July
19, 2022, in which to regain compliance. We can cure this deficiency if our MVPHS closes at US$15 million or more for a minimum of
ten consecutive business days during the compliance period. We have not regained compliance with this minimum MVPHS requirement
as of the date of this annual report.
Our management is looking into various options available to regain compliance and maintain our continued listing on Nasdaq. However,
there can be no assurance that we will be able to regain compliance with the MVPHS requirement in a timely manner. In the event we do
not regain compliance prior to the expiration of the compliance period, we will receive written notification that our securities are subject
to delisting. If we fail to regain compliance by July 19, 2022, we may be subject to delisting. There can be no assurance that we will meet
the requirements for continued listing. The delisting of our ADSs or transfer of listing may significantly reduce the liquidity of our
ADSs, cause further declines to the market price of our ADSs, and make it more difficult for us to obtain adequate financing to support
our continued operation.
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.
We cannot guarantee that any share repurchase program will be fully consummated or that any share repurchase program will
enhance long-term shareholder value, and share repurchases could increase the volatility of the price of our Class A ordinary shares
and/or ADSs and could diminish our cash reserves.
On December 31, 2021, we announced that our board of directors has authorized a share repurchase program, under which we may
purchase up to US$2.5 million of our shares over the next six months. From December 31, 2021, to March 31, 2022, we repurchased
approximately 345,101 ADSs at a weighted average price of US$2.14 per ADS. Our share repurchase program could affect the price of
our stock and increase volatility and may be suspended or terminated at any time.
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, 2022, our Class B ordinary shares
represent 13.0% of our total issued and outstanding ordinary shares on an as-converted basis and entitle their holders to 60.0% of our
total voting power.
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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.
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 (generally 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 the 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, 2021, and we do not expect to be
classified as a PFIC in the current taxable year or 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. In particular, recent declines in the market price of our
ADSs increased our risk of becoming a PFIC. The market price of our ADSs may continue to fluctuate considerably and, consequently,
we cannot assure you of our PFIC status for any taxable year. 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.
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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.”
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:
● 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 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:
● 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;
● the selective disclosure rules by issuers of material nonpublic information under Regulation FD; and
● certain audit committee independence requirements in Rule 10A-3 of the Exchange Act.
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 Nasdaq, 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 such issuers hold an annual general meeting of
shareholders no later than December 31, 2021. In this respect, we elected to follow home country practice and did not hold an annual
general meeting of shareholders in 2021. 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 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 if you were 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 our 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.
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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, 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.
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 firms in the U.S. for potential
securities claims in the past. Tarena International Inc. and certain of its current and former officers and directors have been named as
defendants in a putative securities class action captioned Yili Qiu v. Tarena International, Inc. et al., (Case No. 1:21-cv-03502) filed on
June 22, 2021, in the U.S. District Court for the Eastern District of New York. The complaint asserts that defendants made false or
misleading statements in certain SEC filings between August 16, 2016, and November 1, 2019, related to the Company’s business and
operating results in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
On September 1, 2021, the court entered an order appointing lead plaintiff in this action. On September 14, 2021, the parties filed a joint
status report and proposed scheduling stipulation, pursuant to which, the lead plaintiff filed an amended complaint on November 1, 2021.
On January 18, 2022, Tarena International Inc. moved to dismiss the complaint. On April 4, 2022, lead plaintiff served its opposition to
the motion. Briefing is scheduled to be complete by May 19, 2022. Though Tarena International Inc. has planned to defend itself
vigorously in the action, we cannot ascertain the final result of the pending class action, and our involvement in the class actions,
whatever the final result may be, 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 Nasdaq 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.
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Prior to 2012, we conducted a substantial portion of our operations through the 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
the 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 one of our learning centers was transferred back to the VIE for
business operation purpose in 2018. In 2019, three of our learning centers which provide online education services were transferred back
to the VIE for business operation purpose and one school was newly set up through the VIE. In 2020 and 2021, three and two schools
were newly set up through the VIE, respectively. We expect to continue to control and consolidate Beijing Tarena, which holds an
Internet Content Provider license, or ICP license. We operate our TMOOC.cn, 61it.cn, and goto211.com websites through the VIE, and
such three websites have been included in the permitted operation scope under the ICP license held by Beijing Tarena. For a description
of the risks related to our corporate structure and the contractual arrangements we have entered into with the VIE, see “Item 3. Key
Information—D. Risk Factors—Risks Related to Our Corporate Structure.”
In 2015, we invested RMB24.0 million in five PRC companies that are engaged in the provision of educational products and services. In
2016, we invested RMB12.8 million in three companies that are mainly engaged in the provision of educational products and services. In
2017, we invested RMB50.5 million in three companies that are mainly engaged in the provision of IT, educational products and
services, and we disposed of our investment in one of them with a consideration of RMB22.5 million (US$3.5 million) in 2021. In 2018,
we invested RMB18.5 million in three companies that 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 childhood and adolescent 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 percentages of the respective revenues and assets of Tarena and our wholly owned subsidiaries and the
consolidated VIE as of the dates and for the periods indicated:
Total
Tarena and our wholly owned subsidiaries
Consolidated VIE
Total
Notes:
98.4 %
1.6 %
100.0 %
93.3 %
6.7 %
100.0 %
94.1 %
5.9 %
100.0 %
Net Revenues(1)
For the year For the year For the year
ended
December
31,
2020
ended
December
31,
2021
ended
December
31,
2019
Assets(1)
As of
December
31,
2021
86.5 %
13.5 %
100.0 %
(1) The percentages exclude the inter-company transactions and balances between Tarena and our wholly owned subsidiaries and the
consolidated VIE.
One of our headquarters is located in Beijing, 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.
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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 our company that are not already
owned by Mr. Shaoyun Han and his affiliates (the “Buyer Group”) 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 had 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. On April 30, 2021, we announced that we had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with
Kidedu Holdings Limited (“Parent”) and Kidarena Merger Sub, a wholly owned subsidiary of Parent (“Merger Sub”). Pursuant to the
Merger Agreement, Merger Sub will merge with and into us, with us continuing as the surviving company and becoming a wholly owned
subsidiary of Parent in a transaction implying an equity value of us of approximately US$230.6 million. The merger consideration will be
funded through cash contribution by Ascendent Capital Partners III, L.P. (“ACP”) or its affiliates (the “Sponsor,” together with Mr.
Shaoyun Han, the “Buyer Group”). On September 31, 2021, we announced that we had delivered a written notice to Parent, Merger Sub
and ACP, of our intention to terminate the Merger Agreement due to the breach of the Merger Agreement by Parent and Merger Sub. On
November 15, 2021, we announced that all parties mutually agreed to terminate the Merger Agreement due to disagreement on specific
terms and conditions within the Merger Agreement. Pursuant to the Termination Agreement, the Buyer Group will pay a settlement
payment of US$3.53 million to us by November 26, 2021. The Buyer Group paid a settlement fee of US$3.53 million to us on November
24, 2021. The Merger Agreement was therefore terminated on the same date upon receipt of the settlement fee.
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 childhood and adolescent quality education services in China. Our core strength is in IT
professional education services and childhood and adolescent quality education services. We currently offer courses in seven IT subjects,
three non-IT subjects and nine childhood and adolescent quality education programs.
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 100 directly managed learning centers in 44 cities in China as of December 31, 2021. 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 content, 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 their lessons online using TMOOC.cn, which is also important for our marketing
efforts.
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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 childhood and adolescent robotics programming courses. In 2017, we launched coding
mathematics to further diversify our course offerings in childhood and adolescent quality 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 a 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 childhood and adolescent quality education programs, which
have further improved our brand recognition and teaching facilities and brought better learning experience for our students. As of
December 31, 2021, there were 238 TongchengTongmei standalone learning centers covering 54 cities in China.
We have a strong commitment to career services for our adult training business. We had 482 career counselors as of December 31, 2021,
who advise students through mandatory job skill seminars, one-on-one interview workshops and systematic career assessment and
planning. We had 96 employer cooperation representatives as of December 31, 2021, 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. We operate our TMOOC.cn, 61it.cn, and goto211.com
websites through the VIE, and such three websites have been included in the permitted operation scope under the ICP license 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.
Our live broadcast method of lecture delivery ensures consistency in teaching quality across all our centers. All of our instructors that
deliver the lecture through a 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.
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Our learning centers function both as classrooms for delivering lectures and self-study rooms after class hours. As of December 31, 2021,
we directly managed a total of 100 adult professional education learning centers in 44 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 students aged between three and eighteen 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 6 to 8 students in small classrooms
and 12 to 15 students in large classrooms. In addition to the learning centers that we operate directly, we also have 40 franchisees for
childhood and adolescent quality education program and 1 franchisee for adult professional education program in 2021. The franchise fee
from such learning centers was immaterial in 2021.
Meanwhile, we have been actively establishing new learning centers to support the fast expansion of our childhood and adolescent
quality education business. As of December 31, 2021, we directly managed a total of 238 learning centers in 54 cities across China solely
for our childhood and adolescent quality education business.
In 2021, adult learning centers are distributed in 44 cities, and childhood and adolescent learning centers are distributed in 54 cities, with
57 cities in total, and the student enrollments of adult professional education and childhood and adolescent quality education were
approximately 72,100 and 178,400, respectively. Approximately 54% of the adult students were from the following cities: Beijing,
Shenzhen, Shanghai, Chengdu, Guangzhou, Hangzhou, Zhengzhou, Wuhan, Kunming, and Nanjing. Approximately 51% of the students
aged between three and eighteen were from the following cities: Beijing, Shenzhen, Guangzhou, Changsha, Kunming, Tianjin,
Zhengzhou, Shanghai, Nanning and Wuhan.
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.
● 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.
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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 students aged between three and eighteen with STEAM education to help them develop their logical
thinking ability as well as their practical skills. We currently offer (i) courses in seven IT subjects and three non-IT subjects and (ii) nine
childhood and adolescent quality 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 2021, approximately 65% of our enrolled students attended our full-time
classes.
● Part-time class. Part-time classes typically have terms of one to nine 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 2021, approximately 35% of
our enrolled students attended our part-time classes.
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 Senior Software Architect*
Software testing
Linux and network engineering
Big Data
Web front-end development
Python
Network Security Engineer*
Note*: Renamed in 2021.
Year of
Launch Focus of Course Content
2002
2009
2013
2015
2015
2017
2018
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 artificial intelligence (AI) full stack of software development
Designing, modeling, and implementing computer networks for reliability,
performance, and security
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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 after they pass our internal examination. Graduates who finish Tarena programming course and pass relevant examinations are
awarded the official MTA certificates from Microsoft. 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 HUAWEI Certifications
after passing the relevant exams. Graduates who finish Tarena’s Spring certification programs and pass relevant examinations are granted
JAVA Spring Certification. Graduates are granted 360 Network Security Competency Certification after finishing Tarena’s Digital Talent
Development Program and passing relevant examinations.
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
Visual Special Effects**
Note*: Discontinued in 2020.
Note**: Renamed in 2021.
Year of Launch
Focus of Course Content
2013
2013
2019
Latest Adobe user interface design technology for graphic, webpage and
mobile sites design
Search engine marketing, search engine optimization, and other internet-
based marketing, including microblog marketing
Professional film and television Visual effects
Graduates of our design courses can receive CEAC certification after passing the relevant exams. Graduates of our Adobe certification
programs can receive world-class digital art training and earn the official validation from the industry leader to help achieve their career
aspirations.
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Childhood and Adolescent Quality 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 students aged between three and eighteen. In March 2016, we rolled out robotics programming courses. In 2017,
we launched Graphical Intelligent Programming and NOI Informatics Olympiad to further diversify our course offerings in childhood
and adolescent quality 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 childhood and adolescent STEAM education market, and a significantly growing part of our operation. In 2021, we launched
robotics programming courses including SPIKE Starter and SPIKE Advanced, which have gained popularity among our students aged
between six and twelve. As of the date of this annual report, we have discontinued all above childhood & adolescent non-IT training
courses, which contributed less than 1% of our net revenue generated from our childhood and adolescent quality education business in
2021.
Subject
Robotics programming
Year of
Launch
2016
Graphical Intelligent
Programming
NOI Informatics Olympiad
Python Artificial Intelligence
2017
2017
2018
High level hardware
2019
programming for secondary
school
Soft and hard programming
2019
enlightenment
Creative Programming Starter
2020
SPIKE Starter
2021
SPIKE Advanced
2021
to
language
implement fun game programming,
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 seven levels, using Python language,
intelligent scene
JavaScript
programming, web programming, server programming, AI algorithm programming, and
APP programming.
Software and hardware programming class using Python as the 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; and the software and
hardware are integrated to realize the interactive application.
Combined by LEGO WeDo 2.0 and Scratch programming, software and hardware and
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.
It is an upgraded version of the WeDo course. Combining modular programming into
Lego SPIKE basic set to master robot building skills in the course building process and
improve students’ hands-on ability and spatial construction ability. Programming allows
children to understand programming thinking and master the writing skills of simple
programs.
It is an upgraded version of EV3 course. Using SPIKE robot teaching aids and
combining Scratch and Python programming
to create rich robot
programming projects and students can
learn mechanical structure and gain
programming knowledge.
languages
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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 childhood and adolescent quality education programs target and contain
curriculum that is customized for students aged between three and eighteen. Similar to programs designed for adult students, our courses
for students aged between three and eighteen also adopted a 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 levels applicable. Depending on the age group, it generally
takes approximately one year to complete each level. In 2021, our TongchengTongmei programs were offered in 54 cities in China. The
revenue of online course and offline course in TongchengTongmei programs accounts for 9% and 91%, respectively. Online learning in
the small groups model is also available for selection, of which the current enrollment is insignificant.
Our Teaching Staff
Our instructors
As of December 31, 2021, we employed 2,861 full-time instructors for both adult professional education and childhood and adolescent
quality 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 childhood and adolescent
quality 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 372 teaching assistants as of December 31, 2021.
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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 childhood and adolescent quality 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 childhood and adolescent quality 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 a Network Security Engineer course. In 2019, we launched a Visual Special Effects course. In 2020, we
launched a Creative Programming Starter course. In 2021, we launched robotics programming courses including SPIKE Starter and
SPIKE Advanced, which have gained popularity among our students aged between six and twelve.
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 2021, 70% 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 72,100 in 2021, and our student enrollment in childhood and adolescent quality
education programs reached approximately 178,400 in 2021.
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 gain 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, 2021, we have cooperated with over 659 universities and colleges in China under one of the two following
modes of cooperation:
●
●
Joint-majors. We cooperate with 86 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 involves
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 659 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 a
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 255 university cooperation representatives as of December 31, 2021. 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 482 career counselors as of December 31, 2021.
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 96 employer cooperation representatives as of December 31, 2021. We invite corporate employers to host
recruiting events and interviews at our learning centers and offer to students 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 2019, 2020 and 2021, was
about 91%. When calculating such job placement rates for 2019, 2020 and 2021, 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 2018, 2019 and 2020 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 2018, 2019 and 2020, 88%, 96% and
88% 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, 75%, 65% and 57% of
such students, respectively, were deemed to be job-seeking students. The decrease was primarily because the ratio of non-job-seeking
students (e.g., those who already have a full-time or part-time job) who graduated from our programs has been steadily increasing over
the recent years.
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 RMB22,800 to RMB26,800 per course. For
our childhood and adolescent quality education programs, our standard tuition fees are between RMB8,000 and RMB19,800. Courses
under our childhood and adolescent quality 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. For our childhood and adolescent quality education programs, we only offer the payment option of one-time full payment upon
enrollment.
To assist our students in paying the tuition fees, we mainly offered the following four credit sources, namely Baidu Small Loan Co., Ltd.,
Bank of China Consumer Finance Co., Ltd., Shanghai Shimiao Financial Information Service Co., Ltd. and Beijing Youfei Jinxin Digital
Technology Co., Ltd., to provide financing services for our adult students to make one-time, up-front tuition payments in 2021.
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Approximately 26.3% of our adult students enrolled in 2021 obtained financing from one of the four above-mentioned sources. Such
financing arrangements are bilateral in nature, and are carried out between our adult 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 broadcasts of audio and video of
the lectures given in Beijing via the dedicated network of China Telecom and China Unicom on third-party live broadcasting platforms 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, 2021, 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 164 registered software copyrights and 141 trademarks.
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 childhood and adolescent quality education
services market, we also face competition from other national and regional providers of childhood and adolescent quality education
services. Our student enrollment rate could be impacted by the operations of other childhood and adolescent academic or quality
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;
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●
●
●
●
●
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 related to competition, see “Item 3. Key Information—
D. Risk Factors—Risks Related to Our Business—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 the 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 our building 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 students aged between three and eighteen 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
Related to Our Business—We have limited insurance coverage for our operations in China.”
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, which took effect on June 1, 2016, and was further amended on April 29,
2021, 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.
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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. The Standing Committee of the NPC published the Professional Education Law (Draft Revision) and the Professional
Education Law (Second Draft Revision) for public comments in June 2021 and December 2021, respectively. The Professional
Education Law (Second Draft Revision), on the one hand, encourages development of a professional education system as well as the use
of modern teaching methods, such as development of online courses, and on the other hand, sets forth principles for professional
education schools and professional training institutions. It provides that professional training institutions shall have (i) an organized
structure and management system, (ii) a training curriculum system, teachers or other teaching staff, and management personnel that are
suitable for the training tasks; (iii) places, facilities and equipment suitable for training and meeting safety requirements; and (iv)
adequate funding.
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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 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, and were amended on April 4, which became effective on September 1, 2021. Under the
Private Education Law and the Private Education 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.
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.
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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.
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, providing student loans and scholarships, and leasing or
transferring 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 each level
of the people’s governments to ease access to the operation of private schools and encourage social forces to enter the education industry.
The State Council Opinions also provide that each level of the people’s governments shall increase its 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 their 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 require 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 that 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 For-Profit
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 by 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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In addition to 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, and measures for the collection of non-profit private schools’ fees.
As of the date of this annual report, certain local governments, such as Shanghai, Beijing and Jiangsu province, Hebei province, Shaanxi
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 7, 2021, the State Council promulgated the Amended Implementation Rules for the Law for Promoting Private Education, or
the Amended Private Education Implementation Rules, which took effect on September 1, 2021. The Amended Private Education
Implementation Rules provide, among other things, that (i) social organizations and individuals are prohibited from controlling a private
school that provides compulsory education or a non-profit private school that provides pre-school education through mergers and
acquisitions and control agreements; (ii) a private school providing compulsory education is prohibited from conducting transactions
with its related party; and (iii) relevant government authorities shall enhance the supervision on the agreements entered into between
non-profit private schools and their respective related parties and shall review such transaction on an annual basis. In terms of online
education, the Amended Private Education Implementation Rules provide that (i) online education activities using internet technology are
encouraged by the regulatory authorities and shall comply with laws and regulations related to internet management; (ii) any private
school engaging in online education activities using internet technology shall obtain the relevant private school operating permit and it
shall also establish and implement internet security management systems and take technical security measures; (iii) upon discovery of
any information whose release or transmission is prohibited by applicable laws or regulations, the private school shall immediately cease
the transmission of that information and take further remedial actions, such as deleting that information, to prevent it from spreading; and
(iv) records pertaining to the situation shall be kept and reported to the appropriate authorities.
Regulations on Off-Campus Training for Students Aged Between Three and Eighteen
The General Office of the State Council promulgated 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 other things, that (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 cybersecurity, 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 other
things, (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 cybersecurity, (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. The 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 other things,
that online after-school training institutions that (i) are registered or have their ICP license 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.
On March 30, 2021, the MOE promulgated the Guiding Opinions of the Ministry of Education on Vigorously Promoting the Scientific
Connection of Kindergartens and Primary Schools, which prohibits after-school tutoring institutions from providing training for pre-
school children in violation of regulations and provides that after-school tutoring institutions in violation of the regulations above shall be
included in the blacklist.
On April 8, 2021, the General Office of the MOE enacted the Notice of Strengthening the Management of Homework for Compulsory
Education, which requires that the local governments shall implement prohibition measures on leaving homework as an important part of
the daily supervision on after-school training institutions in accordance with relevant regulations, and in order to avoid reducing the
burden in schools but increasing the burden after-school, after-school training institutions shall not leave homework to primary and
secondary school students.
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On July 24, 2021, the General Office of the State Council and the General Office of the Central Committee of the Communist Party of
China jointly promulgated the Opinions on Further Alleviating the Burden of Homework and Off-campus Training on Students in
Compulsory Education Stage, or the Alleviating Burden Opinion, which provides that, among other things, (i) local government
authorities shall no longer approve new after-school tutoring institutions providing tutoring services on academic subjects for students in
compulsory education, and the existing after-school tutoring institutions providing tutoring services on academic subjects shall be
registered as non-profit; (ii) online Academic AST Institutions that have filed with the local education administration authorities
providing tutoring services on academic subjects shall be subject to review and re-approval procedures by competent government
authorities, and any failure to obtain such approval will result in the cancellation of its previous filing and ICP license; (iii) Academic
AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities and listed
companies are prohibited from investing in Academic AST Institutions through capital markets fund raising activities, or acquiring assets
of Academic AST Institutions by paying cash or issuing securities; and (iv) foreign capital is prohibited from controlling or participating
in any Academic AST Institutions through mergers and acquisitions, entrusted operation, or joining franchise or variable interest entities.
Any violation of the foregoing shall be rectified.
Moreover, the Alleviating Burden Opinion specifies a series of operating requirements that after-school tutoring institutions must meet,
including, among other things, (i) after-school tutoring institutions shall not provide tutoring services on academic subjects during
national holidays, weekends and school breaks; (ii) for online tutoring, each session shall be no more than thirty minutes and the training
shall end no later than 9:00 p.m.; (iii) no advertisements for after-school tutoring shall be published or broadcasted in the network
platforms and billboards displayed in the mainstream media, new media, public places and residential areas; (iv) the provision of
overseas education courses is strictly prohibited; (v) fees charged for academic subjects tutoring in compulsory education shall be
included into government-guided price management, and excessive high fees and excessive profit-seeking behaviors will be suppressed;
(vi) government authorities will implement risk management and control for the pre-collection of fees by after-school tutoring
institutions with requirements such as setting up third-party custodians and risk reserves, and strengthen supervision over loans regarding
tutoring services; (vii) online tutoring for preschool-age children is prohibited, and offline academic subjects (including foreign
language) tutoring services for preschool-age children is also strictly prohibited; (viii) no more approvals of new after-school tutoring
institutions providing tutoring services on academic subjects for pre-school-age children and students on grades ten to twelve will be
granted; and (ix) administration and supervision over academic subjects tutoring institutions for students on grades ten to twelve shall be
implemented by reference to the relevant provisions of the Alleviating Burden Opinion.
On July 28, 2021, the General Office of MOE promulgated the Notice on Further Clarifying the Scope of Academic Subjects and Non-
Academic Subjects of After-School Tutoring in the Compulsory Education, which specifies that according to the national curriculum on
compulsory education, when after-school institutions carry out tutoring, morality and rule of law, Chinese, history, geography,
mathematics, foreign language (including English, Japanese, Russian), physics, chemistry and biology are classified as academic
subjects, while sports (or sports and health), art (or music, art), and comprehensive practical activities (including information technology
education, labor and technology education) are classified as non-academic subjects. The Guidelines for Classification and Identification
of Off-campus Training Programs in Compulsory Education issued in November 2021 by the General Office of MOE further clarifies
that off-campus training will be classified as academic subject training if the following criteria are met: (i) the courses are guided by
subject knowledge and skills training, and aiming at improving academic performance of the subject; (ii) the training contents mainly
involve subjects such as ethics and the rule of law, Chinese, history, geography, mathematics, foreign languages (English, Japanese,
Russian), physics, chemistry, biology, etc.; (iii) the training is carried out by way of teachers (including virtual image, artificial
intelligence, etc.) teaching, demonstration and interaction, with emphasis on aspects of knowledge explanation, listening, speaking,
reading, writing and arithmetic and other subject ability training, and the main process include preview, teaching and review exercises,
and as the main process form; (iv) the evaluation of students focuses on screening and selection, and takes academic performance and
examination results as the main evaluation basis.
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On August 25, 2021, the General Office of MOE issued the Administrative Measures for After-School Tutoring Materials for Primary
and Secondary School Students (for Trial Implementation), which, among other things, provide that: (i) after-school tutoring materials for
primary and secondary school students and staff preparing such tutoring materials shall meet certain requirements specified in such
measures, which include, among other requirements, tutoring materials shall follow the national curriculum standard and shall not
provide contents in advance of the school curriculum; (ii) after-school tutoring institutions shall establish internal management system
for the tutoring materials and the staff preparing such tutoring materials; (iii) after-school tutoring institutions shall conduct internal
review of the tutoring materials and the local education administrations shall conduct external review of the tutoring materials; (iv) after-
school tutoring institutions may only use tutoring materials that have been internally and externally reviewed or if the materials have
been officially published; (v) after school tutoring institutions shall file with the relevant education administrations the tutoring materials
and the staff preparing such materials; and (vi) after-school tutoring institutions in violation of the measures will be subject to
rectification and shall not use the relevant tutoring materials during the rectification period; if the after-school tutoring institution refuses
to rectify within the time limit or if the violation is severe, its private school operating permit may be revoked by the local education
administration.
On September 9, 2021, the General Office of MOE and the General Office of the Ministry of Human Resources and Social Welfare
jointly issued the Administrative Measures for Practitioners of the After-School Tutoring Institutions (for Trial Implementation), which
set out a series of requirements for the after-school tutoring institutions with respect to their employed teachers, research staff and
teaching assistants. After-school tutoring institutions in violation of such requirements will be subject to rectification. If an after-school
tutoring institution violates the requirements several times or violates several requirements, such after-school tutoring institution is
prohibited from enrollment of students and shall not conduct tutoring activities during the rectification period; and if the after-school
tutoring institution refuses to rectify within the time limit or if the violation is severe, its private school operating permit may be revoked
by the local education administration.
The Announcement on Regulating Non-academic Off-campus Tutoring published by the MOE, the NDRC and the SAMR on March 3,
2022, provides that, among other requirements, (i) non-academic off-campus tutoring institutions should operate in accordance with
principles of fairness, legality and good faith, and determine tuition fees reasonably. Information such as the course subject, course
length, charge items and standard should be transparent to the public; (ii) non-academic off-campus tutoring institutions should use the
standard Contract on Off-campus Tutoring Services for Primary and Secondary School Students (Template) and are prohibited from price
fraud and unfair-competition activities, such as fictitious original prices, false discounts, false publicity, etc., and monopolistic behaviors
should be prevented and stopped; (iii) prepaid tuition fees should be deposited into a special account of the non-academic off-campus
tutoring institutions and courses for primary and secondary school students should not be paid through loans; and (iv) 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.
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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 other
things, 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
require, among other things, 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.
On February 16, 2022, Beijing Municipal Education Commission, jointly with certain other PRC government authorities, published the
Notice on Further Working on the Filing and Management of Educational Mobile Internet Applications (Draft for Comment), which
reiterates that Educational Apps are mandated to complete filing; those applications not developed for the education system and whose
main users are not targeted at faculty and students, applications for social professional exams, and applications that are general tools not
catering to educational system applications do not fall into the filing scope. The Notice on Further Working on the Filing and
Management of Educational Mobile Internet Applications (Draft for Comment) classifies Educational Apps as academic training related
or non-academic training related: (i) for academic training related Education Apps, the providers shall obtain the operation permits for
online subject training and the Education Apps shall go through content review; (ii) for non-academic-training-related Education Apps,
the providers shall complete the filing process. However, it is uncertain whether the Notice on Further Working on the Filing and
Management of Educational Mobile Internet Applications (Draft for Comment) would be promulgated and whether the final version
would have any substantial changes to the draft.
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.
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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 the consolidated VIEs and schools to which the 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 one of our learning centers was transferred back to the VIE for business operation purpose in 2018. In 2019, three of our
learning centers which provide online education services were transferred back to the VIE for business operation purpose and one school
was newly set up through the VIE. In 2020 and 2021, three and two schools were newly set up through the VIE respectively. As of
December 31, 2021, we operated 59 and 272 learning centers by schools and subsidiaries owned by Tarena Tech or Tarena Hangzhou,
respectively, whilst 5 and 2 learning centers by schools and subsidiaries owned by the VIE, respectively. 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 Related to Our
Corporate Structure—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 the consolidated VIE), our business may be disrupted and we may be exposed to increased risks
associated with the contractual arrangements relating to the consolidated VIE.”
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 December 27, 2021, 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 January 1, 2022. 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 professional 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 educational websites and online education schools is subject to approval from relevant education authorities, depending on the
specific types of education. Any educational 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, the
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.
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Notwithstanding these decisions formulated by the State Council, as the Administrative Regulations on Educational Websites and Online
and Distance Education Schools were not explicitly abolished, in practice, certain local authorities continue to implement the approval
requirement for setting up educational 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 and Distance
Education Schools, and reiterated the principle that administrative approval requirements may only be imposed in accordance with the
PRC Administrative Licensing Law. The Administrative Regulations on Educational Websites and Online and Distance Education
Schools were explicitly abolished on July 13, 2017, upon the MOE issuing the Notice on Strengthening Interim and Ex-post Supervision
After Canceling Examination and Approval of Online Schools and Educational Websites.
In December 2017, the 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
provide training services only through the internet will be further promulgated separately. On November 9, 2018, the Beijing Municipal
Government promulgated the Operation Standards for Private Education Training Institutions in Beijing (For Trial) that became
effective on the same date, which provide that the setting up standards for the institutions that provide training services only through the
internet will be promulgated separately. On November 26, 2018, the 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 provide training
services only through the internet. On February 24, 2020, the Shanghai Municipal Education Commission and other competent
authorities jointly promulgated the Shanghai Off-campus Online Training Registration Rules, which only apply 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.
Regulations on the Collection of Tuition Fees
Pursuant to the Interim Measures for the Management of the Collection of Private Education Fees, which were promulgated by the
NDRC, the MOE and the Ministry of Human Resources and Social Security on March 2, 2005, and were 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 provide 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 their 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.
On September 2, 2021, the NDRC, the MOE and the SAMR jointly promulgated a Circular on Strengthening the Supervision over Fees
for After-School Tutoring on Academic Subjects in Compulsory Education Stage, which provides that fees charged for online and offline
after-school tutoring on academic subjects in compulsory education are subject to government-guided prices determined by local
education administrations. The circular further provides that by the end of June each year, after-school institutions shall file with the local
education administration, development and reform administration and market regulation administration, the enrollment brochures, fee
standards, teacher qualifications and other materials, along with incomes, costs, profits, related-party transactions and policy
implementation information for the previous year.
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On October 21, 2021, the MOE, jointly with other five national authorities, issued the Notice on Strengthening the Supervision over
Prepaid Fees Collected by After-School Tutoring Institutions, which provides that, among other requirements, (i) after-school tutoring
institutions should not charge excessive fees; (ii) off-campus training institutions should use the standard Contract on Off-campus
Tutoring Services for Primary and Secondary School Students (Template); (iii) details of the pricing schemes, such as the charging items
and standards should be publicized; (iv) prepaid tuition fees collected by off-campus training institutions must be deposited into a special
account that is in custody of a bank; and before the prepaid tuition fees are placed in a bank’s custody, off-campus training institutions
should deposit funds not less than the aggregate amount of tuitions fees to be received in three months in order to guarantee the
performance of training service commitments and refunds; (v) tuition fees of training courses for primary and secondary school students
should not be paid in loans; and (vi) 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.
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 Related 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 production and operation, internet publication, human resources
intermediary service and filing requirements for commercial franchise.”
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 took effect on August 20, 2004, and were amended on
August 28, 2015, and October 29, 2020, respectively. The Radio and Television Program Production Measures provide 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 Related 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 production and operation, internet
publication, human resources intermediary service and filing requirements for commercial franchise.”
Regulation on Broadcasting Audio-Video Programs through the Internet or Other Information Network
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 were 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 21, 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.
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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 March 23, 2021, the SAPPRFT issued the Provisions on the Administration of Private Network and Targeted Communication
Audiovisual Program Services (2021 Edition), or Targeted Communication Rules, which replaced the Broadcasting Rules issued in 2016.
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 that we 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.
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 the Telecom Regulations, it is a requirement 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 June 2019,
and the information services are classified as value-added telecommunications services.
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 were 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. The
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.
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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 telecommunications 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 telecommunications
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 telecommunications business.
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, the
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 the VIE, we may need to transfer the trademarks to the 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 State Council and on September 23, 2014, 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, the 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, the 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 on September 11, 2001, as amended on March 22,
2005, April 30, 2015, and December 9, 2019, respectively. Under the Regulations on 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.
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On May 2, 2018, the State Council promulgated the Interim Regulations for the Human Resources Market, or the Interim Regulations,
which took effect on October 1, 2018. The Interim Regulations further clarify 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 provider 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,
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 will be 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 of more than
RMB5,000 and less than RMB10,000 shall be imposed if such correction is not made. See “Item 3. Key Information—D. Risk Factors—
Risks Related 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 production and operation, internet publication, human resources intermediary service and
filing requirements for commercial franchise.”
The Foreign Investment Law
On March 15, 2019, the NPC 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 “Item 3. Key Information—D. Risk Factors—Risks Related 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 Internet Information Security and Privacy Protection
The Standing Committee of the National People’s Congress, China’s national legislative body, enacted the Decisions on the Maintenance
of Internet Security on December 28, 2000, and amended them on August 27, 2009, which may subject persons to criminal liabilities in
China for any attempt to use the internet to (i) gain improper entry to a computer or system of strategic importance, (ii) disseminate
politically disruptive information, (iii) leak state secrets, (iv) spread false commercial information or (v) infringe upon intellectual
property rights. In 1997, the Ministry of Public Security issued the Administration Measures on the Security Protection of Computer
Information Network with International Connections, which was amended in 2011 and prohibits using the internet to leak state secrets or
to spread socially destabilizing materials. If an ICP license holder violates these measures, the PRC government may revoke its ICP
license and shut down its websites.
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On July 1, 2015, the SCNPC issued the National Security Law, which became effective on the same day. The National Security Law
provides that the state shall safeguard the sovereignty, security and cybersecurity development interests of the state, and that the state
shall establish a national security review and supervision system to review, among other things, foreign investment, key technologies,
internet and information technology products and services, and other important activities that are likely to impact the national security of
China.
Pursuant to the Ninth Amendment to the Criminal Law issued by the Standing Committee of the National People’s Congress on August
29, 2015, effective on November 1, 2015, any ICP provider that fails to fulfill the obligations related to internet content security as
required by applicable laws and refuses to take corrective measures will be subject to criminal liability for (i) any large-scale
dissemination of illegal information, (ii) any severe effect due to the leakage of users’ personal information, (iii) any serious loss of
evidence of criminal activities or (iv) other severe situations; and any individual or entity that (i) sells or provides personal information to
others unlawfully or (ii) steals or illegally obtains any personal information will be subject to criminal liability in severe situations.
Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of
Law in the Handling of Criminal Cases Involving Infringement of Personal Information, issued on May 8, 2017, and effective on June 1,
2017, specified certain standards for the conviction and sentencing of the criminals in relation to personal information infringement. On
May 28, 2020, the National People’s Congress adopted the Civil Code, which came into effect on January 1, 2021. Pursuant to the Civil
Code, the personal information of a natural person shall be protected by the law. Any organization or individual shall legally obtain such
personal information of others when necessary and ensure the safety of such information, and shall not illegally collect, use, process or
transmit personal information of others, or illegally purchase or sell, provide or make public personal information of others.
The Cybersecurity Law of the PRC, or the PRC Cybersecurity Law, which was promulgated on November 7, 2016, by the Standing
Committee of the National People’s Congress and came into effect on June 1, 2017, provides that network operators shall meet their
cybersecurity obligations and shall take technical measures and other necessary measures to protect the safety and stability of their
networks. Under the PRC Cybersecurity Law, network operators are subject to various security protection-related obligations, including
(i) network operators shall comply with certain obligations regarding maintenance of the security of internet systems; (ii) network
operators shall verify users’ identities before signing agreements or providing certain services such as information publishing or real-time
communication services; (iii) when collecting or using personal information, network operators shall clearly indicate the purposes,
methods and scope of the information collection, the use of information collection, and obtain the consent of those from whom the
information is collected; (iv) network operators shall strictly preserve the privacy of user information they collect, and establish and
maintain systems to protect user privacy; (v) network operators shall strengthen management of information published by users, and
when they discover information prohibited by laws and regulations from publication or dissemination, they shall immediately stop
dissemination of that information, including taking measures such as deleting the information, preventing the information from
spreading, saving relevant records, and reporting to the relevant governmental agencies. In addition, the PRC Cybersecurity Law requires
that critical information infrastructures operators generally shall store, within the territory of the PRC, the personal information and
important data collected and produced during their operations in the PRC and their purchase of network products and services that affect
or may affect national securities shall be subject to national cybersecurity review.
On June 10, 2021, the SCNPC promulgated the PRC Data Security Law, which became effect in September 2021. The PRC Data
Security Law provides for data security and privacy obligations on entities and individuals carrying out data activities and introduces a
data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the
degree of harm it will cause to national security, public interests or legitimate rights and interests of individuals or organizations when
such data is tampered with, destroyed, leaked or illegally acquired or used. The appropriate level of protection measures is required to be
taken for each respective category of data. For example, a processor of important data shall designate the personnel and the management
body responsible for data security, carry out risk assessments for its data processing activities and file the risk assessment reports with the
competent authorities. In addition, the PRC Data Security Law provides a national security review procedure for those data activities that
affect or may affect national security, and imposes export restrictions on certain data and information.
On July 6, 2021, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities, which,
among others, provides for improving relevant laws and regulations on data security, cross-border data transmission and confidential
information management. It provided that efforts will be made to revise the regulations on strengthening the confidentiality and file
management relating to the offering and listing of securities overseas, to implement the responsibility on information security of overseas
listed companies and to strengthen the standardized management of cross-border information provision mechanisms and procedures.
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On April 13, 2020, the CAC, the NDRC and several other administrations jointly promulgated the Measures for Cybersecurity Review,
or the Review Measures, which became effective on June 1, 2020. The Review Measures establish the basic framework for national
security reviews of network products and services, and provide the principal provisions for undertaking cybersecurity reviews. In
addition, on September 22, 2020, the Ministry of Public Security issued the Guiding Opinions on Implementing the Cybersecurity
Protection System and Critical Information Infrastructure Security Protection System to further improve the national cybersecurity
prevention and control system. On December 28, 2021, the CAC, together with certain other PRC governmental authorities, jointly
released the Revised Cybersecurity Review Measures, which took effect on February 15, 2022. Pursuant to the Revised Cybersecurity
Review Measures, operators of critical information infrastructure that intend to purchase network products and services and online
platform operators engaging in data processing activities that affect or may affect national security must apply for a cybersecurity review.
The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data or the risk
of a large amount of personal information being influenced, controlled or maliciously used by foreign governments after going public,
and cyber information security risk. The Revised Cybersecurity Review Measures set out certain general factors that would be the focus
in assessing the national security risk during a cybersecurity review. However, the definition of online platform operators and the scope
of network product or service or data processing activities that will or may affect national security are still unclear, and the PRC
government authorities may have wide discretion in the interpretation and enforcement of these laws, rules and regulations.
On November 14, 2021, the CAC published the Draft Measures for Internet Data Security for public comments, which provides that data
processors conducting the following activities shall apply for cybersecurity review: (i) merger, reorganization or division of internet
platform operators that have acquired a large number of data resources related to national security, economic development or public
interests and affects or may affect national security, (ii) listing abroad of data processors processing over one million users’ personal
information, (iii) listing in Hong Kong that affects or may affect national security or (iv) other data processing activities that affect or
may affect national security. The Draft Cyber Data Security Regulations also provide that operators of large internet platforms that set up
headquarters, operation centers or R&D centers overseas shall report to the national cyberspace administration and competent authorities.
In addition, the Draft Cyber Data Security Regulations also require that data processors processing important data or going public
overseas shall conduct an annual data security self-assessment or entrust a data security service institution to do so, and submit the data
security assessment report of the previous year to the local branch of CAC before January 31 each year. As of the date of this annual
report, this draft has not been formally adopted. Substantial uncertainties exist with respect to the enactment timetable, final content,
interpretation and implementation.
On July 30, 2021, the PRC State Council promulgated the Regulations on Security Protection of Critical Information Infrastructures,
which took effect on September 1, 2021, and provide that “critical information infrastructures” shall mean any important network
facilities or information systems of important industries or fields such as public communication and information service, energy,
communications, water conservation, finance, public services, e-government affairs and national defense science, and any other
important network facilities or information systems that may endanger national security, people’s livelihood and public interest in case of
damage, function loss or data leakage. In addition, relevant administration departments of each critical industry and sector, or Protection
Departments, shall be responsible to formulate eligibility criteria and determine the critical information infrastructure operator in the
respective industry or field. The operators shall be informed about the final determination as to whether they are categorized as critical
information infrastructure operators. The regulations further require critical information infrastructures operators, among others, (i) to
report to the competent Protection Departments in a timely manner when the identification result may be affected due to material changes
in the critical information infrastructures, (ii) to plan, construct or put into use the security protection measures and the critical
information infrastructures simultaneously and (iii) to report to the competent Protection Departments in a timely manner in the event of
merger division or dissolution, and deal with critical information infrastructures as required by the competent Protection Departments.
Operators in violation of the regulations may be ordered to rectify, subject to warnings, fines and other administrative penalties or even
criminal liabilities, and the directly responsible personnel in charge may also be imposed on fines or other liabilities.
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On July 12, 2021, the MIIT and two other authorities jointly issued the Provisions on the Administration of Security Vulnerabilities of
Network Products, or the Provisions. The Provisions state that no organization or individual may abuse the security vulnerabilities of
network products to engage in activities that endanger network security, or to illegally collect, sell or publish the information on such
security vulnerabilities. Anyone who is aware of the aforesaid offences shall not provide technical support, advertising, payment
settlement and other assistance to the relevant offenders. According to the Provisions, network product providers, network operators and
platforms collecting network product security vulnerabilities shall establish and improve channels for receiving network product security
vulnerability information and keep such channels available, and retain network product security vulnerability information reception logs
for at least six months. The Provisions also ban provision of undisclosed vulnerabilities to overseas organizations or individuals other
than to the product providers.
On October 26, 2021, the CAC published the Administrative Provisions for Internet User Account Name Information for public
comments, which provides that an online user account service platform shall require users to provide real identity information when
users apply to register an account on the platform and adopt certain measures to verify users’ identification.
On October 29, 2021, the CAC issued the Measures for Security Assessment of Cross-border Data Transfer (Draft for Comment).
According to these measures, in addition to the self-risk assessment requirement for provision of any data outside China, a data processor
shall apply to the competent cyberspace department for data security assessment and clearance of outbound data transfer in any of the
following events: (i) outbound transfer of personal information and important data collected and generated by an operator of critical
information infrastructure, (ii) outbound transfer of important data; (iii) outbound transfer of personal data by a data processor that has
processed more than one million users’ personal data, (iv) outbound transfer of more than one hundred thousand users’ personal
information or more than ten thousand users’ sensitive personal information cumulatively and (v) such other circumstances where ex-
ante security assessment and evaluation of cross-border data transfer is required by the CAC.
Under the Several Provisions on Regulating the Market Order of Internet Content Services, which was issued by the MIIT in December
2011 and took effect in March 2012, an internet content service provider may not collect any personal information on a user or provide
any such information to third parties without the user’s consent. It must expressly inform the user of the method, content and purpose of
the collection and processing of such user’s personal information and may only collect information to the extent necessary to provide its
services. An internet content service provider is also required to properly maintain users’ personal information, and in case of any leak or
likely leak of such information, it must take immediate remedial measures and, in the event of a serious leak, report to the
telecommunications regulatory authority immediately.
Pursuant to the Decision on Strengthening the Protection of Online Information, which was issued by the SCNPC and took effect in
December 2012, and the Order for the Protection of Telecommunication and Internet User Personal Information, which was issued by the
MIIT in 2013, any collection and use of a user’s personal information must be subject to the consent of the user; be legal, rational and
necessary; and be limited to specified purposes, methods and scopes. An internet content service provider must also keep such
information strictly confidential, and is further prohibited from divulging, tampering or destroying any such information, or selling or
providing such information to other parties. An internet content service provider is required to take technical and other measures to
prevent the collected personal information from any unauthorized disclosure, damage or loss. Any violation of these laws and regulations
may subject the internet content service provider to warnings, fines, confiscation of illegal gains, revocation of licenses, cancelation of
filings, closedown of websites or even criminal liabilities.
The Provisions on Technological Measures for Internet Security Protection, published by the Ministry of Public Security on January 13,
2006, and having become effective on March 1, 2006, requires internet service providers to keep records of certain information about
their users (including user registration information, log-in and log-out times, IP addresses, content and time of posts by users) for at least
60 days. Under the PRC Cybersecurity Law, network operators must also report any instances of public dissemination of prohibited
content. If a network operator fails to comply with such requirements, the PRC government may revoke its ICP License and shut down
its websites.
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On January 23, 2019, the SAMR, the Office of the Central Cyberspace Affairs Commission, the MIIT and the Ministry of Public
Security jointly issued the Announcement on Carrying out Special Campaigns against Mobile Internet Application Programs Collecting
and Using Personal Information in Violation of Laws and Regulations, or “the App Announcement,” which prohibits mobile app
operators from collecting personal information irrelevant to their services, or forcing users to give authorization in disguised manner.
According to the App Announcement, mobile app operators shall indicate to users the rules for collecting and using personal information
in a simple, concise and easy-to-understand manner, with permission independently granted by the user. Furthermore, coercive or
excessive collection of personal information, collection and use of personal information without user permission, leakage and loss of
information or possible leakage and loss of personal information without any remedial measure and illegal use of personal information
are prohibited. On November 28, 2019, the SAMR, the Office of the Central Cyberspace Affairs Commission, the MIIT and the Ministry
of Public Security jointly issued the Measures for the Determination of the Collection and Use of Personal Information by Apps in
Violation of Laws and Regulations, which provides guidance for the regulatory authorities to identify the illegal collection and use of
personal information through mobile apps, and for the app operators to conduct self-examination and self-correction and for other
participants to voluntarily monitor compliance.
On August 22, 2019, the Office of the Central Cyberspace Affairs Commission promulgated the Cyber Protection of Children’s Personal
Information Provisions, effective on October 1, 2019, which requires, among others, that network operators who collect, store, use,
transfer and disclose personal information of children under the age of 14 shall establish special rules and user agreements for the
protection of children’s personal information, inform the children’s guardians in a noticeable and clear manner and shall obtain the
consent of the children’s guardians.
On March 12, 2021, the CAC and three other authorities jointly issued the Rules on the Scope of Necessary Personal Information for
Common Types of Mobile Internet Applications. The Rules specifies the scope of necessary personal information to be collected each for
a variety of common mobile internet applications, such as maps and navigation apps, online ride-hailing apps, instant messaging apps
and online community apps. Operators of such apps shall not refuse to provide basic services to users on the ground of users’ refusal to
provide their personal nonessential information. On April 26, 2021, the MIIT issued the Interim Administrative Provisions on Personal
Information Protection in Internet Mobile Applications (Draft for Comment). The draft of the Interim Administrative Provisions on
Personal Information Protection in Internet Mobile Applications sets forth two principles of collection and utilization of personal
information, namely, “explicit consent” and “minimum necessity.”
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On August 20, 2021, the SCNPC promulgated the PRC Personal Information Protection Law, which will take effect from November 1,
2021. Pursuant to the PRC Personal Information Protection Law, personal information refers to the information related to an identified or
identifiable individual recorded electronically or by other means, excluding the anonymized information, and processing of personal
information includes, among others, the collection, storage, use, handling, transmission, provision, disclosure or deletion of personal
information. The PRC Personal Information Protection Law explicitly sets forth the circumstances where it is allowed to process
personal information, including (i) the consent from the individual has been obtained; (ii) it is necessary for the conclusion and
performance of a contract under which an individual is a party, or it is necessary for human resource management in accordance with the
labor-related rules and regulations and the collective contracts formulated or concluded in accordance with laws; (iii) it is necessary to
perform statutory duties or statutory obligations; (iv) it is necessary to respond to public health emergencies, or to protect the life, health
and property safety of individuals in emergencies; (v) carrying out news reports, public opinion supervision and other acts for the public
interest, and processing personal information within a reasonable scope; (vi) processing personal information disclosed by individuals or
other legally disclosed personal information within a reasonable scope in accordance with this law; or (vii) other circumstances stipulated
by laws and administrative regulations. In addition, this law emphasizes that individuals have the right to withdraw their consent to
process their personal information, and the processors must not refuse to provide products or services on the grounds that the individuals
do not agree to the processing of their personal information or withdraw their consent, unless processing of personal information is
necessary for the provision of products or services. Before processing the personal information, the processors should truthfully,
accurately and completely inform individuals of the following matters in a conspicuous manner and in clear and easy-to-understand
language: (i) the name and contact information of the personal information processor; (ii) the purpose of processing personal
information, the processing method, the type of personal information processed and the retention period; (iii) methods and procedures for
individuals to exercise their rights under this law; and (iv) other matters that should be notified according to laws and administrative
regulations. Furthermore, the law provides that personal information processors who use personal information to make automated
decisions should ensure the transparency of decision-making and the fairness and impartiality of the results, and must not impose
unreasonable differential treatment on individuals in terms of transaction prices and other transaction conditions.
In addition to the aforementioned general rules, the PRC Personal Information Protection Law also introduces the rules for processing
sensitive personal information, which refers to the personal information that, once leaked or illegally used, can easily lead to the
infringement of the personal dignity of natural persons or harm personal and property safety, including biometrics, religious beliefs,
specific identities, medical health, financial accounts, whereabouts and other information, as well as personal information of minors
under the age of fourteen. Personal information processors can process sensitive personal information only if they have a specific
purpose and sufficient necessity, and take strict protective measures. In addition, the law provides rules for cross-border provision of
personal information. In particular, it is provided that the operators of critical information infrastructures and the personal information
processors that process personal information up to the number prescribed by the national cyberspace administration shall store personal
information collected and generated within the PRC. If it is really necessary to provide such personal information overseas, they shall
pass the security assessment organized by the national cyberspace administration, except as otherwise stipulated by laws, administrative
regulations and the national cyberspace administration. Any processor in violation of this law may be subject to administrative penalties,
including rectifications, warnings, fines, confiscation of illegal gains, suspension of the apps illegally processing personal information or
suspension of the relevant business, revocation of business operation permits or business licenses, civil liabilities or even criminal
liabilities. The directly responsible personnel in charge and other directly responsible personnel may be imposed with fines and
prohibited from serving as directors, supervisors, senior management personnel and personal information protection officers of related
companies for a certain period of time.
On December 31, 2021, the MIIT, the CAC, the SAMR and the PBOC issued the Provisions on the Administration of Algorithm-
generated Recommendations for Internet Information Services which took effect on March 1, 2022, stipulating rules for algorithm-
generated recommendations for Internet information services. On January 5, 2022, the CAC published the Administrative Provisions on
Mobile Internet Applications Information Services for public comments, which specifies rules for mobile applications providers and
platforms when they are providing information services for online users.
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While we take measures to comply with all applicable data privacy and protection laws and regulations, we cannot guarantee the
effectiveness of the measures undertaken by us and business partners. As certain laws and regulations, including the PRC Data Security
Law and the PRC Personal Information Protection Law, were recently promulgated, we may be required to make further adjustments to
our business practices to comply with these laws and regulations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our
Business—Our business is subject to complex and evolving Chinese laws and regulations regarding cybersecurity, information security,
privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and any failure or
perceived failure to comply with these laws and regulations could result in claims, changes to our business practices, negative publicity,
legal proceedings, increased cost of operations, or declines in student base, or otherwise harm our business.”
Regulations on Intellectual Property Rights
Copyright and Software Products
The NPC adopted the Copyright Law in 1990 and amended it in 2001, 2010 and 2020, respectively. In addition, there is a voluntary
registration system administered by the China Copyright Protection Center. The latest amended Copyright Law provides new criteria for
calculating damages compensation, increases the statutory damages, and introduces punitive damages.
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, 2021, we had registered
164 software copyrights in China.
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 that 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 141 trademarks in China as of December
31, 2021.
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 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 nonfinancial enterprises.
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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
nonfinancial 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 Related 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 offerings to make additional capital contributions or loans to our PRC subsidiaries.”
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 in 2004, 2005, 2013 and 2018, and the Foreign Investment Law, which came 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.
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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. Furthermore, 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 Related 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.”
Regulations Relating to Overseas Listing and M&A
On August 8, 2006, six PRC governmental and regulatory agencies, including the MOFCOM and the CSRC, jointly promulgated the
Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”), a new regulation with
respect to the mergers and acquisitions of domestic enterprises by foreign investors that became effective on September 8, 2006, and
revised on June 22, 2009. Foreign investors shall comply with the M&A rules when they purchase equity interests of a domestic
company or subscribe for the increased capital of a domestic company, thus changing the nature of the domestic company into a foreign-
invested enterprise; or when the foreign investors establish a foreign-invested enterprise in the PRC for the purpose of purchasing the
assets of a domestic company and operating the asset; or when the foreign investors purchase the asset of a domestic company, establish
a foreign-invested enterprise by injecting such assets and operate the assets. The M&A rules, among other things, purports to require that
an offshore special vehicle, or a special purpose vehicle, formed for listing purposes and controlled directly or indirectly by PRC
companies or individuals, shall obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s
securities on an overseas stock exchange.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in
Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the
supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction
of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.
On December 27, 2021, the NDRC and the MOC jointly issued the Special Administrative Measures (Negative List) for Foreign
Investment Access (2021 Version), or the 2021 Negative List, which became effective on January 1, 2022. Pursuant to such Special
Administrative Measures, if a domestic company engaging in the prohibited business stipulated in the 2021 Negative List seeks an
overseas offering and listing, it shall obtain the approval from the competent governmental authorities. Besides, the foreign investors of
the company shall not be involved in the company’s operation and management, and their shareholding percentage shall be subject,
mutatis mutandis, to the relevant regulations on the domestic securities investments by foreign investors.
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On December 24, 2021, the State Council issued a draft of the Provisions of the State Council on the Administration of Overseas
Securities Offering and Listing by Domestic Companies, or the Draft Provisions, and the CSRC issued a draft of Administration
Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies, or the Draft Administration Measures, for
public comments. According to the Draft Provisions and the Draft Administration Measures, the overseas offering and listing by a
domestic company, whether directly or indirectly, shall be filed with the CSRC. Specifically, the determination of an indirect offering and
listing will be conducted on a “substance over form” basis, and an offering and listing shall be considered as an indirect overseas offering
and listing by a domestic company if the issuer meets the following conditions: (i) the operating income, gross profit, total assets or net
assets of the domestic enterprise in the most recent fiscal year was more than 50% of the relevant line item in the issuer’s audited
consolidated financial statement for that year and (ii) senior management personnel responsible for business operations and management
are mostly PRC citizens or are ordinarily resident in the PRC, and the main place of business is in the PRC or carried out in the PRC.
According to the Draft Provisions, an overseas offering and listing is prohibited under any of the following circumstances: (i) if the
intended securities offering and listing is specifically prohibited by national laws and regulations and relevant provisions; (ii) if the
intended securities offering and listing may constitute a threat to or endangers national security as reviewed and determined by
competent authorities under the State Council in accordance with law; (iii) if there are material ownership disputes over the equity, major
assets and core technology etc. of the issuer; (iv) if, in the past three years, the domestic enterprise or its controlling shareholders or
actual controllers have committed corruption, bribery, embezzlement, misappropriation of property or other criminal offenses disruptive
to the order of the socialist market economy, or are currently under judicial investigation for suspicion of criminal offenses, or are under
investigation for suspicion of major violations; (v) if, in the past three years, directors, supervisors or senior executives have been subject
to administrative punishments for severe violations, or are currently under judicial investigation for suspicion of criminal offenses, or are
under investigation for suspicion of major violations; or (vi) other circumstances as prescribed by the State Council. Noncompliance with
the Draft Provisions or an overseas listing completed in breach of Draft Provisions may result in a warning on the relevant domestic
companies or a fine of RMB1 million to RMB10 million on them. If the circumstances are serious, they may be ordered to suspend their
business or suspend their business pending rectification, or their permits or businesses license may be revoked. Furthermore, the
controlling shareholder, actual controllers, directors, supervisors and other legally appointed persons of the domestic enterprises may be
warned, or fined between RMB500,000 to RMB5,000,000 either individually or collectively.
According to the Draft Administration Measures, the issuer or its affiliated domestic company, as the case may be, shall file with the
CSRC (i), with respect to its initial public offering and listing within three business days, after its initial filing of the listing application to
the regulator in the place of the intended listing, (ii) with respect to its follow-on offering, within three business days after completion of
the follow-on offering, (iii) with respect to its follow-on offering for purpose of acquiring specific assets, within three business days after
the first public announcement of the transaction, and (iv) with respect to listing by means of reverse takeover, share swap, acquisition and
similar transactions, within three business days after its initial filing of the listing application or the first public announcement of the
transaction, as the case may be. Failure to comply with the filing requirements may result in fines to the relevant domestic companies,
suspension of their businesses, revocation of their business licenses and operation permits, and fines for the controlling shareholder and
other responsible persons.
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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 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 criteria include all of the following: (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 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 Related to Doing Business in China—We are affected by the PRC Enterprise Income Tax
Law, and 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 preapproval 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
Related 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. Furthermore,
the Non-resident Enterprises Measures provide that in case of an equity transfer between two non-resident enterprises that occurs outside
China, the non-resident enterprise that 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 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 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
nonfinancial, 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 obtained its HNTE certificate in 2009, renewed its HNTE certificate in 2012, 2015, 2018 and 2021, and is
eligible to enjoy a preferential tax rate of 15% until December 2024. 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. Tarena Hangzhou obtained its HNTE certificate in 2020, and is eligible to enjoy a
preferential income tax rate of 15% from December 2020 to December 2023. In 2016, Tarena Hangzhou acquired 100% of the equity
interests in Hangzhou Hanru Education Technology Co., Ltd., or Hanru Hangzhou, 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 is
eligible to enjoy a preferential tax rate of 15% until December 2022.
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.
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.
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.
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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 the consolidated VIE and its subsidiaries, as of
March 31, 2022:
(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) 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, 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
Tarena Professional Education School (formerly known as ShenZhen Longhua Xinqu Tarena Professional Education School),
Changchun ChaoyangTarena Professional Education School and Ningbo Tarena Professional Education School; Qian Li is the
principal of Qingdao Tarena Professional Education School; Yueqin Shen is the principal of Nanjing Tarena Weishang 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 and 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. and Zibo 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. and 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 Co., Ltd. and Shijiazhuang Changanqu Tongzhicheng Education Training School
Co., Ltd.; Meiyue Zhu is the principal of Shenyang Heping Tongcheng Educational Center and Shenyang Tiexi Tongcheng Tongmei
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.; Nan Pan is the principal of Shijiazhuang
Tongcheng Education School Co., Ltd.; Yudong Wang is the principal of Shenyang Shenhe Tongcheng Tongmei 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. and Kunming Guandu Tongcheng Tongmei Education Training School Co., Ltd; Dexun Wang* is the principal of Guangzhou
Tarena Software Professional Education School; Dan Liu*is the principal of Changsha Kaifu Tongcheng Tongmei Education
Training School (formerly known as Science Kid Robot Education Training School) and Nanchang Xihu Tarena Technology Digital
Art School; Zhi Han* is the principal of Shijiazhuang Xinhuaqudarenzhinei Tarena Professional Education School Co., Ltd.; Keyu
Mu is the principal of Chengdu Tongcheng Tongmei Kechuang Education and Training School Co., Ltd.; En Wei is the principal of
Tai’an Taishan District Tongcheng Tongmei Training School Co., Ltd.; Xiang Zhou is the principal of Nanchang Honggutan New
District Tongchuang Training Center Co., Ltd.; Xin Gao is the principal of Qingdao West Coast New Area Tong Youwei Science and
Technology Training School Co., Ltd.; Li Ge is the principal of Tianjin Tongcheng Tongmei Coding NO 1 Extracurricular Training
School Co., Ltd.; Lening Shi is the principal of Tianjin Tongcheng Tongmei Coding NO 5 Extracurricular Training School Co., Ltd.;
Luan Ma is the principal of Tianjin Tongcheng Tongmei Coding NO 6 Extracurricular Training School Co., Ltd.; Shuang Yang is the
principal of Tianjin Tongcheng Tongmei Coding NO 7 Extracurricular Training School Co., Ltd.; Ling Liu is the principal of Tianjin
Tongcheng Tongmei Coding NO 8 Extracurricular Training School Co., Ltd..
* Dexun 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, Changsha Kaifu Tongcheng
Tongmei Education Training School (formerly known as Science Kid Robot Education Training School), and 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
TMOOC.cn, 61it.cn and goto211.com websites through the 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.
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.
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The following is a summary of the currently effective contracts by and among Tarena International, our subsidiary Tarena Tech, the 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.
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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.
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 related to our contractual arrangements, please see “Item 3. Key Information—D. Risk Factors—Risks Related to Our
Corporate Structure.”
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D.
Property, Plants and Equipment
We have dual headquarters in China, located in Beijing and Hangzhou. Our principal executive offices in Beijing comprise of 7,342.6
square meters and accommodate certain of our management and general and administrative activities, as well as our research and
development activities. We also have 20,273.1 square meters in leased classroom space in Beijing. Our principal executive offices and
classrooms in Hangzhou comprise of 11,119.2 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 267,626.1 square meters in 60 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 sold one of the two office buildings we purchased and received a total consideration of approximately RMB92.0 million
(US$14.4 million) in 2021 pursuant to the agreement. The office building sold is located in Building 19, Block 2, Yard 31, Kechuang 13
Street, Beijing Economic-Technological Development Area, Beijing and has an aggregate gross floor area of approximately 8,100 square
meters. 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.
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 2019, 2020 and 2021, we generated net
revenues of RMB2,051.4 million, RMB1,897.9 million and RMB2,386.5 million (US$374.5 million), respectively. We record tuition
fees that we collect in advance as deferred revenue. Our net revenues are presented net of business tax and surcharges.
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Number of Student Enrollments
Our total net revenue increased by 25.7% from RMB1,897.9 million in 2020 to RMB2,386.5 million (US$374.5 million) in 2021. Our
total adult professional education student enrollments decreased from approximately 108,800 in 2019 to approximately 83,400 in 2020,
and further decreased to approximately 72,100 in 2021. Student enrollments in childhood and adolescent quality education programs
increased from approximately 99,200 in 2019 to approximately 141,600 in 2020, and further increased to approximately 178,400 in
2021.
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 2021, childhood and adolescent robotics programming and computer
programming courses were the two most popular courses in our courses and programs offering portfolio.
Our total student enrollments are also affected by our ability to maintain our cooperative relationships with financing service providers
for adult student loans. A portion of our adult students enrolled in 2021 relied on loans mainly provided or arranged by Baidu Small
Loan Co., Ltd., Bank of China Consumer Finance Co., Ltd., Shanghai Shimiao Financial Information Service Co., Ltd., and Beijing
Youfei Jinxin Digital Technology Co., Ltd. to pay for our tuition fees. In 2021, 26.3% of our adult students received loans provided or
arranged by these four financing service providers 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 RMB22,800 to RMB26,800 per course in 2021. For our childhood and adolescent quality education programs,
our standard tuition fees are between RMB8,000 and RMB19,800 in 2021. Courses under childhood and adolescent quality 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.
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 RMB4,000 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. 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 childhood and adolescent quality 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:
For the Year Ended December 31,
2019
2020
RMB
% of net
revenues
% of net
revenues
2021
% of net
revenues
US$
RMB
RMB
(in thousands, except percentages)
548,763
28.0
212,551
11.3
133,787
7.4
10.5
171,741
57.2 1,066,842
110,261
702,649
28.9
39,195
249,772
11.2
14,851
94,639
7.0
24,222
154,359
9.1
56.2 1,201,419 188,529
29.4
10.5
4.0
6.5
50.3
Personnel cost and welfare
Rental cost
Depreciation expenses
Others
Total cost of revenues
573,520
230,976
151,373
217,965
1,173,834
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Our cost of revenues is primarily affected by the number of our learning centers. In terms of the adult professional education business,
we had a total of 130, 104 and 100 learning centers as of December 31, 2019, 2020 and 2021, respectively. We also had a total of 217,
236 and 238 learning centers for students aged between three and eighteen as of December 31, 2019, 2020 and 2021, 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:
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Total operating expenses
1,119,698
723,306
132,672
1,975,676
2019
2020
For the Year Ended December 31,
RMB
% of net
revenues
% of net
revenues
2021
% of net
revenues
US$
RMB
RMB
(in thousands, except percentages)
54.6
906,337
35.3
630,618
6.5
100,466
96.4 1,637,421
137,798
878,130
47.8
89,443
569,985
33.2
16,649
106,098
5.3
86.3 1,554,213 243,890
36.8
23.9
4.4
65.1
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 increase in absolute amounts as we will continue to upgrade our IT
infrastructure and quality of our course offerings.
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.
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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 any 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 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 and 2021. In addition, our independent registered public accounting firm attesting the
effectiveness of our internal control reported that our internal control over financial reporting was effective as of December 31, 2020 and
2021.
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, 2021.
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 obtained its HNTE certificate in 2009 and renewed its HNTE certificate in 2012, 2015, 2018 and 2021,
and is eligible to enjoy a preferential tax rate of 15% until December 2024. 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. Tarena Hangzhou obtained its HNTE certificate in 2020, and is eligible to enjoy a preferential income tax rate
of 15% from December 2020 to December 2023. In 2016, Tarena Hangzhou acquired 100% of the equity interests in Hangzhou Hanru
Education Technology Co., Ltd., or Hanru Hangzhou, which is qualified as a “newly established software enterprise” and entitled to two
years of full tax exemption followed by three years of 50% tax exemption, commencing from 2016. In addition, Hanru Hangzhou
obtained its HNTE certificate in 2019 and is eligible to enjoy a preferential tax rate of 15% until December 2022. Some of our
subsidiaries have been qualified as “Small Profit Enterprises” since 2017 and 2018, and therefore are entitled to enjoy a preferential
income tax rate of 20% on 50% of the assessable profit before tax. From January 1, 2019, to December 31, 2020, 25% of the first
RMB1.0 million of the assessable profit before tax is subject to the tax rate of 20% for our subsidiaries that are qualified as “Small Profit
Enterprises,” and the 50% of the assessable profit before tax exceeding RMB1.0 million but not exceeding RMB3.0 million is also
subject to the tax rate of 20%. From January 1, 2021 to December 31, 2021, 12.5% of the first RMB1.0 million of the assessable profit
before tax is subject to the tax rate of 20% for our subsidiaries that are qualified as “Small Profit Enterprises,” and the 50% of the
assessable profit before tax exceeding RMB1.0 million but not exceeding RMB3.0 million is subject to the tax rate of 20%. Subject to
the approvals from the tax authorities in certain locations in the PRC, our subsidiaries and the VIE that are based in these locations are
required to use the deemed profit method to determine their income tax.
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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.
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 income
Foreign currency exchange gains/(loss)
Loss before income taxes
Income tax benefit/(expenses)
Net loss
2019
RMB
% of Net
Revenues
For the Year Ended December 31,
2020
% of Net
Revenues
RMB
(in thousands, except percentages)
RMB
2021
US$
% of Net
Revenues
2,051,354
(1,173,834)
877,520
100.0 1,897,883
(57.2)
42.8
(1,066,842)
831,041
100.0 2,386,520
(56.2)
43.8
(1,201,419)
1,185,101
374,497
(188,529)
185,968
100.0
(50.3)
49.7
(1,119,698)
(723,306)
(132,672)
(1,098,156)
15,859
246
1,614
(1,080,437)
41,559
(1,038,878)
(54.6)
(35.3)
(6.5)
(53.6)
0.8
—
0.1
(52.7)
2.0
(50.7)
(906,337)
(630,618)
(100,466)
(806,380)
(199)
5,201
(4,849)
(806,227)
35,034
(771,193)
(47.8)
(33.2)
(5.3)
(42.5)
—
0.3
(0.3)
(42.5)
1.9
(40.6)
(878,130)
(569,985)
(106,098)
(369,112)
2,335
5,572
(518)
(361,723)
(114,057)
(475,780)
(137,798)
(89,443)
(16,649)
(57,922)
366
875
(81)
(56,762)
(17,898)
(74,660)
(36.8)
(23.9)
(4.4)
(15.5)
0.1
0.2
—
(15.2)
(4.8)
(19.9)
Notes:
(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:
Cost of revenues
Selling and marketing expenses
General and administrative expenses
Research and development expenses
The Year Ended December 31, 2021, Compared to the Year Ended December 31, 2020
Net revenues
For the Year Ended December 31
2021
2020
RMB RMB RMB
2019
983
6,502
36,719
14,968
(in thousands)
379
70
1,842
26,242
7,783
2,785
14,840
1,408
US$
11
437
2,329
221
Our net revenues increased by 25.7% from RMB1,897.9 million in 2020 to RMB2,386.5 million (US$374.5 million) in 2021. The
increase was primarily due to the increase in student enrollments of childhood and adolescent quality education from 141,600 in 2020 to
178,400 in 2021, and the increase in unit price of tuition fee and certificate revenue of adult professional education business.
For our adult professional education programs, our net revenues increased by 1.2% from RMB1,136.1 million in 2020 to RMB1,150.2
million (US$180.5 million) in 2021. The revenue increase was mainly driven by the increase in unit price of tuition fee, and certificate
revenue, whilst partially offset by decrease in student enrollments from 83,400 in 2020 to 72,100 in 2021. The number of adult
professional education learning centers decreased from 104 as of December 31, 2020, to 100 as of December 31, 2021.
For our childhood and adolescent quality education programs, our net revenues increased by 62.3% from RMB761.8 million in 2020 to
RMB1,236.3 million (US$194.0 million) in 2021. We experienced a significant increase of 26.0% in our total student enrollments from
approximately 141,600 in 2020 to approximately 178,400 in 2021. Our childhood and adolescent quality education business has
expanded into 54 cities in China. The number of childhood and adolescent quality education learning centers increased from 236 as of
December 31, 2020, to 238 as of December 31, 2021.
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Cost of Revenues
Our cost of revenues increased by 12.6% from RMB1,066.8 million in 2020 to RMB1,201.4 million (US$188.5 million) in 2021. This
increase was mainly due to increase in personnel-related costs resulting from the growing number of teaching staff and, increase in social
security fees, which were exempted according to the preferential policies enacted by the government during COVID-19 pandemic in
2020 but were not exempted in 2021.
Gross Profit and Gross Margin
As a result of the foregoing, our gross profit increased by 42.6% from RMB831.0 million in 2020 to RMB1,185.1 million (US$186.0
million) in 2021. Our gross profit margin increased from 43.8% in 2020 to 49.7% in 2021, which was mainly attributable to the increase
in total net revenues outweighing the increase in cost of revenues in 2021 and, the effective cost controls we have implemented in 2021.
Operating Expenses
Our operating expenses decreased by 5.1% from RMB1,637.4 million in 2020 to RMB1,554.2 million (US$243.9 million) in 2021 as a
result of decrease in selling and marketing expenses and general and administrative expenses.
Selling and Marketing Expenses
Our selling and marketing expenses decreased by 3.1% from RMB906.3 million in 2020 to RMB878.1 million (US$137.8 million) in
2021. This decrease was mainly due to decrease in advertising expenses in 2021.
General and Administrative Expenses
Our general and administrative expenses decreased by 9.6% from RMB630.6 million in 2020 to RMB570.0 million (US$89.4 million) in
2021. The decrease was primarily due to decrease in personnel-related expenses and welfare as a result of decrease in the number of staff
and the one-off income recognized resulting from the receipt of the settlement payment from the Buyer Group of the proposed
privatization transaction in 2021.
Research and Development Expenses
Our research and development expenses increased by 5.6% from RMB100.5 million in 2020 to RMB106.1 million (US$16.6 million) in
2021. The increase was primarily due to the increase in personnel-related expenses in 2021.
Interest Income/(expenses)
Our net interest expenses were RMB0.2 million in 2020 and net interest income was RMB2.3 million (US$0.4 million) in 2021. 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 adult students. The decrease in interest expense was primarily
due to the repayment of short-term loans borrowed from the Bank of Beijing.
Income Tax Benefit/(expenses)
Our income tax expenses were RMB114.1 million (US$17.9 million) in 2021, compared to the income tax benefit of RMB35.0 million in
2020. The increase in tax expenses was mainly due to increase in provision allowance made to the deferred income tax assets which was
derived from the unutilized tax loss, as it was more likely than not that the tax loss will not be utilized within the five years deduction
period.
The effective income tax rate of -31.5% in 2021 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. In
2021, due to multiple factors, such as the COVID-19 pandemic and the regulations on some sectors of the education industry, the
childhood and adolescent quality education business did not achieve the profitability as expected. Considering that the future profitability
of the childhood and adolescent quality education business is unlikely to offset the accumulated losses already incurred, the valuation
allowance of deferred tax assets of most childhood and adolescent quality entities was provided in 2021; (ii) the impact of different tax
rates in other jurisdictions; (iii) the preferential income tax rate enjoyed by some of our subsidiaries; and (iv) the impact of changes in tax
rates on certain of our subsidiaries.
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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 some of our subsidiaries; and (iv) the impact of
changes in tax rates on certain of our subsidiaries.
Net Loss
As a result of the foregoing, we incurred a net loss of RMB475.8 million (US$74.7 million) in 2021 as compared to a net loss of
RMB771.2 million in 2020.
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 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 childhood and adolescent quality education businesses during the COVID-19 pandemic in 2020, and a decrease in our adult
student enrollment.
For our adult professional education programs, our net revenues decreased by 25.6% from RMB1,527.2 million in 2019 to RMB1,136.1
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 professional education learning centers decreased from 130 as
of December 31, 2019, to 104 as of December 31, 2020.
For our childhood and adolescent quality education programs, our net revenues increased by 45.3% from RMB524.2 million in 2019 to
RMB761.8 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 childhood and adolescent quality education business has expanded into 53 cities in
China. The number of childhood and adolescent quality 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 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 professional 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 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 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 in 2020. This decrease
was partially due to a decrease in marketing activities and promotional spending. In addition, personnel-related expenses decreased
resulting from fewer headcounts, and a decrease in social security expenses due to the preferential policies promulgated by the
government during COVID-19 pandemic in 2020.
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General and Administrative Expenses
Our general and administrative expenses decreased by 12.8% from RMB723.3 million in 2019 to RMB630.6 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.
Research and Development Expenses
Our research and development expenses decreased by 24.3% from RMB132.7 million in 2019 to RMB100.5 million in 2020. The
decrease was primarily due to a decrease in personnel-related expenses resulting from fewer headcounts.
Interest Income/(expenses)
Our net interest income was RMB15.9 million in 2019 and net interest expenses was RMB0.2 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 adult 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 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 some of our subsidiaries; and (iv) the impact of
changes in tax rates on 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 some of our subsidiaries; and (iv) the impact of
changes in tax rates on certain of our subsidiaries.
Net Loss
As a result of the foregoing, we incurred a net loss of RMB771.2 million in 2020, as compared to a net loss of RMB1,038.9 million in
2019.
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 2019, 2020 and 2021, were increases of 4.5%, 0.2% and
1.5%, 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 Related 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 Related 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 disposal of property and long-
term investments. As of December 31, 2021, we had RMB430.4 million (US$67.5 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 the consolidated
VIE, in the amount of RMB8.2 million (US$1.3 million) as of December 31, 2021, can be used only to settle obligations of the
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. As of December 31, 2020, restricted cash is the cash received from one
financial service provider for students’ tuition fee in certain project, which will release to cash along with the service provided to the
students. We terminated the project with this financial service provider during the year ended December 31, 2021.
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 “Summary of Significant Accounting Policies—Cash, cash equivalents, time deposits and restricted cash” under Note 2(e) 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, 2021.
The following table sets forth a summary of our cash flows for the periods indicated:
2019
RMB
For the Year Ended December 31,
2021
RMB
2020
RMB
Net cash provided by/ (used in) operating activities
Net cash provided by/ (used in) investing activities
Net cash provided by/ (used in) financing activities
Effect of foreign currency exchange rate changes on cash and cash equivalents
Net increase/ (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
Operating Activities
(31,730)
(51,217)
74,397
567
(7,983)
545,684
537,701
(in thousands)
(108,821)
(657)
(68,299)
(1,376)
(179,153)
537,701
358,548
8,610
33,693
23,237
(67)
65,473
358,548
424,021
US$
1,352
5,287
3,646
(11)
10,274
56,264
66,538
Net cash provided by operating activities amounted to RMB8.6 million (US$1.4 million) in 2021. It was primarily due to (a) a net loss of
RMB475.8 million, mainly adjusted by depreciation and amortization of RMB125.3 million, amortization of right-of-use asset of
RMB250.0 million, loss on disposal of property and equipment of RMB24.7 million, and share based compensation expense of
RMB19.1 million; (b) a decrease in operating lease liabilities of RMB252.4 million; and (c) a decrease in deferred income tax assets of
RMB101.2 million; and (d) an increase in deferred revenue of RMB26.7 million due to the expansion of our childhood and adolescent
quality education business.
Net cash used in operating activities amounted to RMB108.8 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 childhood and adolescent quality education 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 (i) an increase in deferred
revenue of RMB756.0 million due to the expansion of our childhood and adolescent quality education business; and (ii) a decrease in
prepaid expenses and other current assets of RMB22.8 million.
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Investing Activities
Net cash provided by investing activities was RMB33.7 million (US$5.3 million) in 2021, consisting of the net proceeds of RMB94.6
million received from the disposal of property and long-term investments, and purchase of property and equipment, including computers
and servers, of RMB67.7 million for the replacement of obsolete items.
Net cash used in investing activities was RMB0.7 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 childhood and adolescent quality education 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 childhood and adolescent quality education 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.
Financing Activities
Net cash provided by financing activities in 2021 was RMB23.2 million (US$3.6 million) in 2021, which was primarily attributed to, the
proceeds from bank borrowings of RMB30.0 million, and proceeds from issuance of Class A ordinary shares in connection with exercise
of share options of RMB3.9 million, partially offset by the repayment of bank borrowings of RMB10.7 million.
Net cash used in financing activities in 2020 was RMB68.3 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.
Impact of COVID-19
Beginning in January 2020, the outbreak of COVID-19 has spread rapidly to many parts of the world. In March 2020, the World Health
Organization declared the COVID-19 a pandemic. The pandemic has resulted in quarantines, travel restrictions, and the temporary
closure of stores and facilities in China and many other countries for the past two and a half years.
The COVID-19 pandemic had 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 underwent temporary yet prolonged closure from
February 2020 to May 2020. During that period, we had arranged online webcasts for our students to study at home. Since the second
half of 2020, many of the quarantine measures within China have been relaxed, and we have resumed normal operations since the second
half of 2020. While the spread of COVID-19 was substantially controlled in China in 2021 and the number of new cases in China
remained relatively low, restrictions were re-imposed from time to time in certain cities to combat outbreaks. In 2021 and the first quarter
of 2022, due to the occurrence of COVID-19 cases, some of our learning centers in certain areas of China have undergone temporary
closure and suspension from operation. Despite the rapid COVID-19 vaccine rollout, uncertainties remain due to the emerging new
variants, and our learning centers across China may undergo closure or class-size reduction subject to the restriction measures within
China in the future.
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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. In 2021 and the first quarter
of 2022, the occurrence of COVID-19 cases resulted in temporary closure of some of our offices in certain areas of China. 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, and the prevalence of local and national travel restrictions which are highly
uncertain and cannot be predicted.
Material Cash Requirements
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 RMB161.3 million, RMB71.5 million and
RMB67.7 million (US$10.6 million) in 2019, 2020 and 2021, 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 acquire new equipment to replace our obsolete items, upgrade our IT infrastructure hardware, and 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.
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2021:
Payment due by December 31,
Operating lease commitments(1)
551,372
256,667
Note:
(1) Represents our non-cancelable leases for our offices and learning centers.
Total
2022
2023
2024
(RMB in thousands)
83,350
165,389
2025
2026
thereafter
2027 and
31,251
11,057
3,658
Except for those disclosed above, we did not have any significant capital or other commitments, long-term obligations, or guarantees as
of December 31, 2021.
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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, 2021, we had RMB138.9
million (US$21.8 million) in statutory surplus reserves that are not distributable as cash dividends. We are required to set aside an
additional RMB412.0 million (US$64.7 million) to satisfy the maximum requirement of statutory surplus reserves for all of our PRC
subsidiaries as of December 31, 2021. 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, 2021, we had RMB36.7 million (US$5.8
million) in statutory development fund that is 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 RMB132.7 million, RMB100.5 million and RMB106.1 million (US$16.6
million) in 2019, 2020 and 2021, 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, 2021, 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 164 registered software copyrights and 141 trademarks.
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, 2021, to December 31, 2021, 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.
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E. Critical Accounting Estimates
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. Our critical accounting policies and practices include the following: (i) revenue recognition; (ii) operating leases; (iii)
income taxes; and (iv) fair value measurements. See Note 2—Summary of Significant Accounting Policies to our consolidated financial
statements for the disclosure of these accounting policies. We believe the following accounting estimates involve the most significant
judgments used in the preparation of our financial statements.
Impairment of Long-Lived Assets
We periodically review our long-lived assets for impairment indicators to identify any events that may lead the carrying value to be
irrecoverable. Such events include a historical or projected trend of net cash outflow or a future expectation that we will sell or dispose of
an asset significantly before the end of its previously estimated useful life. In reviewing for impairment, we group our long-lived assets
into adult professional education asset group and childhood & adolescent quality education asset group, which are the lowest possible
level that identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
For the adult professional education asset group, there was no indicators of impairment as of December 31 2021. For the childhood &
adolescent quality education asset group which showed an indicator of impairment as of December 31, 2021, we have performed a
recoverability test by comparing estimated undiscounted future cash flows with the carrying value of the related long-lived assets. If the
undiscounted future cash flows are less than the related net carrying value of the long-lived assets, the net carrying value of the assets are
written down to their fair value.
We primarily use discounted future cash flows directly associated with those assets, which consist principally of property and equipment
and right-of-use (“ROU”) assets, to determine their fair values. Estimating the fair value of long-lived assets by using the discounted
cash flow model requires management to estimate future revenues, expenses, discount rates, long-term growth rates, and other factors in
order to project future cash flows. The evaluation of long-lived asset impairment requires us to make assumptions about future cash
flows over the life of the asset group. These assumptions require judgment and actual results may differ from assumed and estimated
amounts.
Changes in these estimates, assumptions and judgments could materially affect the quantity of impairment of long-lived assets.
No impairment of long-lived assets was recognized for the years ended December 31, 2019, 2020 and 2021.
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Allowance for credit losses
We maintain an allowance for credit losses by estimating the expected credit and collectability trend of our customers. Accounts
receivable is considered past due based on its contractual terms. In estimating the allowance for credit losses, we consider various
factors, including historical experience, credit-worthiness of customers, current and reasonable forecasted future economic conditions,
aging of the accounts receivable balances, 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. We also
consider to provide specific allowance for credit losses for those accounts receivable balances when facts and circumstances have
emerged to indicate that these receivables are unlikely to be collected. Changes in these estimates and assumptions could materially
affect the quantity of credit losses.
The allowance of credit losses for accounts receivable totaled approximately RMB9.2 million and RMB15.0 million (US$ 2.4 million) as
of December 31, 2020 and 2021, respectively.
Taxation
We are required to make estimates and apply our judgements in determining the provision for income tax expenses for financial reporting
purpose based on tax laws in various jurisdictions in which we operate. In calculating the effective income tax rate, we make estimates
and judgements, including the calculation of tax credits and the timing differences of recognition of revenues and expenses between
financial reporting and tax reporting. These estimates and judgements may result in adjustments of pre-tax income amount filed with
local tax authorities in accordance with relevant local tax rules and regulations in various tax jurisdictions. Although we believe that our
estimates and judgments are reasonable, actual results may be materially different from the estimated amounts. Changes in these
estimates and judgements may result in material increase or decrease in our provision for income tax expenses.
Deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial
reporting and tax bases of assets and liabilities, and for operating losses and tax credit carry forwards. A valuation allowance is recorded
when it is more likely than not that some of the deferred tax assets will not be realized. When we determine and quantify the valuation
allowances, we consider such factors as projected future taxable income, the availability of tax planning strategies, the historical taxable
income/losses in prior years, and future reversals of existing taxable temporary differences. The assumptions used in determining
projected future taxable income require significant judgment. Actual operating results in future years could differ from our current
assumptions, judgments and estimates. Changes in these estimates and assumptions may materially affect the tax position measurement
and financial statement recognition. If, in the future, we determine that we would not be able to realize our recorded deferred tax assets,
an increase in the valuation allowance would decrease our earnings in the period in which such determination is made. The Company
recorded deferred tax assets of RMB288.6 million and RMB329.8 million (US$ 51.8 million), net of valuation allowance of RMB146.4
million and RMB288.8 million (US$ 45.3 million), as of December 31, 2020 and 2021, respectively.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
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
Yongji Sun
Jianguang Li
Hon Sang Lee
Shengwen Rong
Ying Sun
Wing Kee Lau
Age
Position/Title
51
57
57
63
53
45
57
Founder and Chairman
Director
Independent Director
Independent Director
Independent Director
Chief Executive Officer
Chief Financial Officer
Shaoyun Han is our founder and has been serving as chairman of our board of directors since our inception. Mr. Han served as our Chief
Executive Officer from our 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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Yongji Sun has been serving 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 been serving 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 been serving 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.
Shengwen Rong is one of our independent directors. Mr. Rong was appointed as an independent director and chairman of the audit
committee since March 1, 2022. Mr. Rong currently serves as an independent director and chairperson of the audit committees of the
following public companies: China Online Education Group (NYSE: COE), BlueCity Holdings Limited (Nasdaq: BLCT), MOGU Inc.
(NYSE: MOGU), and X Financial (NYSE: XYF), and as an independent director of Qudian Inc. (NYSE: QD). From February 2017 to
September 2018, Mr. Rong served as the senior vice president and chief financial officer at Yixia Technology Co., Ltd, a leading live
video broadcast and short-video platform in China. Prior to that, he served as the chief financial officer at Quixey, Inc. from 2015 to
2016, the chief financial officer at UCWeb from 2012 to 2014, and the chief financial officer at Country Style Cooking Restaurant Chain
Co., Ltd, an NYSE listed company from 2010 to 2012. Mr. Rong received his bachelor’s degree in international finance from Renmin
University in 1991, master’s degree in accounting from West Virginia University in 1996, and MBA degree from University of Chicago
Booth School of Business in 2000. Mr. Rong is a Certified Public Accountant in the United States.
Ying Sun has been serving as our Chief Executive Officer since April 2021. Ms. Sun previously 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.
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Wing Kee Lau has been serving as our chief financial officer since March 2020. Mr. Lau is currently serving as an independent non-
executive director and chairperson of the audit committee of Genetron Holdings Limited (NYSE: GTH). 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
For the fiscal year ended December 31, 2021, we paid an aggregate of approximately RMB4.9 million in cash to our executive officers,
and we paid an aggregate of RMB4.4 million in cash to our non-executive directors. For share incentive grants to our directors and
executive officers, see “Item 6. Directors, Senior Management and Employees—B. Compensation—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.
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.
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Share Incentive Plan
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 1,189,975 as of January 1, 2022. As of February 28, 2022, options to purchase 2,932,010 Class A ordinary shares are issued and
outstanding under the 2014 Plan and 159,385 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.
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, 2022, the outstanding options granted to our directors and executive officers under
our share plan.
Name
Shaoyun Han
Ying Sun
Wing Kee Lau
Total
Ordinary Shares
Underlying
Exercise Price
Options Awarded (US$/Share)
39,075
229,210
150,000
75,000
110,000
90,000
80,000
80,000
853,285†
*
*
*
*
*
*
*
*
*
1,287,785
Date of Expiration
Date of Grant
February 20, 2014
February 20, 2014
March 1, 2015
April 3, 2024
4.36
April 3, 2024
1.83
4.36
February 28, 2025
1.83 December 31, 2016 December 31, 2026
April 1, 2017 December 31, 2026
1.00
January 1, 2020 December 31, 2029
0.00
January 1, 2021 December 31, 2030
0.01
January 1, 2022 December 31, 2031
0.01
January 1, 2013
February 20, 2014
March 1, 2015
April 3, 2024
1.83
April 3, 2024
4.36
4.36
February 28, 2025
1.83 December 31, 2016 December 31, 2026
January 1, 2020 December 31, 2029
0.00
2.51 December 28, 2020 December 28, 2030
January 1, 2021 December 31, 2030
0.01
0.01
January 1, 2022 December 31, 2031
2.51 December 28, 2020 December 28, 2030
*
†
The aggregate number of ordinary shares underlying the outstanding options held by this individual is less than 1% of our total
issued and outstanding shares as of February 28, 2022.
The aggregate number of ordinary shares underlying the outstanding options held by Mr. Shaoyun Han is 853,285, representing
1.52% of our total issued and outstanding shares as of February 28, 2022.
The following table summarizes, as of February 28, 2022, the outstanding restricted share units we granted to our directors and executive
officers under the 2014 Plan.
Name
Yongji Sun
Jianguang Li
Wing Kee Lau
Number of
Class A
Ordinary
Shares
Underlying
Restricted
Share
Units
*
*
*
Date of
Grant
April 9, 2021
April 9, 2021
March 1, 2021
*
Less than 1% of our total issued and outstanding shares as of February 28, 2022.
As of February 28, 2022, other individuals as a group held outstanding options to purchase a total of 1,644,225 Class A ordinary shares
of our company, with exercise prices ranging from US$0 to US$4.36 per share, and held outstanding restricted share units to acquire a
total of 110,045 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. On November 24, 2021, we
dissolved the special committee with the termination of the Merger Agreement and related ancillary agreements. Each committee’s
members and functions are described below.
Audit Committee. Our audit committee consists of Messrs. Shengwen Rong, Jianguang Li and Hon Sang Lee, and is chaired by Mr.
Shengwen Rong. 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. Shengwen Rong 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 Shengwen Rong, 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;
and
● 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 Shengwen Rong, 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.
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 shall have a term of office for two years. 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.
Board Diversity
Country of Principal Executive Offices:
People’s Republic of China
Board Diversity Matrix (As of February 28, 2022)
Foreign Private Issuer
Disclosure Prohibited Under Home Country Law
Total Number of Directors
Yes
No
5
Part I: Gender Identity
Directors
Part II: Demographic Background
Underrepresented Individual in Home Country Jurisdiction
LGBTQ+
D. Employees
Female
Male
Non-Binary
Did Not
Disclose
Gender
0
5
N/A
N/A
1
0
We have dual headquarters 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 11,833, 10,181 and 10,009 employees as of December 31, 2019, 2020 and 2021, respectively. As of December 31,
2021, we had 2,178 employees in Beijing, 320 employees in Hangzhou and 7,489 employees in mainland China. We also have 22
employees in Taipei. The following table sets forth the number of our employees, categorized by function, as of December 31, 2021:
Functions
Teaching and content development
Selling and marketing
General and administration
Others*
Total
Notes:
Number of Employees
3,352
3,447
1,516
1,694
10,009
* mainly includes employer cooperation representatives and career counselors for adult professional education, and center
administrators for childhood and adolescent quality education.
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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, 2022, 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 55,336,601 ordinary shares outstanding as of February 28, 2022, comprising 48,130,542
Class A ordinary shares (excluding 8,462,615 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.
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
10,148,123 7,206,059 17,354,182
*
*
*
—
*
695,736
11,408,674
2,193,220
6,826,263
4,521,340
4,387,720
*
*
*
—
*
695,736
18,614,733
—
—
—
—
—
—
7,206,059
7,206,059
9,399,279
6,826,263
—
— 4,521,340
—
4,387,720
% of total
ordinary
shares on
an as-
converted
basis
% of
aggregate
voting
power †
30.9
*
*
*
—
*
1.3
32.9
17.0
12.3
8.2
7.9
67.9
*
*
*
—
*
0.6
68.8
61.8
5.7
3.8
3.7
Directors and Executive Officers:**
Shaoyun Han(1)
Yongji Sun
Jianguang Li(2)
Hon Sang Lee(3)
Shengwen Rong(4)
Wing Kee Lau
Ying Sun(5)
All directors and executive officers as a group
Principal Shareholders:
Learningon Limited(6)
KKR funds(7)
Theodore Walker Cheng-De King (8)
Connion Capital Limited(9)
Notes:
*
Less than 1%.
** Except for Mr. Jianguang Li, Mr. Hon Sang Lee, and Mr. Shengwen Rong, the business address of our directors and executive
officers is 6/F, No. 1 Andingmenwai Street, Litchi Tower, Chaoyang District, Beijing 100011, PRC.
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†
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.
(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) 718,887 restricted American
depositary shares (“ADSs”) representing 3,594,435 Class A Ordinary Shares held by Connion Capital Limited, (v) 438,644
restricted ADSs representing 2,193,220 Class A Ordinary Shares held by Learningon Limited, (vi) 415,000 Class A Ordinary Shares
held by Mr. Han and (vii) 158,657 ADSs representing 793,285 Class A Ordinary Shares that Connion Capital Limited may purchase
upon exercise of options within 60 days of February 28, 2022. 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. Lee is ShangGu Capital, 409 Zhong Jia Plaza, Tai Yang Yuan, Da Zhong Si East Road, Haidian District,
Beijing, the People’s Republic of China.
(4) The business address of Mr. Rong is 182 Pine Ln, Los Altos, CA 94022, USA.
(5) Represents (i) 401,236 Class A Ordinary Shares held by Ms. Sun and (ii) 58,900 ADSs representing 294,500 Class A ordinary
shares that Ms. Sun may purchase upon exercise of options within 60 days of February 28, 2022.
(6) Represents (i) 7,206,059 Class B ordinary shares and (ii) 438,644 ADSs representing 2,193,220 Class A ordinary shares. The
registered office address of Learningon 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. Learningon Limited is ultimately owned by Mr. Shaoyun Han through a
trust.
(7) 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, 2022.
(8) Represents (i) 904,268 ADSs representing 4,521,340 Class A Ordinary Shares held by Theodore Walker Cheng-De King.
Information regarding beneficial ownership is reported as of December 31, 2021, based on the information contained in the Schedule
13G filed by Theodore Walker Cheng-De King with the SEC on November 26, 2021. Please see the Schedule 13G filed by Theodore
Walker Cheng-De King with the SEC on November 26, 2021 for information relating to Theodore Walker Cheng-De King. The
registered address of Theodore Walker Cheng-De King is the Unit 1502, 15th Floor, 99 Hennessy Road, Wanchai, Hong Kong.
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(9) Represents (i) 718,887 ADSs representing 3,594,435 Class A Ordinary Shares and (ii) 158,657 ADSs representing 793,285 Class A
Ordinary Shares that Connion Capital Limited may purchase upon exercise of options within 60 days of February 28, 2022. 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, 2022, a total of 9,145,102 ADSs (equivalent to 45,725,510 Class A ordinary shares) are
outstanding (among which 7,987,570 are unrestricted ADSs while 1,157,532 are restricted ADSs) after a new ADS-to-share ratio change
(from the previous ratio of one ADS to one Class A ordinary share to a new ratio of one ADS to five Class A ordinary shares) was
effected in December 2021, representing 78.3% 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, 2022, 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 “Item 6. Directors, Senior Management and
Employees—B. Compensation—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 the 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 RMB0.8 million, RMB0.1
million and RMB0.04 million (US$0.01 million) for 2019, 2020 and 2021, respectively.
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.
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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—Employment Agreements and Indemnification
Agreements.”
Share Option Grants
See “Item 6. Directors, Senior Management and Employees—B. Compensation—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.
Legal Proceedings
We and certain of our current and former officers and directors have been named as defendants in a putative securities class action
captioned Yili Qiu v. Tarena International, Inc. et al., (Case No. 1:21-cv-03502) filed on June 22, 2021, in the U.S. District Court for the
Eastern District of New York. The complaint asserts that defendants made false or misleading statements in certain SEC filings between
August 16, 2016, and November 1, 2019, related to the Company’s business and operating results in violation of Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On September 1, 2021, the court entered an order
appointing lead plaintiff in this action. On September 14, 2021, the parties filed a joint status report and proposed scheduling stipulation,
pursuant to which, the lead plaintiff filed an amended complaint on November 1, 2021. On January 18, 2022, we moved to dismiss the
complaint. On April 4, 2022, lead plaintiff served its opposition to the motion. Briefing is scheduled to be complete by May 19, 2022. We
intend to defend ourselves vigorously in the action.
Except for the above, we are currently not a party to, and are not aware of any threat of, any other 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.
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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 “Item 9. The Offer and Listing—C. Markets.”
B.
Plan of Distribution
Not applicable.
C. Markets
Our ADSs, each representing five Class A ordinary shares, have been listed on the NASDAQ Global Select Market under the symbol
“TEDU” since April 3, 2014.
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
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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 Act 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 1.1 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. 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.
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.
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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.
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 that the necessary
shareholders or board approval has 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.
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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.
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 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
Other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in
this annual report, we have not entered into any material contract during the two years immediately preceding the date of this annual
report.
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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 Act (2011 Revision) of the Cayman Islands, we have obtained an undertaking from the
Governor-in-Council:
(i)
(ii)
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
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 preapproval 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 Related to Doing Business in China—We are affected by the PRC Enterprise Income Tax Law, and 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 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 Related 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, and there can be no assurance that the Internal Revenue Service (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.
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;
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● 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 (generally 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 nonpassive 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 the 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, 2021, and we do not expect to be
classified as a PFIC in the current taxable year or 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). 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. Recent declines in the market price
of our ADSs increased our risk of becoming a PFIC. The market price of our ADSs may continue to fluctuate considerably and,
consequently, we cannot assure you of our PFIC status for any taxable year.
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 “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—Dividends” and
“Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—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 “Item 10. Additional
Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company Rules.”
Dividends
Subject to the discussion below under “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—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 Law”), 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 (the “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 “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—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.
As described in “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation,” if we are deemed to be a PRC
resident enterprise under the EIT Law, gains from the disposition of the ADSs or Class A ordinary shares may be subject to PRC income
tax and will generally be U.S.-source, which may limit the ability to receive a foreign tax credit. If a U.S. Holder is eligible for the
benefits of the Treaty, such holder may be able to elect to treat such gain as PRC-source income under the Treaty. Pursuant to recently
issued United States Treasury regulations, however, if a U.S. Holder is not eligible for the benefits of the Treaty or does not elect to apply
the Treaty, then such holder may not be able to claim a foreign tax credit arising from any PRC tax imposed on the disposition of the
ADSs or Class A ordinary shares. The rules regarding foreign tax credits and deduction of foreign taxes are complex. U.S. Holders
should consult their tax advisors regarding the availability of a foreign tax credit or deduction in light of their particular circumstances,
including their eligibility for benefits under the Treaty, and the potential impact of the recently issued United States Treasury regulations.
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% 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
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● will be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to each such other
taxable year.
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,
the VIE or any of the subsidiaries of the 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, the VIE or any of the subsidiaries of the 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 RMB0.5 million (US$ 0.1 million) in 2021.
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.
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 RMB44.7
million in the value of our U.S. dollar-denominated financial assets at December 31, 2021.
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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 five 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 purchase
Up to U.S. 5¢ per ADS held
additional ADSs
Depositary Services
Up to U.S. 5¢ per ADS held on the applicable record
date(s) established by the depositary bank
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.
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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 2021, we received US$31,833 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.
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.
As of December 31, 2021, we have used up the net proceeds from our initial public offering for general corporate purposes.
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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, 2021, 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.
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.
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.
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 and 2021, 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 and 2021. Based on this evaluation, our management has concluded that our internal control over financial reporting
was effective as of December 31, 2021.
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 Related to Our Audit Committee Investigation, Restatement of
Our Consolidated Financial Statements, Internal Controls and Related Matters.”
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the year ended December 31, 2021, that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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, 2021, and its attestation report is set forth as follows
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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, 2021, 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, 2021, 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, 2021 and 2020, and the related consolidated statements of comprehensive loss,
changes in equity, and cash flows and the related notes for each of the three years in the period ended December 31, 2021, of the
Company, and our report dated April 26, 2022, 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.
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 26, 2022
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ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. Shengwen Rong, 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)
2020
2021
(RMB in thousands)
8,334
578
8,599
207
Notes:
(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.
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 December 31, 2021, our board of directors authorized a share repurchase program under which we were authorized to repurchase our
own ordinary shares, in the form of ADSs, with an aggregate value of up to US$2.5 million over the next six months.
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.
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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, 2021, in 2021. In this respect, we elected to follow home country practice and did not hold an annual general
meeting of shareholders in 2021. 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 Related 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.”
ITEM 16.H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16.I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
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.
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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
4.5
4.6
4.7
4.8
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)
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)
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4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
8.1*
11.1
12.1*
12.2*
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)
List of Subsidiaries and 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
156
Table of Contents
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
104*
Cover Page Interactive Data File—the cover page XBRL tags are embedded within the Exhibit 101 Inline XBRL
document set
* Filed herewith.
** Furnished herewith.
157
Table of Contents
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 26, 2022
Tarena International, Inc.
/s/ Ying Sun
By:
Name: Ying Sun
Title: Chief Executive Officer
158
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID:5395)
Consolidated Balance Sheets as of December 31, 2020 and 2021
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019, 2020 and 2021
Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2020 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2020 and 2021
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 2021, the related consolidated statements of comprehensive loss, changes in equity and cash flows
for each of the three years in the period ended December 31, 2021, 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 2021, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2021, 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, 2021, 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 26, 2022, expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
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 2 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 years ended December 31, 2020 and 2021, the Company
has reported net losses of RMB771 million and RMB476 million, respectively. As of December 31, 2021, net current
liabilities amounted to RMB2,321 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 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 2 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 RMB330 million,
net of a RMB289 million valuation allowance as of December 31, 2021. 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, 2021 were RMB299 million and RMB496 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.
The Company's impairment assessment determines whether projected undiscounted future cash flows from operations are
sufficient to recover the carrying value of these assets. When the carrying value of these assets exceeds the estimated
undiscounted future cash flows over the remaining useful life, a discounted cash flow analysis is performed to measure the
impairment loss, if any. During the year ended December 31, 2021, the Company recorded no impairment of property and
equipment and right of use assets.
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 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 26, 2022
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
Amounts due from related parties-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
Equity:
Class A ordinary shares (US$0.001 par value, 860,000,000 shares authorized, 55,546,254 and
56,593,157 shares issued, 48,346,384 and 49,393,287 shares outstanding as of December 31, 2020
and 2021, respectively)
Class B ordinary shares (US$0.001 par value, 40,000,000 shares authorized, 7,206,059 shares issued
and outstanding as of December 31, 2020 and 2021, respectively)
Treasury shares (7,199,870 and 7,199,870 Class A ordinary shares as of December 31, 2020 and
2021, at cost)
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total equity deficit to the shareholders of Tarena International, Inc.
Non-controlling interest
Total liabilities and equity
Note
2020
RMB
December 31,
2021
RMB
2021
US$
2(e)
2(e)
2(e)
3
12
4
2(e)
3
12
5
16
6
11
7
8
16
11
2(j)
9
2(j)
16
17
13
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
423,766
6,257
255
48,458
839
139,757
619,332
123
90
683
299,441
9,906
495,936
52,782
46,449
41,000
76,040
1,641,782
30,000
8,914
554
239,937
89,000
2,008,078
563,603
2,940,086
16,774
272,575
4,767
3,234,202
—
355
74
(459,815)
1,347,205
48,699
(2,520,438)
(1,583,920)
(8,500)
1,641,782
66,498
982
40
7,604
132
21,931
97,187
19
14
107
46,989
1,554
77,823
8,283
7,289
6,434
11,932
257,631
4,708
1,399
87
37,651
13,966
315,111
88,442
461,364
2,632
42,773
748
507,517
—
56
12
(72,155)
211,406
7,641
(395,512)
(248,552)
(1,334)
257,631
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$,
except for number of shares and per share data)
Net revenues
Cost of revenues(a)
Gross profit
Selling and marketing expenses(a)
General and administrative expenses(a)
Research and development expenses(a)
Operating loss
Interest income (expense), net
Other income
Foreign currency exchange gains (loss), net
Loss before income taxes
Income tax benefit (expense)
Net loss
Less: Net loss attributable to non-controlling interests
Net loss attributable to Class A and Class B ordinary shareholders
Basic loss per Class A and Class B ordinary share
Diluted loss per Class A and Class B ordinary share
Net loss
Other comprehensive income (loss)
Foreign currency translation adjustment
Comprehensive loss
Less: Comprehensive loss attributable to non-controlling interests
Comprehensive loss attributable to Class A and Class B ordinary shareholders
(a) Includes share-based compensation expense as follows (note 14):
Cost of revenues
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Note
10
11
15
15
Year Ended December 31,
2019
2020
RMB RMB
2021
2021
RMB US$
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)
2,386,520
(1,201,419)
1,185,101
(878,130)
(569,985)
(106,098)
(369,112)
2,335
5,572
(518)
(361,723)
(114,057)
(475,780)
(1,233)
(474,547)
374,497
(188,529)
185,968
(137,798)
(89,443)
(16,649)
(57,922)
366
875
(81)
(56,762)
(17,898)
(74,660)
(193)
(74,467)
(19.41)
(19.41)
(14.11)
(14.11)
(8.43)
(8.43)
(1.32)
(1.32)
(1,038,878)
(771,193)
(475,780)
(74,660)
914
(1,037,964)
(2,792)
(1,035,172)
(2,266)
(773,459)
(4,550)
(768,909)
(421)
(476,201)
(1,233)
(474,968)
(66)
(74,726)
(193)
(74,533)
(983)
(6,502)
(36,719)
(14,968)
(379)
(1,842)
(26,242)
(7,783)
(70)
(2,785)
(14,840)
(1,408)
(11)
(437)
(2,329)
(221)
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)
Ordinary Shares
Number of
Class A
Ordinary
Shares
Amount
RMB
Number of
Class B
Ordinary
Shares
52,972,578
—
331
—
7,206,059
—
833,956
—
—
—
6
—
—
—
—
—
—
—
53,806,534
—
337
—
7,206,059
—
1,739,720
—
—
—
—
12
—
—
—
—
—
—
—
—
—
55,546,254
—
349
—
7,206,059
—
1,046,903
—
—
6
—
—
—
—
—
56,593,157
355
7,206,059
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
Net loss
Issuance of Class A ordinary
shares upon exercise of
share options and vesting of
non-vested shares
Foreign currency translation
adjustment
Share-based compensation
Balance as of December 31,
2021
Additional Accumulated Other
Treasury
Shares
RMB RMB RMB
Paid-in
Capital
Amount
Comprehensive
Income (Loss)
RMB
Accumulated
deficit
RMB
Non-
controlling
Interest
RMB
Total
Equity (deficit)
RMB
74
—
—
—
—
—
74
—
—
—
—
—
—
74
—
—
—
—
74
(457,169)
—
1,222,072
—
50,472
—
(243,162)
(1,036,086)
(975)
(2,792)
571,643
(1,038,878)
—
—
—
—
3,329
—
—
59,172
—
914
—
—
—
—
—
—
—
—
750
—
3,335
914
750
59,172
(457,169)
—
1,284,573
—
51,386
—
(1,279,248)
(766,643)
(3,017)
(4,550)
(403,064)
(771,193)
—
—
—
—
(2,646)
3,342
—
—
36,246
—
—
(2,266)
—
—
—
—
—
—
—
—
—
—
300
—
—
3,354
(2,266)
300
36,246
(2,646)
(459,815)
—
1,324,161
—
49,120
—
(2,045,891)
(474,547)
(7,267)
(1,233)
(1,139,269)
(475,780)
—
—
—
3,941
—
19,103
—
(421)
—
—
—
—
—
—
—
3,947
(421)
19,103
(459,815)
1,347,205
48,699
(2,520,438)
(8,500)
(1,592,420)
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) expense
Share based compensation expense
Investment (income) loss
Foreign currency exchange (gain) loss, net
Impairment of long-term investments
Changes in operating assets and liabilities:
Accounts receivable
Amounts due from related parties
Prepaid expenses and other current assets
Other non-current assets
Accounts payable
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 (used in) provided 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
Proceeds from disposal of a long-term investment
Purchase of time deposits
Proceeds from maturity of time deposits
Issuance of loans to employees
Proceeds from repayment of loans to employees
Net cash (used in) provided by 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
Repurchase of treasury shares
Net cash provided by (used in) 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
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities
2019
RMB
Year Ended December 31,
2020
RMB
2021
RMB
2021
US$
(1,038,878)
(771,193)
(475,780)
(74,660)
194,806
218,314
2,251
5,118
(46,037)
59,172
(27)
(1,614)
2,000
17,641
(54)
19,760
(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)
(1,511)
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
125,305
250,041
5,773
24,669
101,220
19,103
(1,375)
518
—
(21,339)
(1,217)
18,124
13,887
(156)
374
12,183
26,654
163,292
(252,351)
(315)
8,610
(67,694)
85,083
—
9,500
(50,129)
50,000
(402)
7,335
33,693
30,000
—
(10,710)
—
3,947
—
23,237
65,540
(67)
65,473
358,548
424,021
654
463
7,957
185,875
19,663
39,236
906
3,871
15,884
2,998
(216)
81
—
(3,349)
(191)
2,844
2,179
(24)
59
1,912
4,183
25,624
(39,599)
(49)
1,352
(10,623)
13,351
—
1,491
(7,866)
7,846
(63)
1,151
5,287
4,708
—
(1,681)
—
619
—
3,646
10,285
(11)
10,274
56,264
66,538
103
73
1,249
29,168
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 mainly
in providing IT training courses for students aged between three and eighteen. 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.
Shaoyun Han (“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 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. Jianguang Li (“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
Beijing Tarena that most significantly impact its economic performance. Accordingly, Beijing Tarena and its
subsidiaries are considered as VIEs.
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.
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, 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; and (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 Beijing Tarena and the financial
statements of Beijing Tarena and its subsidiaries are consolidated in Tarena International’s consolidated financial
statements.
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 term of the loans, which will be expired in 2026, 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 of 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 Agreement: 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’s 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 his rights as an equity holder of Beijing
Tarena, including but not limited to attend shareholders’ meetings, vote on his 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 agreements, Beijing Tarena’s 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 agreements 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
67.2% and 0.2% of the total voting rights of Tarena International as of December 31, 2021, 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 agreements 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$,
except for number of shares and per share data)
1 DESCRIPTION OF BUSINESS, ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT
CONCENTRATIONS AND RISKS (CONTINUED)
(b) Organization (Continued)
The Company’s involvement with Beijing Tarena under the VIE Agreement affected the Company’s consolidated
financial position, results of operations and cash flows as indicated below.
The assets and liabilities of Beijing Tarena and its subsidiaries that were included in the accompanying
consolidated financial statements as of December 31, 2020 and 2021 are as follows:
Cash
Amounts due from Tarena International and its wholly-owned subsidiaries
Amounts due from a related party
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Long term investments, net
Right-of-use assets
Other non-current assets
Total assets
Accounts payable
Deferred revenue-current
Operating lease liabilities-current
Income taxes payable
Accrued expenses and other current liabilities
Amounts due to Tarena International and its wholly-owned subsidiaries
Total current liabilities
Deferred revenue-non current
Operating lease liabilities-non current
Other non-current liabilities
Total liabilities
F-13
December 31,
2020
RMB
1,332
113,021
4
4,476
118,833
1,552
48,380
5,540
539
174,844
8,610
138,529
3,377
2,045
3,576
31,405
187,542
133
1,536
122
189,333
2021
RMB
8,204
141,104
4
27,435
176,747
2,801
29,880
11,108
1,057
221,593
320
167,224
3,949
2,045
22,344
56,052
251,934
134
5,953
122
258,143
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
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 before elimination of intercompany balances and transactions
between the parent company, non-VIE subsidiaries, VIEs and VIEs’ subsidiaries for the years ended December
31, 2019, 2020 and 2021 are as follows:
Net revenues
Net (loss) income
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Year Ended December 31,
2020
RMB
2021
RMB
2019
RMB
32,013
(37,565)
36,902
(34,226)
(3,841)
127,043 140,541
(39,072)
10,308
—
(3,437)
32,869
112,106
—
(110,985)
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 agreement, 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’s 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$”) are
presented solely for the convenience of readers and use an exchange rate of RMB6.3726, representing the
exchange rate as set forth in the H.10 statistical release of the U.S. Federal Reserve Board as of December 30,
2021. No representation is made that the RMB amounts could have been, or could be, converted into US$ 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 were generated from Childhood & adolescent Robotics
Programming, Childhood & adolescent Computer Programming, Java, and Digital Arts courses. The percentages
of the Company’s total net revenues from Childhood & adolescent Robotics Programming, Childhood &
adolescent Computer Programming, Java, and Digital Arts courses are as follows:
Childhood & adolescent Robotics Programming
Childhood & adolescent Computer Programming
Java
Digital Arts
Total
2019
Year Ended December 31,
2020
15.7 %
20.6 %
13.8 %
16.8 %
66.9 %
9.3 %
12.8 %
19.0 %
22.9 %
64.0 %
2021
27.9 %
19.4 %
11.8 %
11.0 %
70.1 %
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 net revenues greater than 10% of total net revenues.
The portion of the Company’s adult 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.,
Shanghai Shimiao Financial Information Service Co., Ltd. (formerly known as “Beijing Ronglian Shiji
Information Technology Co., Ltd.”) and Beijing Youfei Jinxin Digital Technology Co., Ltd. during the 3-year
periods ended December 31, 2021 has decreased significantly. The Company expects the number of students
financed by these financial service providers to represent a minor portion of its total students in the future.
Therefore, negative factors that adversely affect these financial service providers will have no 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 13.8%,
17.2% and 16.2% for the years ended December 31, 2019, 2020 and 2021, respectively, and in Hangzhou are
18.8%, 13.9% and 11.1% for the years ended December 31, 2019, 2020 and 2021, respectively.
The Company expects revenues derived from its business operations in Beijing and Hangzhou to continue to be
greater than 10% of total net revenues in the future. Negative factors that adversely affect its business operations
in Beijing or Hangzhou will have a material adverse effect on the Company’s business, financial condition and
results of operations.
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
(a) Principles of consolidation
The consolidated financial statements include the financial statements of Tarena International, its wholly-owned
subsidiaries, and VIEs which Tarena International is the primary beneficiary. All significant intercompany
balances and transactions have been eliminated upon consolidation.
(b) Liquidity condition and going concern
The Company incurred net losses from operations of RMB1,039 million, RMB771 million and RMB476 million
for the years ended December 31, 2019, 2020 and 2021, respectively. For the years ended December 31, 2019 and
2020, the Company generated net cash outflows from operating activities amounting to RMB32 million and
RMB109 million, respectively. For the year ended December 31, 2021, the Company generated net cash inflow
from operating activities amounting to RMB9 million. As of December 31, 2021, the Company’s net current
liability was RMB2,321 million. The Company’s cash balance as of December 31, 2021 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 in 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.
The Company’s deferred revenue, which amounted to RMB2,025 million as of December 31, 2021, 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. As of the date of issuance of the consolidated financial
statements, the Company has two unused lines of credit of RMB200 million and RMB3 million with expiration
dates June 2022 and February 2023, respectively. The Company could enter into loan contracts under the lines of
credit up to their expiration dates and agree to a loan term of up to twelve months. Besides, the Company’s office
building, which locates in Beijing, with a carrying value of approximately RMB95 million as of December 31,
2021, has been pledged for the Company’s short-term bank loans amounting to RMB30 million (see note 8). The
office building is available for sale for future operating fund shortage after repayment of borrowing and release
mortgage. Given the considerable gross margin ratio of its operations, the balance of deferred revenue mentioned
above and the two 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 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, 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) 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.
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-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) Cash, cash equivalents, restricted cash and time deposits
Cash consists of cash in bank and deposits placed 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.
As of December 31, 2020, restricted cash was the cash received from one financial service provider in relation to a
tuition fee loan arrangement offered to younger aged students. The restricted cash would be released to cash along
with the service provided to the students. The Company has terminated this loan arrangement with the financial
service provider in 2021.
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,
2020
RMB
278,789
81,283
2021
RMB
405,296
1,234
793
50
2,022
117
579
1,172
364,805
22,001
64
409
229
1,035
133
430,401
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.
F-18
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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)
(f) 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 receivable 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. 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.
(g) 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 5 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 of 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 of 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.
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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)
(h) 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 has been identified.
(i) 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.
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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) Long-term investments (Continued)
● Equity method investments
For an investee company over which the Company has the ability to exercise significant influence, but does not
have a controlling interest, the Company accounted for those using the equity method. Significant influence is
generally considered to exist when the Company has an ownership interest in the voting stock of the investee
between 20% and 50%.
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.
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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) Revenue recognition
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 value added taxes (“VAT”) at rates ranging between 3% and 13%, and surcharges.
VAT 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 professional education and childhood
& adolescent quality education services. 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.
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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) 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.
AI and software development revenue
The Company provides AI and software development service to universities and colleges. The Company is
responsible for the installation, debugging and development of AI software.
The Company is the principal to end customers. The Company acts as the principal in providing the AI and
software development service to universities and colleges 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 universities and colleges. Cash received before inspection and acceptance is
recorded as deferred revenue.
Each contract of AI and software development service is accounted for as a single performance obligation which
is satisfied at a point in time. The performance obligation is satisfied when the AI and software development
service are inspected and accepted, then AI and software development service revenue is recognized.
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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) Revenue recognition (Continued)
Loan referral service revenue
The Company promotes loan products of financial service providers to its adult 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 the Company transfers the promised services to
customers and have the billing right or after the customers pay consideration.
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, 2020
and 2021 that was previously included in the deferred revenue balances as of December 31, 2019 and December
31, 2020 was RMB905,867 and RMB1,221,729, respectively.
The Company’s deferred revenue amounted to RMB1,998,198 and RMB2,024,852 as of December 31, 2020 and
2021, respectively. Starting from the second half of year 2019, the Company has entered 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
2022
RMB
For the years ending December 31,
2023
RMB
17,200
3,133
Total
RMB
20,333
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.
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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) Revenue recognition (Continued)
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.
(k) 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.
(l) 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.
(m) Advertising costs
Advertising costs are expensed as incurred and included in selling and marketing expenses. Advertising costs
were RMB416,814, RMB297,484 and RMB229,571 for the years ended December 31, 2019, 2020 and 2021,
respectively.
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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)
(n) Operating leases
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.
(o) 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
RMB1,665, RMB4,735 and RMB3,760 were recognized and included in other income for the years ended
December 31, 2019, 2020 and 2021, respectively.
(p) Research and development costs
Research and development costs are expensed as incurred.
(q) 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, 2019, 2020 and 2021,
the costs of the Company’s obligations to the defined contribution plans amounted to RMB143,438, RMB53,750,
and RMB133,012, respectively. The Company has no other obligation for the payment of employee benefits
associated with these plans beyond the contributions described above.
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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)
(r) 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, 2021, 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.
(s) 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.
(t) 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.
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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)
(u) 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.
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 earnings per share
(“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.
(v) 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 Professional
Education segment and Childhood & adolescent Quality Education Services segment. The majority of the
Company’s operations and customers are located in the PRC. Consequently, no geographic information is
presented.
(w) 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.
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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)
(w) Fair value measurements (Continued)
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.
Fair value measurements on a recurring basis
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, short-term bank
loans, accrued expenses and other current liabilities as of December 31, 2020 and 2021 approximate their fair
value because of short maturity of these instruments.
The carrying amounts of non-current time deposits as of December 31, 2020 and 2021 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.
Fair value measurements on a non-recurring basis
The Company measures certain financial assets, including the long-term investments at fair value on a non-
recurring basis only if an impairment charge were to be recognized. The Company’s non-financial assets, such as
property and equipment, intangible assets, right-of-use assets and goodwill, would be measured at fair value only
if they were determined to be impaired.
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)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(x) Recently issued accounting standards
In February 2021, the FASB issued ASU No. 2021-10, Franchisors—Government Assistance (Topic 832)—
Disclosures by Business Entities about Government Assistance. The amendments in this Update require
disclosures about transactions with a government that have been accounted for by analogizing to a grant or
contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting for
the transactions, and (3) the effect of the transactions on an entity’s financial statements. If an entity has already
adopted Topic 606, the amendments in this The amendments in this Update are effective for all entities within
their scope for financial statements issued for annual periods beginning after December 15, 2021. Early
application of the amendments is permitted. The Company 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-30
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
3 ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following:
Accounts receivable:
Gross
Unearned interest
Total accounts receivable
Less: allowance for credit losses
Accounts receivable, net
The classification of accounts receivable is as follows:
Accounts receivable – current portion
Accounts receivable – non-current portion
Total accounts receivable, net
The movements of the allowance for doubtful accounts are as follows:
December 31,
2020
RMB
2021
RMB
43,191
(995)
42,196
9,214
32,982
64,596
(1,061)
63,535
14,987
48,548
December 31,
2020
RMB
32,790
192
32,982
2021
RMB
48,458
90
48,548
Balance at the beginning of the year
Additions charged to bad debt expense
Balance at the end of the year
Year Ended December 31,
2020
RMB
2021
RMB
2019
RMB
—
2,251
2,251
2,251
6,963
9,214
9,214
5,773
14,987
F-31
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
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 deposits
Loans made to employees
Prepaid value-added tax
Professional fee
Prepaid rental expenses
Long-term investment disposal receivable
Inventory
Prepaid advertising expenses
Others
Total prepaid expenses and other current assets
(a)
It mainly included prepaid advertising deposits.
(a)
(b)
December 31,
2020
RMB
2021
RMB
25,238
20,421
40,352
11,169
12,304
—
4,626
7,656
16,587
138,353
24,518
20,584
18,350
18,244
15,669
13,000
5,870
2,654
20,868
139,757
(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,
2020
RMB
285,867
48,253
409,682
243,407
987,209
522,719
464,490
2021
RMB
169,761
43,061
393,561
247,652
854,035
554,594
299,441
The office building with a carrying value of RMB95,291 as of December 31, 2021 has 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
150,188
19,303
22,314
733
192,538
132,898
18,137
18,867
1,354
171,256
F-32
Year Ended December 31,
2020
RMB
2019
RMB
2021
RMB
93,503
11,999
15,345
913
121,760
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
RMB
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
2021
RMB
12,000
—
—
17,880
—
29,880
2,079
15,014
(524)
16,569
—
—
—
46,449
(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, 2020 and 2021, 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 year ended December 31, 2018,
and with an impairment balance of RMB24,000 as of December 31, 2020, which has been written off during the
year of 2021.
(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. In November 2021, the Company sold 15% of the total equity
interest by a price of RMB22,500. The consideration of RMB9,500 was collected as of December 31, 2021, and
the remaining consideration of RMB13,000 was recorded as prepaid and other current asset, which was collected
in January 2022. No impairment loss was recognized as of December 31, 2020.
(d) During the years ended December 31, 2018 and 2019, the Company acquired minority equity interests in several
third-party companies. The Company recognized no impairment loss for the years ended December 31, 2020 and
2021, respectively, and with an impairment balance of RMB13,000 as of December 31, 2020, which has been
written off during the year of 2021.
(e)
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 and accounted for the investment using equity method. No
impairment loss was recognized as of December 31, 2020 and 2021, and for the years then ended.
F-33
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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)
6 LONG-TERM INVESTMENTS, NET (CONTINUED)
(f)
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. In December 2016, the fair value of this
investment increased to RMB15,000. However, 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, 2020 and 2021, respectively, and with an impairment balance
of RMB15,000 as of December 31, 2020, which has been written off during the year of 2021.
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
(a)
December 31,
2020
RMB
2021
RMB
51,786
30,284
10,276
3,479
95,825
48,531
16,825
8,443
2,241
76,040
(a) Starting from 2016, the Company began to provide five-year loans with annual interest rates within a range from
3.325% to 5.0% to the employees for their purchase of houses. Some employees’ loans are pledged by their share
options. The interest was paid monthly and the principal was repaid upon maturity.
8 SHORT-TERM BANK LOANS
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 loan was subsequently repaid in February 2021.
On August 7, 2021, the company signed a credit extension contract with the China Merchants Bank. The carrying
value of office buildings pledged for the borrowing was RMB95,291. As of December 31, 2021, the Company has
drawn RMB30,000, which will mature during the period from August 2022 to November 2022 and the annual interest
rate is 5.3%.
Interest expenses of the loans were RMB565, RMB5,047 and RMB322 for the years ended December 31, 2019, 2020
and 2021, respectively.
F-34
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
9 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued payroll and employee benefits
Refund liability
Recharge card
Professional service fee
VAT and other tax payables
Payable for advertisement
Guarantee liability
Rental fee
Others
Total
(a)
December 31,
2020
RMB
194,862
71,843
10,970
30,165
9,535
23,287
5,808
11,153
34,281
391,904
2021
RMB
201,657
147,210
76,060
41,276
18,513
18,231
9,744
7,414
43,498
563,603
(a) Recharge card is the amount that customers paid in advance without desginated enrollment contract for childhood
& adolescent quality education training courses.
F-35
Table of Contents
10 NET REVENUES
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
(a) Net revenues recognized under ASC Topic 606 for the years ended December 31, 2019, 2020 and 2021 consist of
the following:
Tuition fee
Certification service fee
Loan referral service fee
Others
Business taxes and surcharges
Total net revenues
2019
RMB
Year Ended December 31,
2020
RMB
1,786,230
41,961
7,801
53,135
(4,252)
1,884,875
2021
RMB
2,281,098
60,892
6,332
37,383
(7,070)
2,378,635
1,877,242
75,403
19,939
42,786
(11,205)
2,004,165
Others mainly include AI and software development revenues, franchise fee and miscellaneous revenues.
Year Ended December 31,
2020
RMB
2021
RMB
2019
RMB
Timing of revenue recognition
Services transferred at a point in time
Services transferred over time
Total net revenues
102,897
138,128
104,607
1,866,037 1,781,978 2,274,028
2,004,165 1,884,875 2,378,635
(b) Net revenues recognized under ASC Topic 460 for the years ended December 31, 2019, 2020 and 2021 consist of
the following:
Year Ended December 31,
2020
RMB
2019
RMB
2021
RMB
Guarantee service
11 INCOME TAXES
47,189
13,008
7,885
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, 2021, Tarena HK did not have any assessable
profits arising in or derived from HK SAR. Tarena International’s PRC subsidiaries and consolidated VIE and the
subsidiaries of the VIE 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 “High and New Technology Enterprise” (“HNTE”) are entitled to a
preferential income tax rate of 15%. In 2015, the WFOE renewed its HNTE 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
HNTE qualification, which entitled it to the preferential income tax rate of 15%from January 1, 2018 to December 31,
2020. In 2021, the WFOE renewed its HNTE qualification, which entitled it to the preferential income tax rate of 15%
from January 1, 2021 to December 31, 2023.
F-36
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 “High and New Technology
Enterprise” (“HNTE”). And its income tax rate is 15%for the years ended December 31, 2020, 2021 and 2022.
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%. In
December 2019, the entity was qualified as “High and New Technology Enterprise” (“HNTE”), which has a valid term
of three years, thus its income tax rate was 15% in 2021.
Certain Tarena International’s subsidiaries and branches in China have been qualified as “Small Profit Enterprises”
since 2017 and 2018, and therefore are entitled to enjoy a preferential income tax rate of 20% on 50% of the assessable
profit before tax. From January 1, 2019, to December 31, 2020, 25% of the first RMB1.0 million of the assessable
profit before tax is subject to preferentail tax rate of 20%, and the 50% of the assessable profit before tax exceeding
RMB1.0 million but not exceeding RMB3.0 million is subject to preferential tax rate of 20%. From January 1, 2021 to
December 31, 2021, 12.5% of the first RMB1.0 million of the assessable profit before tax is subject to preferential tax
rate of 20% and the 50% of the assessable profit before tax exceeding RMB1.0 million but not exceeding RMB3.0
million is subject to preferential tax rate of 20%.
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, 2019, 2020 and 2021 was nil.
Since the Company wound up some PRC subsidiaries for the year ended December 31, 2021, 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 of RMB712 along with related full valuation allowance provided from prior years
were written-off by the management as of December 31, 2021.
The components of loss before income taxes are as follows:
Year Ended December 31,
2020
RMB
2021
RMB
2019
RMB
PRC
Hong Kong
Cayman Islands
Taiwan
Canada
Total loss before income taxes
(986,464)
(876)
(87,470)
(2,292)
(3,335)
(1,080,437)
(739,036)
(8,280)
(54,913)
(1,549)
(2,449)
(806,227)
(342,944)
(1,751)
(13,562)
(1,905)
(1,561)
(361,723)
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)
11 INCOME TAXES (CONTINUED)
Income tax benefit (expense) consists of the following:
Current income tax expense
Deferred income tax benefit (expense)
Total
RMB RMB
(4,478)
46,037
41,559
(7,397)
42,431
35,034
Year Ended December 31,
2020
2019
2021
RMB
(12,837)
(101,220)
(114,057)
The actual income tax expense reported in the consolidated statements of comprehensive loss for each of the years
ended December 31, 2019, 2020 and 2021 differs from the amount computed by applying the PRC statutory income
tax rate to income before income taxes due to the following:
Year Ended December 31,
2020
2021
2019
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
Actual income tax expense
25.0 %
25.0 %
25.0 %
(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 %
(1.1)%
3.4 %
(2.0)%
(9.5)%
(5.5)%
(41.8)%
(31.5)%
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 are 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-38
December 31,
2020
RMB
2021
RMB
11,750
253,796
19,805
3,240
288,591
(146,371)
142,220
11,750
281,813
30,955
5,326
329,844
(288,844)
41,000
1,384
1,384
1,067
1,067
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
169,543
63,309
(2,553)
(71,090)
(20,032)
139,177
139,177
46,755
(4,643)
(30,671)
(4,247)
146,371
Year Ended December 31,
2020
RMB
2019
RMB
2021
RMB
146,371
168,163
(16,940)
(8,038)
(712)
288,844
The valuation allowance as of December 31, 2020 and 2021 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 has considered projected future
taxable income and tax planning strategies in making this assessment. As of December 31, 2021, the Company had tax
losses carryforwards of RMB2,744,973, including which from Hong Kong subsidiary of RMB8,776 that does not have
an expiring date. Tax losses of RMB24,847, RMB333,740, RMB884,403, RMB818,369, and RMB674,838 will
expire, if unused, by 2022, 2023, 2024, 2025 and 2026, 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 years ended December 31, 2020 and 2021.
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 major transactions with:
(1) Chuanbang Business Consulting (Beijing) Co., Ltd. (“Chuanbang”), a company wholly owned by Mr. Shaoyun
Han (“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) Beijing Huimoer Technology Co., Ltd (“Beijing Huimoer”), a company provides IT consulting services and
programming, which is 20% owned by the Company since January 2018.
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)
12 RELATED PARTY TRANSACTIONS (CONTINUED)
(5) Ms. Han Lijuan, a sister of Mr. Han.
The Company mainly had the following balances and transactions with related parties:
Related party balances
Amounts due from related parties
Ningxia Company
Others
Total
Notes:
(i) The balance resulted from the franchise service income.
F-40
(i)
December 31,
2020
RMB
2021
RMB
204
101
305
202
637
839
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, 2019, 2020 and 2021 are summarized as
follows:
Year Ended December 31,
2020
2021
RMB RMB RMB
2019
Cash collection service expense to Chuanbang
Franchise income from Bolton School
Franchise, training and consulting service income from Ningxia
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
(a)
790
1,379
143
1,112
1,333
325
79
518
(11)
305
148
81
39
462
—
811
—
—
Notes:
(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$70 million and an extension of the term of the plan to June 20, 2019. For the year
ended December 31, 2018, 3,768,495 ordinary shares were repurchased on the open market in the amount of
RMB202,066.
For the year ended December 31, 2020, 100,729 ordinary shares were repurchased with the amount of RMB2,646.
No ordinary shares were repurchased for the year ended December 31, 2021.
F-41
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
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, 2019, 2020 and 2021, the PRC Entities made appropriations to the statutory
reserves of RMB313, RMB5,307 and RMB16,736, respectively. As of December 31, 2020 and 2021, the
accumulated balance of the statutory reserves was RMB158,828 and RMB175,564, respectively, which is
combined in accumulated deficit.
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, 2020 and 2021 were RMB1,483,412 and RMB1,523,198
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
No cash dividend was declared for the years ended December 31, 2019, 2020 and 2021.
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
Share incentive plans
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, 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.
During the year ended December 31, 2021, the board of the directors of Tarena International approved the grant of
options to certain officers and employees to purchase 879,000 ordinary shares of Tarena International at exercise prices
ranging from US$0.00 to US$0.37 per share. These options vest over a period ranging between 1 and 2 years. The
options have a contractual term of ten years.
F-43
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
14 SHARE BASED COMPENSATION (CONTINUED)
Share options (Continued)
A summary of share options activity for the year ended December 31, 2021 is as follows:
Outstanding at December 31, 2020
Granted
Exercised
Forfeited
Outstanding at December 31, 2021
Vested and expected to vest as of December 31, 2021
Exercisable as of December 31, 2021
Number of
Share
Options
2,822,807
879,000
(835,615)
(126,172)
2,740,020
3,954,565
1,983,975
Weighted
Average
Weighted
Average
Exercise Price Contractual
Years
Remaining Aggregate
Intrinsic
Value US$
4,311
—
—
—
1,976
2,059
835
6.85
—
—
—
6.90
5.59
5.80
US$
1.91
0.29
0.73
3.65
1.67
1.88
2.18
The total intrinsic value of options exercised during the years ended December 31, 2019, 2020 and 2021 were
RMB7,936, RMB26,301 and RMB6,261, 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 (per
share)
2019
52.05%-59.74%
0%
2.2-2.8
Year Ended December 31,
2020
72.22%-78.51%
0%
2.2-2.8
1.58%-2.89%
0.79%-2.08%
2021
73.76%-75.78%
0%
2.2-2.8
1.09%-1.66%
US$0.59-US$6.48 US$1.71-US$4.65 US$0.20-US$2.92
The expected volatility was based on the historical volatilities of the Company and comparable publicly traded
companies engaged in the similar industry.
No income tax benefit was recognized in the consolidated statements of comprehensive loss as the share-based
compensation expense was not tax deductible.
F-44
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
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, 2019, 2020 and 2021 are as follows:
Year Ended December 31,
2020
US$
2021
US$
2019
US$
Weighted average grant date fair value of option per share
Aggregate grant date fair value of options
4.84
4,980
2.52
3,115
0.82
720
As of December 31, 2021, there was approximately RMB3,619 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 0.42 years.
Non-vested shares
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.
On March 1, 2021, the board of directors of Tarena International approved the grant of 69,355 non-vested shares to 1
independent director and 1 executive officer, of which the vesting period is one year. On April 9, 2021, the board of
directors of Tarena International approved the grant of 48,690 non-vested shares to 1 independent director and 1
executive director, of which the vesting period is one year.
F-45
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
14 SHARE BASED COMPENSATION (CONTINUED)
Non-vested shares (Continued)
A summary of the non-vested shares activity under the 2014 Share Plan for the year ended December 31, 2021 is
summarized as follows:
Outstanding as of December 31, 2020
Granted
Vested
Forfeited
Outstanding as of December 31, 2021
Number of Non-
vested Shares
Weighted Average
Grant Date Fair Value
US$
310,438
118,045
(211,288)
(57,810)
159,385
7.66
3.12
4.40
11.80
7.11
As of December 31, 2021, there was approximately RMB4,869 of total unrecognized compensation cost related to
non-vested shares, which is expected to be recognized over a weighted average period of approximately 1.97 years.
The total fair value of shares vested during the years ended December 31, 2019, 2020 and 2021 was RMB4,707,
RMB9,013 and RMB5,930, 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 for
basic and diluted earnings per share
(1,036,086)
(766,643)
(474,547)
Year Ended December 31,
2020
RMB
2021
RMB
2019
RMB
Denominator:
Denominator for basic earnings per share:
Weighted average number of Class A and Class B ordinary shares
outstanding
Loss per Class A and Class B ordinary share basic and diluted
F-46
53,386,075 54,341,213 56,260,925
(8.43)
(19.41)
(14.11)
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, 2021, 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 years ended December 31, 2019, 2020 and 2021 consist as follows:
Short-term rental expense
Operating lease expense excluding short-term rental expense
Other information related to operating leases is as follows:
Year Ended
December 31,
2020
RMB
114,723
170,022
2019
RMB
93,548
218,314
2021
RMB
35,707
250,043
Cash paid for amounts included in the measurement of lease liabilities:
Non-cash right-of-use assets in exchange for new lease liabilities:
314,300
432,898
2019
RMB
Year Ended
December 31,
2020
RMB
244,491
484,202
2021
RMB
228,857
185,875
As of December 31, 2020 and 2021, the weighted average remaining lease term was 3.20 years and 2.76 years,
respectively, and the weighted average discount rate was 5.72% and 5.60% for the Group’s operating leases,
respectively.
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 and 2021.
The weighted-average remaining lease terms were calculated by using the remaining lease term and the lease liability
balance for each lease as of December 31, 2020 and 2021.
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)
16 LEASES (CONTINUED)
As of December 31, 2021, maturities of lease liabilities were as follows:
Year ending December 31,
2022
2023
2024
2025
2026
2027 and thereafter
Total lease payments
Less: imputed interest
Total
Less: current portion
Non-current portion
RMB
256,667
165,389
83,350
31,251
11,057
3,658
551,372
38,860
512,512
239,937
272,575
Gross rental expenses incurred under operating leases were RMB311,862, RMB284,745 and RMB285,750 for the
years ended December 31, 2019, 2020 and 2021, respectively. Sublease rental income of RMB1,587, RMB971, and
RMB583 for the years ended December 31, 2019, 2020 and 2021, respectively, were recognized as reductions of gross
rental expenses.
17 COMMITMENTS AND CONTINGENCIES
The Company and certain of its current and former officers and directors have been named as defendants in a putative
securities class action captioned Yili Qiu v. Tarena International, Inc. et al., (Case No. 1:21-cv-03502) filed on June 22,
2021 in the U.S. District Court for the Eastern District of New York. The complaint asserts that defendants made false
or misleading statements in certain SEC filings between August 16, 2016 and November 1, 2019 related to the
Company’s business and operating results in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. On September 1, 2021, the court entered an order appointing lead
plaintiff in this action. On September 14, 2021, the parties filed a joint status report and proposed scheduling
stipulation, pursuant to which, the lead plaintiff filed an amended complaint on November 1, 2021. On December 16,
2021, the Company filed its pre-motion letter and the plaintiffs filed their opposition on December 23, 2021. On
January 18, 2022, the Company moved to dismiss the complaint. On April 4, 2022, lead plaintiff served its opposition
to the motion. Briefing is scheduled to be complete by May 19, 2022. The Company believes that it is still too early to
assess the potential outcome of this class action lawsuit. The Company intends to defend itself vigorously in the
action.
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.
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)
18 SEGMENT INFORMATION
The Company has organized its operations into two segments: Adult Professional Education and Childhood &
adolescent Quality Education Services, 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.
Net revenues, cost of revenues, and gross profit by segment for the years ended December 31, 2019, 2020 and 2021
were as follows.
Net revenues
Cost of revenues
Gross profit
Net revenues
Cost of revenues
Gross profit
Net revenues
Cost of revenues
Gross profit (loss)
Adult
Professional
Education
RMB
1,150,247
(409,326)
740,921
Adult
Professional
Training
RMB
1,136,043
(420,349)
715,694
Year Ended December 31, 2021
Childhood & adolescent
Quality Education
Services
RMB
Total
RMB
2,386,520
(1,201,419)
1,185,101
1,236,273
(792,093)
444,180
Year Ended December 31, 2020
Childhood & adolescent
Quality Education
Training
RMB
Total
RMB
1,897,883
(1,066,842)
831,041
761,840
(646,493)
115,347
Year Ended December 31, 2019
Childhood &
adolescent
Adult
Professional Quality Education
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-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)
19 PARENT ONLY FINANCIAL INFORMATION
The following presents condensed parent company financial information of Tarena International.
Condensed Balance Sheets
ASSETS
Current assets:
Cash and cash equivalents
Prepaid expenses and other current assets
Due from subsidaries
Total current assets
Investment in subsidiaries
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accrued expenses and other current liabilities (1)
Due to intercompany
Total current liabilities
Total liabilities
2020
RMB
December 31,
2021
RMB
2021
US$
3,793
699
410,910
415,402
(1,241,409)
(826,007)
23,506
24
407,795
431,325
(1,700,223)
(1,268,898)
3,689
4
63,991
67,684
(266,802)
(199,118)
7,213
298,782
305,995
305,995
5,781
309,241
315,022
315,022
907
48,527
49,434
49,434
Commitments and contingencies
—
—
—
Shareholders’ equity:
Class A ordinary shares (US$0.001 par value, 860,000,000 shares
authorized, 55,546,254 and 56,593,157 shares issued, 48,346,384 and
49,393,287 shares outstanding as of December 31, 2020 and 2021,
respectively)
Class B ordinary shares (US$0.001 par value, 40,000,000 shares
authorized, 7,206,059 shares issued and outstanding as of December
31, 2020 and 2021, respectively)
Treasury shares (7,199,870 and 7,199,870 Class A ordinary shares as of
December 31, 2020 and 2021, at cost)
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total shareholders’ deficit
Total liabilities and shareholders’ equity
(1) Mainly related to repurchase of treasury shares.
F-50
349
355
74
74
56
12
(459,815)
1,324,161
49,120
(2,045,891)
(1,132,002)
(826,007)
(459,815)
1,347,205
48,699
(2,520,438)
(1,583,920)
(1,268,898)
(72,155)
211,406
7,641
(395,512)
(248,552)
(199,118)
Table of Contents
TARENA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of RMB and US$,
except for number of shares and per share data)
19 PARENT ONLY FINANCIAL INFORMATION (CONTINUED)
Condensed Statements of Comprehensive Loss
Selling and marketing expenses
General and administrative expenses
Operating (loss) gain
Equity in loss of subsidiaries
Foreign currency exchange gains (loss)
Interest (expense) income
Other income
Loss before income taxes
Income tax expense
Net loss
Other comprehensive income (loss)
Foreign currency translation adjustment
Comprehensive loss
Year Ended December 31,
2019
RMB
2020
RMB
2021
RMB
2021
US$
—
(29,011)
(29,011)
(1,007,788)
115
(67)
665
(1,036,086)
—
(1,036,086)
(693)
(16,890)
(17,583)
(748,006)
(1,109)
55
—
(766,643)
—
(766,643)
(323)
5,955
5,632
(480,114)
(268)
203
—
(474,547)
—
(474,547)
(51)
934
883
(75,340)
(42)
32
—
(74,467)
—
(74,467)
914
(1,035,172)
(2,266)
(768,909)
(421)
(474,968)
(66)
(74,533)
Condensed Statements of Cash Flows
Year Ended December 31,
2019
2021
RMB RMB RMB US$
2020
2021
Operating activities:
Net cash (used in) provided by operating activities
(3,315)
(8,010)
14,458
2,269
Financing activities:
Issuance of Class A ordinary shares in connection with exercise of
share options
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 (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
3,335
(13,726)
(5,058)
(15,449)
(18,764)
856
(17,908)
25,507
7,599
3,354
—
—
3,354
(4,656)
850
(3,806)
7,599
3,793
3,947
—
—
3,947
18,405
1,308
19,713
3,793
23,506
619
—
—
619
2,888
207
3,095
594
3,689
20 SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date of issuance of this consolidated financial statements,
and does not identify 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 Tongchengshidai Technologies Inc.
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.
Hohhot 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.
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
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
Jurisdiction of Incorporate
with The Registrant
Affiliate Relationship
Name
Zhongshan Tarena Software Technology Co.,
Ltd.
Foshan Tarena 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.
Changzhou Tarena Information Technology
Co., Ltd.
Beijing Meow Roar Culture Media Co., Ltd
Zhengzhou Tarena Professional Education
School
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
Shenyang Tarena Professional Education
School
Shenyang Tarena Times Professional Education
School
Dalian High-Tech Zone Tarena Professional
Education School
Changchun Chaoyang Tarena Professional
Education School
PRC
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
School sponsored by Zhengzhou Tarena
Technology Co., Ltd.
School sponsored by Chengdu Tarena
Technology Co., Ltd.
School sponsored by Harbin Tarena
Technology Co., Ltd.
School sponsored by Shenyang Tarena
Technology Co.
School sponsored by Shenyang Tarena
Technology Co., Ltd.
School sponsored by Dalian Tarena
Software Co., Ltd.
School sponsored by Changchun Tarena
Technology Co., Ltd.
Name
Changchun Nanguanqu Yingcai Tianyi
Professional Education School
Nanjing Tarena Weishang Education School
Kunming Guandu Tarena Professional
Education School
Jinan Tarena Professional Education School
Shenzhen Bao’an Tarena Professional
Education School
Jurisdiction of Incorporate
PRC
PRC
PRC
PRC
PRC
Qingdao Tarena Professional Education School
PRC
Weifang Tarena Professional Education School
PRC
Shenzhen Longhua Tarena Professional
Education School (formerly known as
Shenzhen Longhua Xinqu Tarena Professional
Education School)
Guangzhou Tarena Software Professional
Education School
Wuhan Tarena Professional Education School
Wuhan Technology Tarena Professional
Education School
Ningbo Tarena Professional Education School
Nanchang Xihu Tarena Technology Digital Art
School
PRC
PRC
PRC
PRC
PRC
PRC
Affiliate Relationship
with The Registrant
School sponsored by Changchun Yingcai
Tianyi Technology Co., Ltd.
School sponsored by Nanjing Tarena
Weishang Information Technology Co., Ltd.
School sponsored by Kunming Tarena
Technology Co., Ltd.
School sponsored by Jinan Tarena Software
Co., Ltd.
School sponsored by Shenzhen Tarena
Software Co., Ltd.
School sponsored by Qingdao Tarena
Software Technology Co., Ltd.
School sponsored by Tarena Technologies
Inc.
School sponsored by Shenzhen Tarena
Software Co., Ltd.
School sponsored by Guangzhou Tarena
Information Technology Co., Ltd.
School sponsored by Wuhan Tarena
Software Co., Ltd.
School sponsored by Wuhan Tarena
Software Co., Ltd.
School sponsored by Ningbo Tarena
Information Technology Co., Ltd.
School sponsored by Nanchang Tarena
Technology Co., Ltd.
Name
Chongqing Jiulongpo Tarena Professional
Education School
Changsha Kaifu Tongcheng Tongmei
Education Training School (formerly known as
Science Kid Robot Education Training School)
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 Co., Ltd.
Shijiazhuang Changanqu Tongzhicheng
Education Training School Co., Ltd.
Shenyang Heping Tongcheng Educational
Center
Shenyang Tiexi Tongcheng Tongmei
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.
Jurisdiction of Incorporate
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.
School sponsored by Wuhan HaoXiaoZi
Robot 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
Meiying Zhang
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.
School sponsored by Wuhan Tarena
Technology Consulting Service Co., Ltd.
Name
Fuzhou Gulou Tarena Professional Education
Co.,Ltd.
Shenyang Shenhe Tongcheng Tongmei
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.
Chengdu Tongcheng Tongmei Kechuang
Education and Training School Co., Ltd.
Tai'an Taishan District Tongcheng Tongmei
Training School Co., Ltd.
Nanchang Honggutan New District
Tongchuang Training Center Co., Ltd.
Qingdao West Coast New Area Tong Youwei
Science and Technology Training School Co.,
Ltd.
Tianjin Tongcheng Tongmei Coding NO 1
Extracurricular Training School Co., Ltd.
Tianjin Tongcheng Tongmei Coding NO 5
Extracurricular Training School Co., Ltd.
Tianjin Tongcheng Tongmei Coding NO 6
Extracurricular Training School Co., Ltd.
Tianjin Tongcheng Tongmei Coding NO 7
Extracurricular Training School Co., Ltd.
Tianjin Tongcheng Tongmei Coding NO 8
Extracurricular Training School Co., Ltd.
Zibo Tongcheng Tongmei Training School Co.,
Ltd.
Jurisdiction of Incorporate
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 Beijing Tarena Jinqiao
Technology Co.,Ltd.
School sponsored by Shenyang 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 Beijing 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 Tongcheng
Technology Co.,Ltd.
School sponsored by Beijing Tarena Jinqiao
Technology Co.,Ltd.
School sponsored by Tianjin Tongcheng
Technology Co.,Ltd.
School sponsored by Tianjin Tongcheng
Technology Co.,Ltd.
School sponsored by Tianjin Tongcheng
Technology Co.,Ltd.
School sponsored by Tianjin Tongcheng
Technology Co.,Ltd.
School sponsored by Tianjin Tongcheng
Technology Co.,Ltd.
School sponsored by Beijing Tongcheng
Technology Co.,Ltd.
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 26, 2022
/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 26, 2022
/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, 2021 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 26, 2022
/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, 2021 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 26, 2022
/s/ Wing Kee Lau
Name: Wing Kee Lau
Title: Chief Financial Officer
Exhibit 15.1
Christopher.bickleyl@conyersdill.com
April 26, 2022
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 2021 (the “Annual Report”), which will be
filed with the Securities and Exchange Commission (the “SEC”) in the month of April 2022, 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
Exhibit 15.2
April 26, 2022
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 Related 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, 2021 (the “Annual Report”), which will be filed with the Securities and Exchange Commission (the “SEC”) in the month
of April 2022, 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 Related 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
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statements of Tarena International, Inc. on Form
S-8 (No. 333-204494, No. 333-197226 and No. 333-228771) of our report dated April 26, 2022, with respect to
our audits of the consolidated financial statements of Tarena International Inc. as of December 31, 2020 and 2021
and for the years ended December 31, 2019, 2020 and 2021 and our report dated April 26, 2022 with respect to
our audit of internal control over financial reporting of Tarena International Inc. as of December 31, 2021, which
reports are included in this Annual Report on Form 20-F of Tarena International Inc. for the year ended December
31, 2021.
Exhibit 15.3
/s/ Marcum Bernstein & Pinchuk LLP
Marcum Bernstein & Pinchuk LLP
Beijing, China
April 26, 2022