UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the fiscal year ended March 31, 2011 |
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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Date of event requiring this shell company report |
For the transition period from to
Commission file number: 001-33910
ATA Inc.
(Exact name of Registrant as specified in its charter)
Not applicable
(Translation of Registrants name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
8th Floor, Tower E
6 Gongyuan West Street
Jian Guo Men Nei
Beijing 100005, China
(Address of principal executive offices)
Benson Tsang
Chief Financial Officer
ATA Inc.
8th Floor, Tower E
6 Gongyuan West Street
Jian Guo Men Nei
Beijing 100005, China
Telephone: 8610-6518-1122
Facsimile: 8610-6517-9517
(Name, Telephone E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
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Title of each class |
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Name of each exchange on which registered |
American Depositary Shares, each representing two
common shares, par value $0.01 per share
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NASDAQ Global Market |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report:
45,730,517 common shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. o Yes þ No
If this report is an annual or transaction report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. o Yes þ 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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o Yes oNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer. See the definitions of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Indicate by check mark which basis of accounting the registrant has used to prepare the financial
statements included in this filing:
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U.S. GAAP þ
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International Financial Reporting Standards as issued by the International Accounting Standards Board o
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Other o
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If Other has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow:
Item 17 o Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
TABLE OF CONTENTS
INTRODUCTION
Except where the context otherwise requires and for purposes of this annual report only:
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all references to years are to the calendar year from January 1 to December 31 and
references to our fiscal year or years are to the fiscal year or years ended March 31; |
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we, us, our company, our, and ATA refer to ATA Inc. and its subsidiaries and
affiliated PRC entity as the context requires; |
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China, Chinese and PRC refers to the Peoples Republic of China, excluding, for
purposes of this annual report only, Taiwan and the Special Administrative Regions of Hong
Kong and Macau; |
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all references to Renminbi or RMB are to the legal currency of China, and all
references to U.S. dollars, dollars, $ or US$ are to the legal currency of the
United States; |
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U.S. GAAP refers to generally accepted accounting principles in the United States;
and |
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PRC GAAP refers to generally accepted accounting principles in the Peoples Republic
of China. |
This annual report on Form 20-F includes our audited consolidated statements of operations for
the fiscal years ended March 31, 2009, 2010 and 2011 and audited consolidated balance sheets as of
March 31, 2010 and 2011. Each of our ADSs represents two common shares. Our ADSs are listed on the
Nasdaq Global Market under the symbol ATAI.
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our industry. All
statements other than statements of historical fact in this annual report are forward-looking
statements. In some cases, these forward-looking statements can be identified by words and phrases
such as may, should, intend, predict, potential, continue, will, expect,
anticipate, estimate, plan, believe, is /are likely to or the negative form of these
words and phrases or other comparable expressions. The forward-looking statements included in this
annual report relate to, among others:
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our goals and strategies; |
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our future prospects and market acceptance of our technologies, products and services; |
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our future business development and results of operations; |
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projected revenues, profits, earnings and other estimated financial information; |
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our plans to expand and enhance our products and services; |
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competition in the computer-based testing, educational services and test preparation
and training markets; and |
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Chinese laws, regulations and policies, including those applicable to the education
industry, Internet content providers, Internet content and foreign exchange. |
These forward-looking statements involve various risks, assumptions and uncertainties.
Although we believe that our expectations expressed in these forward-looking statements are
reasonable, our expectations may turn out to be incorrect. Our actual results could be materially
different from our expectations. Important risks and factors that could cause our actual results to
be materially different from our expectations are generally set forth in Item 3.D. of this annual
report, Key information Risk Factors and elsewhere in this annual report.
The forward-looking statements made in this annual report relate only to events or information
as of the date on which the statements are made in this annual report. All forward-looking
statements included herein attributable to us or other parties or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained or referred to in this section.
Except to the extent required by applicable laws and regulations, we undertake no obligation to
update any forward-looking statements to reflect events or circumstances after the date on which
the statements are made or to reflect the occurrence of unanticipated events.
2
This annual report also contains information and statistics relating to Chinas economy and
the industries in which we operate derived from various publications issued by Chinese governmental
entities and other third parties which have not been independently verified by us. The information
in such third-party sources may not be consistent with other information compiled in or outside
China. We have taken such care as we consider reasonable in the reproduction and extraction of
information from third-party sources.
PART I.
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ITEM 1. |
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IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
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ITEM 2. |
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OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
A. Selected Financial Data
Selected Consolidated Financial Data
The following selected consolidated statement of operations data for the fiscal years ended
March 31, 2009, 2010 and 2011 (other than ADS data), and
the selected consolidated balance sheet data as of March 31, 2010 and 2011, are derived from our
audited consolidated financial statements included elsewhere in this annual report and should be
read in conjunction with these consolidated financial statements and related notes. Our selected
consolidated statements of operations data for the years ended March 31, 2007 and 2008 (other than
ADS data) and the selected consolidated balance sheet data as of March 31, 2007, 2008 and 2009 are
derived from audited consolidated financial statements not included in this annual report. The
following information should also be read in conjunction with Item 5. Operating and Financial
Review and Prospects. Our audited consolidated financial statements are prepared in accordance
with U.S. GAAP.
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For the Year Ended March 31, |
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2007 |
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2008 |
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2009 |
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2010 |
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2011 |
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RMB |
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RMB |
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RMB |
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RMB |
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RMB |
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US$ |
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(In thousands, except for share and ADS data) |
Selected
Consolidated Statements
of Operations Data: |
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Net Revenues |
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Testing services |
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24,628 |
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78,198 |
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137,046 |
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187,158 |
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243,103 |
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37,125 |
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Test-based educational services |
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42,804 |
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48,594 |
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42,546 |
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31,787 |
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25,727 |
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3,929 |
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Test
preparation and training solutions |
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10,076 |
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36,908 |
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25,071 |
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11,149 |
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15,427 |
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2,356 |
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Other |
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7,373 |
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8,388 |
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12,882 |
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14,938 |
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19,647 |
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3,000 |
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Total net revenues |
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84,881 |
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172,088 |
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217,545 |
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245,032 |
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303,904 |
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46,410 |
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Gross profit |
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43,779 |
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105,141 |
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124,937 |
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115,497 |
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154,688 |
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23,623 |
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Total operating expenses |
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63,375 |
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81,713 |
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98,549 |
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145,552 |
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133,796 |
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20,432 |
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Income (loss) from operations |
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(19,596 |
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23,428 |
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26,388 |
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(30,055 |
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20,892 |
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3,191 |
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Foreign
currency exchange gains (losses), net |
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(909 |
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(236 |
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665 |
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(284 |
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1,138 |
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174 |
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Income tax benefit (expense) |
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1,793 |
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(7,321 |
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(6,638 |
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(5,742 |
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(3,312 |
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(506 |
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Net income (loss) |
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(16,790 |
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20,170 |
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22,810 |
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(35,350 |
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19,754 |
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3,017 |
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3
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For the Year Ended March 31, |
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2007 |
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2008 |
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2010 |
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2011 |
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RMB |
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RMB |
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RMB |
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RMB |
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RMB |
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US$ |
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(In thousands, except for share and ADS data) |
Basic earnings (loss) per common share |
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(0.82 |
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0.79 |
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0.50 |
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(0.79 |
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0.44 |
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0.07 |
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Diluted earnings (loss) per common share |
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(0.82 |
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0.53 |
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0.49 |
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(0.79 |
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0.44 |
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0.07 |
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Basic earnings (loss) per ADS (1) |
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(1.64 |
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1.58 |
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1.00 |
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(1.58 |
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0.88 |
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0.14 |
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Diluted earnings (loss) per ADS (1) |
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(1.64 |
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1.06 |
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0.98 |
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(1.58 |
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0.88 |
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0.14 |
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Weighted average ordinary shares
outstanding |
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Basic |
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20,594,071 |
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25,442,650 |
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45,376,008 |
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44,789,512 |
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44,469,182 |
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Diluted |
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20,594,071 |
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37,761,561 |
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46,431,518 |
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44,789,512 |
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44,469,182 |
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(1) |
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Each ADS represents two common shares. |
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At March 31, |
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2007 |
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2008 |
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2009 |
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2010 |
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2011 |
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RMB |
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RMB |
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RMB |
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RMB |
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RMB |
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US$ |
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(In thousands) |
Selected Consolidated Balance Sheet
Data: |
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Cash |
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45,019 |
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332,197 |
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310,503 |
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213,874 |
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268,058 |
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40,936 |
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Accounts receivable, net |
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16,978 |
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63,502 |
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71,077 |
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82,900 |
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47,052 |
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7,185 |
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Total current assets |
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76,656 |
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403,309 |
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399,002 |
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309,074 |
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325,491 |
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49,706 |
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Total assets |
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108,165 |
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436,634 |
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471,245 |
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428,503 |
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435,447 |
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66,498 |
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Deferred revenues, current |
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26,341 |
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36,708 |
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40,238 |
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25,837 |
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19,101 |
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2,917 |
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Total current liabilities |
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45,620 |
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66,530 |
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85,189 |
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78,223 |
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67,448 |
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10,300 |
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Deferred revenues, non-current |
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7,897 |
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7,026 |
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5,626 |
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4,674 |
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3,824 |
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584 |
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Total liabilities |
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53,517 |
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73,556 |
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91,004 |
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83,028 |
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71,384 |
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10,901 |
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Accumulated deficit |
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(135,082 |
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(114,912 |
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(92,102 |
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(127,452 |
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(107,698 |
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(16,447 |
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Total shareholders equity |
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54,648 |
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363,078 |
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380,241 |
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345,475 |
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364,063 |
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55,597 |
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For the Year Ended March 31, |
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2007 |
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2008 |
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2009 |
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2010 |
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2011 |
Key Operating Data: |
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Number of tests delivered (1) |
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3,335,701 |
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12,787,470 |
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5,063,379 |
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5,760,147 |
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7,162,462 |
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(1) |
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Includes Microsoft royalty tests overseas and tests delivered through our test delivery
platform and tests using our Dynamic Simulation Technology. Also includes free tests delivered
for business development purpose. The number of tests delivered excluding the free tests in
the fiscal years ended March 31, 2007, 2008, 2009, 2010 and 2011 was 3,335,701, 3,632,285,
5,063,379, 5,760,147 and 6,907,158, respectively. We delivered 9,155,185 free tests in the
fiscal year ended March 31, 2008 for the on-line nationwide accounting knowledge contest. |
Exchange Rate Information
We conduct our business primarily in China and a substantial majority of our revenues and
expenses are denominated in Renminbi. The conversion of Renminbi into U.S. dollars in this annual
report is based on the noon buying rate in The City of New York for cable transfers of Renminbi per
U.S. dollar certified for customs purposes by the Federal Reserve Bank of New York, as set forth in
the H.10 weekly statistical release of Federal Reserve Board. Unless otherwise noted, all
translations from Renminbi to U.S. dollars in this annual report were made at a rate of RMB6.5483
to US$1.00, which was the noon buying rate in effect as of March 31, 2011. The noon buying rate on
June 10, 2011 was RMB6.4801 to US$1.00. We make no representation that any Renminbi or U.S. dollar
amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be,
at any particular rate, the rates stated below, or at all. The Chinese government restricts or
prohibits the conversion of Renminbi into foreign currency and foreign currency into Renminbi for
certain types of transactions.
The following table sets forth information concerning exchange rates between the Renminbi and
the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and
are not necessarily the exchange rates that we used in this annual report.
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Renminbi per U.S. Dollar Noon Buying Rate |
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Average (1) |
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High |
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Low |
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Period-end |
Fiscal year ended March 31, 2007
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7.8843 |
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8.0300 |
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7.7232 |
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7.7232 |
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Fiscal year ended March 31, 2008
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7.4197 |
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7.7345 |
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7.0105 |
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7.0120 |
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Fiscal year ended March 31, 2009
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6.8684 |
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7.0185 |
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6.7800 |
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6.8329 |
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Fiscal year ended March 31, 2010
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6.8268 |
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6.8319 |
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6.8180 |
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6.8258 |
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Fiscal year ended March 31, 2011
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6.5645 |
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6.5743 |
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6.5483 |
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6.5483 |
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Renminbi per U.S. Dollar Noon Buying Rate |
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Average (1) |
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High |
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Low |
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Period-end |
Most recent six months: |
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December 2011
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6.6497 |
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6.6745 |
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6.6000 |
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6.6000 |
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January 2011
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6.5964 |
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6.6364 |
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6.5809 |
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6.6017 |
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February 2011
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6.5761 |
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6.5965 |
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6.5520 |
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6.5713 |
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March 2011
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6.5645 |
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6.5743 |
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6.5483 |
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6.5483 |
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April 2011
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6.5267 |
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6.5477 |
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6.4900 |
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|
|
6.4900 |
|
May 2011
|
|
|
6.4957 |
|
|
|
6.5073 |
|
|
|
6.4786 |
|
|
|
6.4786 |
|
June 2011 (period through June 10)
|
|
|
6.4790 |
|
|
|
6.4824 |
|
|
|
6.4754 |
|
|
|
6.4801 |
|
|
|
|
Source: H.10 weekly statistical release of the Federal Reserve Board |
|
(1) |
|
Annual averages are calculated using the exchange rates for the last day of each month during
the relevant year. Monthly averages are calculated using daily exchange rates during the
month. |
4
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risks Relating to Our Business
If we are not successful in achieving market acceptance for our new service offerings, our
revenues and operating results will be adversely affected.
In order to increase our revenue sources, we have allocated, and intend to continue to
allocate, time, effort and capital to expand our service offerings, including our HR Select
employee assessment solution, distribution and administration of the Test of English for
International Communication, or TOEIC exam in China and Cambridge ESOL Young Learners English
online tutorials, all of which we launched in 2009. We generated
RMB1.2 million, RMB29.8 million, and
RMB54.8 million from the HR Select, TOEIC and Cambridge ESOL Young Learners English lines of business
in 2009, 2010, and 2011, respectively. As the markets for these offerings are relatively new for
us, we cannot assure you that we will succeed in adapting to client needs in these markets or
effectively addressing risks associated with this expansion. It may be difficult for us to
accurately predict demand for these and other new service offerings we develop. Furthermore, the
Chinese government may enact unforeseen regulations and policies that could limit our ability to
provide or expand certain services, such as prohibitions on foreign-invested entities engaging in
certain businesses. Additional risks which we face expanding in this market include the following:
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we may underestimate the amount of capital, personnel and other resources required to
carry out our expansion plans, which may affect the success of our expansion and/or
negatively impact the quality of our other product and service offerings; |
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if we are unsuccessful in the relevant new market, it may negatively affect our
reputation and the status of our brand in our other markets; |
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we may fail to develop sufficient payment collection, technical support and other
administrative capabilities necessary to successfully develop and manage our new service
offerings on an increasingly large scale. |
5
The
success of our new service offerings going forward also depends on our ability to gain and maintain relevant business relationships, such as our relationship with Educational Testing
Services, or ETS, in relation to our distribution and administration
of TOEIC exams in China and our relationship with the Ministry of Education and Cambridge ESOL in relation to our Cambridge
ESOL Young Learners English online tutorials. If our new service offerings are ultimately
unsuccessful or do not grow as rapidly as we expect, our net revenues and profitability will be
adversely affected.
Our financial results are subject to fluctuations and seasonality related to the revenue
cycles for our products and services, our relatively long and unpredictable sales cycle and other
factors beyond our control, any of which may decrease our revenues in a particular period. As a
result, it is difficult for us to predict our results of operations and you should not rely on our
historical operating results as an indication of our future financial performance.
Our results of operations have varied in the past from period to period, and are likely to
vary in the future, due to the fact that a substantial portion of our sources of revenues are
seasonal. We have experienced seasonality and expect in the future to continue to experience
seasonality in net revenues and accounts receivable related to our test delivery services, with the
quarters ending June 30 and December 31 typically having higher net revenues from testing services
and the quarters ending September 30 and March 31 typically having lower net revenues from testing
services. This is primarily because the tests from which we derive substantial revenues are mostly
delivered in the quarters ending June 30 and December 31. Test timing can be a major contributing
factor to quarterly fluctuations of financial results. For example, we had RMB33.3 million (US$5.1
million) in the quarter ended September 30, 2010 as compared to RMB135.9 million (US$20.8 million)
in revenues in the quarter ended December 31, 2010 primarily because our major test sponsors, the
Securities Association of China, chose to hold tests during the third quarter instead of the second
quarter this year. Demand for test preparation and training solutions are generally highest close
to test and certification requirement deadlines, which are typically during the quarter ending
December 31. Therefore we expect revenues from test preparation and training solutions to be the
highest in the quarter ending December 31.
In addition, our sales cycles are generally long and unpredictable. A clients decision to
purchase our products and services often involves a lengthy evaluation process. Throughout the
sales cycle, we often spend considerable time educating and providing information to prospective
clients regarding the use and benefits of our products and services. Moreover, budget constraints
and the need for multiple approvals within large enterprises, governmental agencies and educational
institutions may also delay purchasing decisions. As a result, the sales cycle for our services may
last a year or longer. Such a lengthy sales cycle, and any future increases in our sales cycle,
could lead to higher sales and marketing expenses and adversely affect our cash flow from
operations. In addition, the lengthy sales cycle has made, and may continue to make, our financial
results prone to fluctuations or decrease our revenues in a particular period.
If our revenues for a particular quarter are lower than we expect, we may be unable to reduce
our operating expenses for that quarter by a corresponding amount, which could negatively affect
our operating results for that quarter. As a result, you should not rely on our quarter-to-quarter
comparisons of our operating results as indicators of likely future performance. Our operating
results may be below the expectations of public market analysts and investors in one or more future
quarters. If that occurs, the market price of our ADSs could decline and you could lose part or all
of your investment. Fluctuations of our quarterly financial results may also lead to increased
volatility in the market price of our ADSs.
The Chinese market for our services is still emerging and evolving rapidly. If market
acceptance of our products and services declines or fails to grow, our revenue growth may slow or
we may experience a decrease in revenues.
As the Chinese market for our services is still emerging, our success will depend to a large
extent on our ability to convince our clients that our technologies and services are valuable and
that it is more cost-effective for them to utilize our services than for them to develop similar
services in-house.
We must address the following concerns, among others, with our clients as they decide to
implement our computer-based testing and career-oriented educational services and to use our
technologies and services:
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concern over the commitment of time, personnel and funding necessary to implement our
computer-based testing services and career-oriented educational services; |
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ability of clients to develop their own computer-based testing services or
career-oriented educational services; |
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possible perceived security and academic integrity risks associated with
computer-based testing services and third-party curriculum providers; |
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reluctance of the academic community to adopt computer-based learning materials and
computer-based tests; and
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6
A decline in the demand for computer-based testing services by test sponsors would negatively
affect demand for our computer-based testing services and technologies. Even if demand for
computer-based testing services continues to grow, this demand may not grow as quickly as we
anticipate.
The services offered by our HR Select employee assessment solution are relatively new and
market acceptance of this innovative testing product is uncertain. Furthermore, we only generate
revenues from a small amount of our HR Select customers for now. If we are unable to increase or
maintain customer demand for this product, in particular demand by paying customers, our revenue
growth may slow or we may experience a decrease in revenues.
Breaches or perceived breaches of our security measures relating to test collection, scoring
and storage or unauthorized disclosure or misuse of personal data through breach of our computer
systems or otherwise could cause us to receive negative publicity, and lose clients and expose us
to protracted and costly litigation.
As part of our service offerings, we collect, process, transmit and store highly confidential
information, including personal information and test questions, answers and scores. Maintaining the
security and confidentiality of the information we handle as part of our testing services is
essential to protecting the integrity and accuracy of the test taking process and retaining our
client base. Any breach or perceived breach in our security measures pertaining to the collection,
processing, transmission or storage of such information as a result of third-party action, employee
error, and malfeasance or otherwise could result in liability claims and have a negative impact on
our reputation. Additionally, we could be subject to liability claims or regulatory penalties for
misuses of information collected from clients or students or for the unauthorized disclosure or
unauthorized or inappropriate use of such information. Any such negative publicity or liability
claims could have a significant negative impact on our future business, cause us to lose clients
and expose us to costly litigation.
Reductions in public funding available to our clients that are governmental agencies could
adversely impact demand by these agencies and institutions for our products and services.
We have derived a significant portion of our total net revenues from licensing and service
fees from Chinese governmental agencies. Demand and ability to pay for our products and services by
these agencies are affected by government budgetary cycles, funding availability and government
policies. Funding reductions, reallocations or delays could adversely impact demand for our products and
services by our clients or reduce the fees these clients are willing to pay for our products and
services. For example, in the fiscal year ended March 31, 2010, NTET sales decreased significantly
relative to the previous fiscal years, due to the delay in the governments implementation of the
national NTET certification requirement and the associated cuts in relevant government budgets. We
had no NTET sales in the fiscal year ended March 31, 2011.
A limited number of our clients have accounted and are expected to continue to account for a
high percentage of our revenues. The loss of or significant reduction in orders from any of these
clients could significantly reduce our revenues and have a material adverse effect on our results
of operations.
Our two largest clients in the fiscal year ended March 31, 2011, the Securities Association of
China and the China Banking Association, accounted for 38.1% and 17.0%, respectively, of our net
revenues for that period. In 2006, we signed a five-year master
service agreement from September 2006 to September 2011 with the
Securities Association of China. In 2009, we participated in
a bid to administer testing services for the Securities Association of China and won the right to
service the Securities Association of China for a term of three years from 2010 to 2012. Pursuant
to the five-year master agreement and the bid award notice, we enter
into an annual contract with the Securities Association of China each
year. Our top five clients for the fiscal year ended March 31, 2011 accounted for 67.4% of our net
revenues for the fiscal year ended March 31, 2011. Due to our dependence on a limited number of
clients, any one of the following events, among others, could cause material fluctuations or
declines in our revenues and have a material adverse effect on our results of operations:
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a reduction, delay or cancellation of contracts or product or service orders from one
or more of our significant clients; |
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a decision by one or more of our significant clients to award contracts or orders to
one of our competitors; and |
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a decision by one or more of our major clients to significantly reduce the price they
are willing to pay for our services or products.
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7
Any of these events could occur due to causes outside of our control, such as macro-economic
conditions, changes in a clients management or the personnel with whom we interact, changes in
technology, the actions of our competitors, changes in governmental regulations and policies and
changes in a clients budgeting or financial prospects.
A significant portion of our revenues are dependent on market acceptance of our E-testing
platform and other computer-based testing technologies, and if we are unable to anticipate and meet
our clients technological needs and challenges from new technologies and industry standards, our
products and services may lose market acceptance or become obsolete, and our margins and results of
operations may be adversely affected.
Our advanced technologies for the creation and delivery of computer-based tests, including our
E-testing platform and our performance-based testing technologies, are a key factor in growing and
maintaining our relationships with test sponsors, educational institution clients and educational
program content providers. Our future success depends on our ability to upgrade our systems,
develop new technologies and anticipate and meet the technical needs of our clients on a regular
basis. The emergence in the market of new test creation and delivery technologies or substitute
products and services could reduce the competitiveness or result in the obsolescence of our current
technologies and services. Moreover, if other companies develop similar technologies offering
functionality comparable to that of our technologies, pricing pressure may increase and our margins
and results of operations may be adversely affected. Additionally, industry standards such as
standard interfaces and data exchange protocols may be developed for testing technologies, and if
these industry standards are incompatible with our technologies, demand for our technologies,
products and services may decline significantly. To the extent we are unable to maintain our market
leadership position in key testing technologies or anticipate and respond to technological
developments and changes in industry standards in a timely and cost-effective manner, our
products and services may lose market acceptance or become obsolete.
Substantial defaults by our clients on accounts receivable could have a material adverse
effect on our results of operations and financial condition.
Our accounts receivable as of March 31, 2011 were RMB47.1 million ($7.2 million), of which RMB
27.1 million were attributable to the Securities Association of China. We also had accounts receivable aged over one year of RMB1.0 million ($0.2 million) as of March 31,
2011, primarily relating to the Professional Skills Qualification Center of the PRC Ministry of
Human Resources and Social Security. If clients which owe us accounts receivable were to become
insolvent or otherwise unable to pay for our services or make payments in a timely manner, our
liquidity would be adversely affected and we would have to write off accounts receivable or
increase provisions against our accounts receivable, any of which could adversely affect our
results of operations and financial conditions.
If Microsoft exercises its contractual option to acquire the source code of our Dynamic
Simulation Technology, or DST, Microsoft or a company to which Microsoft licenses or sells such
technology may be able to more effectively compete with us.
Under our Simulation Technology License Agreement with Microsoft, Microsoft has the right to
acquire for $3.0 million a perpetual royalty-free license to the source code of our Dynamic
Simulation Technology, or DST, along with the right to freely sell, license or sublicense the DST
source code to third parties. The contract does not restrict which entities to which Microsoft may
sell, license or sublicense the DST source code. While Microsofts exercise of this option would
generate $3.0 million in revenue to us upon exercise, it may materially adversely affect our future
revenues if Microsoft or any company to which Microsoft sells or licenses the technology uses it to
directly compete with us.
In addition, Microsoft has the right to obtain more limited rights to the source code in the
event ATA is in continuing breach of any of its obligations regarding technical support and
correction of programming errors. Upon the occurrence of a continuing breach, Microsoft would
obtain the right to freely install, make, use, reproduce, copy, modify, translate, edit and
otherwise create derivative works of the DST source code and to sublicense any of the foregoing
rights to third parties, excluding certain of our competitors in the computer-based testing
services market.
Technical errors or failures in relation to computer-based tests delivered through our test
delivery platform could result in negative publicity, loss of clients, liability claims and costly
and disruptive litigation.
Due to the complexity of the technologies we have developed and use to create and deliver
computer-based tests for our clients, there is a risk that technical errors or failures may occur
in relation to these services. These may include errors, failures or bugs in our self-developed
software applications and test security technologies, breakdowns or failures of our servers and
computer networks, and
8
connectivity failures between our networks. While we have not to date
experienced major problems due to errors, breakdowns, failures, bugs or defects, we cannot assure
you that we will not experience such problems in the future. If such a problem were to occur, it
could disrupt or compromise the integrity of the test taking process or of test content and
results, which could lead to negative publicity and loss of clients and may subject us to liability
claims. Although we have established a formal crisis management system to respond to technical
problems, it has never been tested in a real crisis situation. Any litigation or negative publicity
resulting from an error or failure, with or without merit, could result in substantial costs and
divert managements attention and resources from our business and operations.
If we fail to maintain a strong brand identity, our business may not grow and our financial
results may be adversely impacted.
We believe that maintaining and enhancing the value of the ATA brand is important to
attracting clients. Our success in maintaining brand awareness will depend on our ability to
consistently provide high quality, value-adding, user-friendly and secure products and services. As
we expand our product and service offerings, we are increasing our efforts to establish a wider
recognition of the ATA brand. To establish a wider recognition of our ATA brand among test
takers, test sponsors and companies, we may need to spend significant resources on advertising. As
we have limited experience with advertising and other activities required to establish a widely
recognized brand, we cannot assure you that we will effectively allocate our resources for these
activities or succeed in maintaining and broadening our brand recognition and appeal. If we fail to
maintain a strong brand identity, our business may not grow and our financial results may be
adversely impacted.
Actions by our authorized test centers could lead to damage to our brand and reputation, which
could cause us to incur substantial costs and strain our relationships with our clients.
As of March 31, 2011, we had contractual relationships with 2,018 authorized test centers. We
do not own these centers and their employees are not our employees. Under our contracts with these
test centers, we require them to provide sufficient facilities to properly administer
computer-based tests and to follow prescribed guidelines for facility maintenance and test
administration. We also conduct regular reviews of their facilities and operations and provide
consulting services on test administration. However, our contractual arrangements with the test
centers provide us with only limited ability to oversee their activities, and most test centers
engage in other activities, such as serving as classrooms, when not administering tests. If a test
center were to engage in unauthorized or unlawful conduct, whether related to administering
computer-based tests or otherwise, our clients, prospective clients and the general public may
associate this conduct with our brand, and negative publicity associated with this conduct could
harm our reputation and lessen overall demand for computer-based testing services. Furthermore, our
business may also be adversely affected if our authorized test centers do not maintain their
premises, administer our computer-based tests in a manner consistent with our standards and
requirements, or hire qualified personnel and train them properly. In addition, a liability claim
against an ATA authorized test center or any center personnel may result in unfavorable publicity
for us, our products and services and our other test centers, and could damage our brand and
reputation, whether or not the claim is successful. While we may terminate our contracts and
relationships with our authorized test centers if any of these events were to occur, we may not be
able to identify problems or take action quickly enough to prevent harm to our reputation.
We may face increasing competition from international and domestic Chinese competitors. If we
fail to successfully compete, our revenues and market share may decrease, and our results of
operations may be adversely affected.
We anticipate that as our business and markets continue to expand, we will face increasing
competition, including competition from new entrants, both domestic and international, who will try
to gain market share from us. In the future, competitors may introduce new technologies, products
and services that have better performance, offer lower prices and gain broader acceptance than our
technologies, products and services. Such new products may reduce the overall market for our
products and services.
In the computer-based testing services market, we compete primarily on the basis of
technology, price, management experience and established infrastructure. In the future, as more
companies enter this market, we believe pricing may become increasingly competitive as well. For
our HR Select employee assessment solution, while there are other companies providing services to
corporate human resources departments, we are differentiated by our focus on offering more
professional testing services with proprietary testing technologies. Traditional Chinese test
preparation material providers, such as publishing companies, indirectly compete with our test
preparation and training solutions. Increased competition could cause us to lose clients or make it
necessary for us to reduce our prices in order to retain our clients, which may negatively affect
our revenues and results of operations.
9
We depend on our key personnel and our business may be severely disrupted if we lose their
services and are unable to replace them.
Our future success is dependent upon the continued services of our key executives, as we rely
on their industry experience and expertise in our business operations. In particular, we rely
heavily on our co-founders Kevin Xiaofeng Ma, our chairman and chief executive officer, and Walter
Lin Wang, our president, for their business vision, management skills, technical expertise,
experience in the testing, IT and education industries and working relationships with many of our
clients, shareholders and other participants in the testing, IT and education industries. If either
Mr. Ma or Mr. Wang was unable or unwilling to continue in their present positions, or if they
joined a competitor or formed a competing company in violation of their employment agreements, we
may not be able to replace them easily and our business may be severely disrupted. We do not
maintain key-man life insurance for Mr. Ma or Mr. Wang or for any of our other employees.
Because competition for highly skilled employees is intense, we may not be able to attract and
retain the highly skilled employees we need to support our planned growth.
Due to intense market competition for highly skilled workers, we have faced difficulties
locating experienced and skilled personnel in certain areas, such as administration, marketing,
product development, sales, finance and accounting. In particular, we have had difficulty finding
personnel with experience in the relatively new computer-based testing services market. We cannot
assure you that we will be able to attract or retain the key personnel that we will need to achieve
our business objectives. Even if we can find qualified candidates, they may be subject to
non-competition agreements with their prior employers that prevent us from hiring them. In
addition, we cannot assure you that we will be able to retain our current skilled personnel.
According to our contracts with our employees, all of our employees are prohibited from engaging in
any activities that compete with our business during the period of their employment and for two
years after termination of their employment with us. Furthermore, all employees are prohibited, for
a period of two years following termination, from soliciting other employees to leave us and, for a
period of five years following termination, from soliciting our existing clients. However, we may
have difficulty enforcing these non-competition and non-solicitation provisions in China because
the Chinese legal system, especially with respect to the enforcement of such provisions, is still
developing.
Many of our contracts with governmental agencies and public educational institutions take the
form of framework agreements and offer little contractual or legal protections, and it may be
impractical for us to pursue or obtain legal remedies against these clients.
Many governmental agencies and other public sector entities in China require the use of simple
framework agreements for the procurement of products and services from us that lack many of the
detailed aspects of our business arrangement. For example, the terms of service may lack the
clarity we would normally have in our contracts with commercial enterprises, or contract terms to
protect our intellectual property may not be as clear and detailed as we would normally have in our
contracts with commercial enterprises. Moreover, it may not be feasible or practicable under
current Chinese law and practice for us to take legal action against our government and public
sector clients to enforce our contractual rights. As a result, we may lack the same contractual or
legal protections, or ability to enforce such protections, that we would normally have under the
contracts we typically enter into with our other clients.
Unauthorized use of our intellectual property by third parties, including infringement of our
ATA brand, and the expenses incurred in protecting our intellectual property rights, may
adversely affect our business.
Our copyrights, trademarks, trade secrets and other intellectual property are important to our
success. In particular, we believe that our ATA brand name represents a valuable asset as we have
sought to gain a reputation for high quality and secure testing services and advanced testing
technologies within our markets. Unauthorized use of any of our intellectual property may adversely
affect our business and reputation. We rely on trademark and copyright law, trade secret protection
and confidentiality agreements with our employees, clients, business partners and others to protect
our intellectual property rights. Nevertheless, it may be possible for third parties to obtain and
use our intellectual property without authorization. The unauthorized use of intellectual property is common and widespread in China
and enforcement of intellectual property rights by Chinese regulatory agencies is inconsistent.
Moreover, litigation may be necessary in the future to enforce our intellectual property rights.
Future litigation could result in substantial costs and diversion of our managements attention and
resources, and could disrupt our business, as well as have a material adverse effect on our
financial condition and results of operations. Given the relative unpredictability of Chinas legal
system and potential difficulties enforcing a court judgment in China, there is no guarantee that
we would be able to halt the unauthorized use of our intellectual property through litigation.
10
We may be subject to intellectual property infringement claims, which may force us to incur
substantial legal expenses and, if determined adversely against us, may materially disrupt our
business.
We cannot assure you that our software and other technologies do not or will not infringe upon
patents, valid copyrights or other intellectual property rights held by third parties. We may
become subject to legal proceedings and claims from time to time relating to the intellectual
property of others in the ordinary course of our business. For example, we have been unable to
register our ATA trademark with the China Trademark Office due to similarity with other marks.
Although we have not received notice of trademark infringement claims since we began using the mark
in 1999 and believe that the risk of litigation is remote, we may be subject to such claims in the
future. If we are found to have violated the intellectual property rights of others, we may be
enjoined from using such intellectual property, and we may incur licensing fees or be forced to
develop alternatives. In addition, we may incur substantial expenses, and may be forced to divert
management and other resources from our business operations, to defend against these third-party
infringement claims, regardless of their merit. Successful infringement or licensing claims against
us may result in substantial monetary liabilities or may materially disrupt the conduct of our
business by restricting or prohibiting our use of the intellectual property in question.
Because there is limited business insurance coverage in China, any business disruption or
litigation we experience might result in our incurring substantial costs and diverting significant
resources to handle such disruption or litigation.
The insurance industry in China is not fully developed. Insurance companies in China offer
limited business insurance products. While business disruption insurance may be available to a
limited extent in China, we have determined that the risks of disruption and the difficulties and
costs associated with acquiring such insurance render it commercially impractical for us to have
such insurance. As a result, we do not have any business liability, disruption or litigation
insurance coverage for our operations in China. Any business disruption or litigation might result
in our incurring substantial costs and the diversion of resources.
We may face challenges and risks in connection with possible acquisitions, including
identifying suitable opportunities and integrating acquired businesses and assets with our existing
operations, which could interrupt our business operations or adversely affect our results of
operations.
As part of our business strategy, we may seek to broaden our service offerings, obtain
additional clients and strengthen our service quality by acquiring other companies or businesses.
However, our ability to implement our acquisition strategy will depend on a number of factors,
including the availability of suitable acquisition candidates at an acceptable cost or at all, our
ability to compete effectively to attract and reach agreement with acquisition candidates or joint
venture partners on commercially reasonable terms, and the availability of financing to complete
acquisitions or joint ventures as well as our ability to obtain any required government approvals
or licenses. In addition, we cannot assure you that any particular acquisition or joint venture
transaction will produce the intended benefits or synergies. For example, we may not be successful
in integrating acquisitions with our existing operations and personnel. Moreover, the acquisitions
we pursue may require us to expend significant management and other resources, which may result in
interruption to our business operations.
There are other risks associated with acquisitions, including:
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unforeseen or hidden liabilities, including exposure to legal proceedings, associated
with newly acquired companies; |
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failure to generate sufficient revenues to offset the costs and expenses of
acquisitions; |
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integration of the management of the acquired business into our own; |
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potential impairment losses or amortization expenses relating to goodwill and
intangible assets arising from any of such acquisitions, which may materially reduce our
net income or result in a net loss; |
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potential conflicts with our existing employees as a result of our integration of
newly acquired companies; and |
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possible contravention of Chinese regulations applicable to such acquisitions. |
Furthermore, raising capital to finance acquisitions could cause earnings or ownership
dilution to your shareholding interests, which in turn could result in losses to you. Any one or a
combination of the above risks could interrupt our business operations and adversely affect our
results of operations.
11
We may need additional capital and any failure by us to raise additional capital on terms
favorable to us, or at all, could limit our ability to grow our business and develop or enhance our
product and service offerings to respond to market demand or competitive challenges.
Capital requirements are difficult to plan in our rapidly changing industry. We believe that
our current cash and expected future cash flows from operations will be sufficient to meet our
anticipated working capital and capital expenditures for the next 12 months and the foreseeable
future beyond that point. We may, however, require additional cash resources due to changed
business conditions or other future developments, including any investments or acquisitions we may
decide to pursue. If our sources of liquidity are insufficient to satisfy our cash requirements, we
may seek to sell additional equity or debt securities or obtain a credit facility. The sale of
additional equity securities could result in dilution to our shareholders. The incurrence of
indebtedness would result in increased debt service obligations and could require us to agree to
operating and financing covenants that would restrict our operations. Our ability to obtain
additional capital on acceptable terms is subject to a variety of uncertainties, including:
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investors perception of, and demand for, securities of computer-based testing and
education companies; |
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conditions of the U.S. and other capital markets in which we may seek to raise funds; |
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our future results of operations and financial condition; |
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Chinese government regulation of foreign investment in China; |
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economic, political and other conditions in China; and |
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Chinese government policies relating to the borrowing and remittance outside China of
foreign currency. |
We cannot assure you that financing will be available in amounts or on terms acceptable to us,
if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could
limit our ability to grow our business and develop or enhance our product and service offerings to
respond to market demand or competitive challenges.
We may be unable to maintain an effective system of internal control over financial reporting,
and as a result we may be unable to accurately report our financial results or prevent fraud.
We are subject to provisions of the Sarbanes-Oxley Act of 2002. Section 404 of the
Sarbanes-Oxley Act requires that we include a report from management on the effectiveness of our
internal control over financial reporting in our annual reports on Form 20-F. In addition, our
independent registered public accounting firm must attest to and report on the operating
effectiveness of our internal control over financial reporting. While our management concluded that
our internal control over financial reporting is effective as of March 31, 2011, and our
independent registered public accounting firm reported on our internal controls over financial
reporting, our management may conclude in the future that our internal controls are not effective.
Our failure to maintain effective internal control over financial reporting could result in a loss
of investor confidence in the reliability of our reporting processes, which could materially and
adversely affect the trading price of our ADSs.
Our reporting obligations as a public company will continue to place a significant strain on
our management, operational and financial resources and systems for the foreseeable future. Our
failure to maintain effective internal control over financial reporting could result in the loss of
investor confidence in the reliability of our financial reporting processes, which in turn could
harm our business and negatively impact the trading price of our ADSs.
We may be classified as a passive foreign investment company, which could result in adverse
U.S. federal income tax consequences to U.S. holders of our ADSs or ordinary shares.
We believe that we were not a passive foreign investment company, or PFIC, for U.S. federal
income tax purposes for our taxable year ended March 31, 2011, and we do not expect to be a PFIC in
any future taxable year. However, PFIC status is tested each year and depends on the composition of
our assets and income and the value of our assets from time to time. Since we currently hold, and
expect to continue to hold, a substantial amount of cash and other passive assets and, since the
value of our assets is to be determined in large part by reference to the market prices of our ADSs
and ordinary shares, which is likely to fluctuate over time, there can be no assurance that we will
not be a PFIC for any future taxable year. If we are a PFIC for any taxable year during which a
U.S. investor held our ADSs or ordinary shares, certain adverse U.S. federal income tax
consequences would apply to the U.S. investor. See Item 10. Additional Information E.
Taxation United States Federal Income Taxation Passive Foreign Investment Company.
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Risks Relating to Regulation of Our Business
Substantial uncertainties and restrictions exist with respect to the application and
implementation of Chinese laws and regulations relating to Internet content distribution. If the
Chinese government finds that the structure for our online test preparation services and other
services we provide through the Internet do not comply with Chinese laws and regulations, we could
be subject to penalties and may not be able to continue those businesses.
The Chinese government regulates Internet access, the distribution of online information, the
conduct of online commerce and the provision of online services through strict business licensing
requirements and other government regulations. These laws and regulations also include limitations
on foreign ownership of Chinese companies that provide Internet content. Specifically, foreign
investors are not allowed to own more than a 50% equity interest in any Chinese company engaging in
Internet content provision.
Because we are a Cayman Islands company, we and our Chinese subsidiaries and their branch
companies in China are treated as foreign or foreign-invested enterprises under Chinese laws and
regulations. To comply with Chinese laws and regulations, we conduct our online businesses in China
through a series of contractual arrangements entered into among ATA Testing Authority (Holdings)
Limited, or ATA BVI, ATA Learning (Beijing) Inc., or ATA Learning and ATA Online (Beijing)
Education Technology Limited, or ATA Online, which is a domestic Chinese company incorporated in
the PRC and owned by Kevin Xiaofeng Ma, our co-founder, chairman and chief executive officer and
Walter Lin Wang, our co-founder, director and president. Our contractual arrangements with ATA
Online include a technical support agreement and a strategic consulting service agreement. These contractual
arrangements also include an equity pledge agreement entered into with each of the shareholders of
ATA Online and a call option and cooperation agreement entered into with ATA Online and its
shareholders. Under PRC law, a pledge of equity interests can only be valid after such pledge is
registered at the relevant agency. On September 1, 2008, the State Administration for Industry and
Commerce promulgated the Measures for Registration of Equity Pledge with the Relevant
Administration for Industry and Commerce. Thereafter, the local administration for industry and
commerce in Beijing began to accept the registration of equity pledge. The registration of equity
pledge over ATA Onlines equity is currently in progress.
ATA Online holds a Telecommunications and Information Services Operating License, or ICP
license, issued by the Beijing Telecommunications Administration Bureau, a local branch of the
Ministry of Industry and Information Technology, or MIIT, which allows ATA Online to provide
Internet content distribution services. This license is essential to the operation of our online
test preparation and training services business.
The relevant Chinese regulatory authorities have broad discretion in determining whether a
particular contractual structure is in violation of Chinese law. If our ATA Online corporate and
contractual structure is deemed by MIIT to be illegal, either in whole or in part, we may have to
modify such structure to comply with regulatory requirements. However, we cannot assure you that we
can achieve this without material disruption to our business. Further, if our ATA Online corporate
and contractual structure is found to be in violation of any existing or future Chinese laws or
regulations, the relevant regulatory authorities would have broad discretion in dealing with such
violations, including:
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levying fines on us; |
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confiscating any of our income that they deem to be obtained through illegal
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shutting down a portion or all of our servers or blocking a portion or all of our web
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discontinuing or restricting our operations in China; |
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imposing conditions or requirements with which we may not be able to comply; |
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requiring us to restructure our corporate and contractual structure; |
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restricting or prohibiting our use of the proceeds from our initial public offering
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taking other regulatory or enforcement actions that could be harmful to our business. |
Realization of any of these events could materially and adversely affect our business,
financial condition and results of operations.
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Our contractual arrangements with ATA Online may be subject to scrutiny by the Chinese tax
authorities and create a potential double layer of taxation for our revenue-generating services
conducted by ATA Online.
We could face material and adverse tax consequences if the Chinese tax authorities determine
that our contractual arrangements with ATA Online were not priced at arms length for purposes of
determining tax liability. If the Chinese tax authorities determine that these contracts were not
entered into on an arms-length basis, they may adjust our income and expenses for Chinese tax
purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could result
in a reduction, for Chinese tax purposes, of deductions recorded by ATA Online, which could
adversely affect us by increasing the tax liabilities of ATA Online. This increased tax liability
could further result in late payment fees and other penalties to ATA Online for underpaid taxes.
Any payments we make under these arrangements or adjustments in payments under these arrangements
that we may decide to make in the future will be subject to the same risk.
To date, no specific prices for the services to be performed by ATA Learning (Beijing) Inc.,
or ATA Learning, under the contractual arrangements have been set, and no payments have been
invoiced or made under any of the contracts between ATA Learning and ATA Online. Prices for such
services will be set prospectively and therefore we do not currently have a basis to believe that
any of the payments to be made under the contracts will or will not be considered arms length for
purposes of determining tax liability. Prior to setting prices and terms under the contracts, we
intend to engage a third party to review any proposed prices and terms to determine whether they
would qualify as arms-length.
Our contractual arrangements with ATA Online and its shareholders do not provide us with
ownership interest in ATA Online. If ATA Online or its shareholders fail to perform their
respective obligations under these contractual arrangements, we may have to legally enforce such
arrangements and our business, financial condition and results of operations may be materially and
adversely affected if these arrangements cannot be enforced.
We rely on contractual arrangements with ATA Online and its shareholders for operating, and
for receiving the economic benefits from, our online test preparation services. However, these
contractual arrangements do not provide us with ownership interest in ATA Online.
These contractual arrangements are governed by Chinese or Hong Kong Law and provide for the
resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be
interpreted in accordance with Chinese or Hong Kong Law and any disputes would be resolved in
accordance with Chinese or Hong Kong legal procedures. If ATA Online or its shareholders fail to
perform their respective obligations under these contractual arrangements, we may have to (i) incur
substantial costs and resources to enforce such arrangements, and (ii) rely on legal remedies under
Chinese or Hong Kong Law, including seeking specific performance or injunctive relief, and claiming
damages, which we cannot be sure would be effective. For example, if Kevin Xiaofeng Ma were to
terminate his employment with us, he would be obligated pursuant to these contractual arrangements
to transfer his share ownership in ATA Online to us or our designee. If he were to refuse to effect
such a transfer, or if he were otherwise to act in bad faith toward us, then we may have to take
legal action to compel him to fulfill his contractual obligations. However, the legal environment
in the PRC is not as developed as in the United States and uncertainties in the Chinese legal
system could limit our ability to enforce these contractual arrangements. In the event that we are
unable to enforce these contractual arrangements, our business, financial condition and results of
operations could be materially and adversely affected.
The shareholders of ATA Online may have potential conflicts of interest with us, which may
materially and adversely affect our business and financial condition.
The shareholders of ATA Online, Kevin Xiaofeng Ma and Walter Lin Wang, are also beneficial
holders of our common shares. They are also directors of both ATA Online and our company. Conflicts
of interests between their dual roles as shareholders and directors of both ATA Online and our
company may arise. We cannot assure you that when conflicts of interest arise, any or all of these
individuals will act in the best interests of our company or that conflicts of interests will be
resolved in our favor. In addition, these individuals may breach or cause ATA Online to breach or
refuse to renew the existing contractual arrangements that allow us to receive economic benefits
from ATA Online. Currently, we do not have existing arrangements to address potential conflicts of
interest between these individuals and our company. We rely on these individuals to abide by the
laws of the Cayman Islands and China, both of which provide that directors owe a fiduciary duty to
the company, which requires them to act in good faith and in the best interests of the company and
not to use their positions for personal gain. If we cannot resolve any conflicts of interest or
disputes between us and the shareholders of ATA Online, we would have to rely on legal proceedings,
which could result in disruption of our business and substantial uncertainty as to the outcome of
any such legal proceedings.
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We may lose the ability to use and enjoy assets held by ATA Online that are important to the
operation of our business if ATA Online goes bankrupt or becomes subject to a dissolution or
liquidation proceeding.
To comply with PRC laws and regulations relating to foreign ownership restrictions in the
Internet content distribution businesses, we currently conduct our operations in China through
contractual arrangements with ATA Online. As part of these arrangements, ATA Online holds certain
of the assets that are important to the operation of our online test preparation business. If ATA
Online goes bankrupt and all or part of its assets become subject to liens or rights of third-party
creditors, we may be unable to continue some or all of our online test preparation business
operations, which could materially and adversely affect our business, financial condition and
results of operations. If ATA Online undergoes a voluntary or involuntary liquidation proceeding,
its shareholders or unrelated third-party creditors may claim rights to some or all of these
assets, thereby hindering our ability to operate our online test preparation business, which could
materially and adversely affect our business, financial condition and result of operations.
If the China Securities Regulatory Commission, or CSRC, or another PRC regulatory agency
determines that CSRC approval was required in connection with our initial public offering, we may
become subject to penalties.
On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Provisions
Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rule,
which became effective on September 8, 2006. The M&A Rule, among other things, requires that an
offshore company controlled by PRC companies or individuals that has acquired a PRC domestic
company for the purpose of listing the PRC domestic companys equity interest on an overseas stock
exchange must obtain the approval of the CSRC prior to the listing and trading of such offshore
companys securities on an overseas stock exchange. On September 21, 2006 the CSRC, pursuant to the
M&A Rule, published on its official web site procedures specifying documents and materials required
to be submitted to it by offshore companies seeking CSRC approval of their overseas listings.
Our PRC counsel, Jincheng Tongda & Neal Law Firm, advised us that CSRC approval was not
required for our initial public offering in February 2008 because the CSRC approval required under
the M&A Rule only applies to an offshore company that has acquired a domestic PRC company for the
purpose of listing the domestic PRC companys equity interest on an overseas stock exchange, while
(i) we obtained our equity interest in each of our PRC subsidiaries by means of direct investment
other than by acquisition of the equity or assets of a PRC domestic company and (ii) our
contractual arrangements with ATA Online do not constitute the acquisition of ATA Online. However,
if it is determined that CSRC approval was required, we may face regulatory actions or other
sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose
fines and penalties on our operations in China, limit our operating privileges in China, or take
other actions that could have a material adverse effect on our business, financial condition,
results of operations, reputation and prospects, as well as the trading price of our ADSs.
Because we may rely on dividends and other distributions on equity paid by our current and
future Chinese subsidiaries for our cash requirements, restrictions under Chinese law on their
ability to make such payments could materially and adversely affect our ability to grow, make
investments or acquisitions that could benefit our business, pay dividends to you, and otherwise
fund and conduct our businesses.
We have adopted a holding company structure, and our holding companies may rely on dividends
and other distributions on equity paid by our current and future Chinese subsidiaries for their
cash requirements, including the funds necessary to service any debt we may incur or financing we
may need for operations other than through our Chinese subsidiaries. Chinese legal restrictions
permit payments of dividends by our Chinese subsidiaries only out of their accumulated after-tax
profits, if any, determined in accordance with PRC GAAP. Our Chinese subsidiaries are also required
under Chinese laws and regulations to allocate at least 10% of their after-tax profits determined
in accordance with PRC GAAP to statutory reserves until such reserves reach 50% of the companys
registered capital. Allocations to these statutory reserves and funds can only be used for specific
purposes and are not transferable to us in the form of loans, advances or cash dividends. As of
March 31, 2011, our Chinese subsidiaries allocated RMB7.2 million ($1.1 million) to the general
reserve fund, which is restricted for distribution to the Company. Any limitations on the ability
of our Chinese subsidiaries to transfer funds to us could materially and adversely limit our
ability to grow, make investments or acquisitions that could be beneficial to our business, pay
dividends and otherwise fund and conduct our business.
The discontinuation of any of the preferential tax treatments currently enjoyed by our
subsidiaries in the PRC could materially increase our tax obligations.
Effective from January 1, 2008, the new PRC Enterprise Income Tax Law, or New EIT Law, imposes
a tax rate of 25% on all enterprises, including foreign-invested enterprises, and terminates many
of the tax exemptions, reductions and preferential treatments available under previous tax laws.
However, enterprises that were established before March 16, 2007 and already enjoyed preferential
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tax treatments may continue to enjoy them (i) in the case of certain preferential tax rates
that are specified by tax legislations for a transition period of five years from January 1, 2008
or (ii) in the case of tax exemption or reduction for a specified term, until the expiration of
such term.
Under the New EIT Law, qualified high-and-new technology enterprises eligible for key support
from the State (HNTE) are entitled to a preferential tax rate of 15%, subject to an annual
review during the valid period of their HNTE certificates. In December 2008, ATA Testing was
recognized as a HNTE and obtained its HNTE certificate, which entitled ATA Testing to a
preferential tax rate of 15% for calendar year 2008 to 2010. ATA Testing is currently in the process of
renewing its HNTE certificate for another three years. Upon a successful renewal, ATA Testing should
be entitled to a preferential tax rate of 15% retroactively from January 1, 2011. In the event
ATA Testing is unable to renew its HNTE certificate, it will be subject to the standard statutory
enterprise income tax rate of 25% . In December 2009, each of ATA Learning, ATA Online and Beijing
JDX received an approval from the tax authority that it qualified as an HNTE for three years,
entitling them to a preferential income tax rate of 15% for calendar years 2009 to 2011. ATA
Learning, ATA Online and Beijing JDX will be subject to income tax at 25% from calendar year 2012
onwards if they are unable to re-qualify as HNTE. Although we currently expect ATA Testing, ATA
Learning, ATA Online and Beijing JDX to continue to qualify as HNTE, we cannot assure you that ATA
Testing, ATA Learning, ATA Online and Beijing JDX will continue to qualify as an HNTE, or that the
local tax authorities will not, in the future, change their position and revoke any of our past
preferential tax treatments.
The discontinuation of any of our preferential tax treatments could materially increase our
tax obligations and adversely affect our business, operating results and financial condition.
If we receive dividends from our operating subsidiaries located in the PRC, such dividends may
be subject to PRC withholding tax.
The newly enacted PRC Enterprise Income Tax Law, or the New EIT Law, and the implementation
regulations for the New EIT Law issued by the PRC State Council, became effective as of January 1,
2008. The New EIT Law provides that a maximum income tax rate of 20% may be applicable to dividends
payable to non-PRC investors that are non-resident enterprises, to the extent such dividends are
derived from sources within the PRC if such dividends are derived from profits generated after
January 1, 2008, and the State Council has reduced such rate to 10% through the implementation
regulations. We are a Cayman Islands holding company and may receive dividends from our operating
subsidiaries located in the PRC. Thus, dividends paid to us by our subsidiaries in China may be
subject to the 10% income tax if we are considered as a non-resident enterprise under the New EIT
Law. If we are required under the New EIT Law to pay income tax for any dividends we receive from
our subsidiaries, our income tax expenses will be increased and the amount of dividends, if any, we
may pay to our shareholders and ADS holders may be materially and adversely affected.
Under the New EIT Law, we may be classified as a resident enterprise of China. Such
classification will likely result in unfavorable tax consequences to us and U.S. holders of our
ADSs or ordinary shares.
Under the New EIT Law, an enterprise established outside of China with its de facto
management body in China is considered a resident enterprise, meaning that it can be treated the
same as a Chinese enterprise for enterprise income tax purposes. In addition, a tax circular, or
Circular 82,issued by the State Administration of Taxation on April 22, 2009 regarding the
standards used to classify certain Chinese-invested enterprises established outside of China as
resident enterprises clarified that dividends and other income paid by such resident
enterprises will be considered to be PRC source income, subject to PRC withholding tax currently
at a rate of 10%, when paid to non-PRC enterprise shareholders. Circular 82 also subjects such
resident enterprises to various reporting requirements with the PRC tax authorities. Under the
implementation regulations to the enterprise income tax, a de facto management body is defined as
a body that exercises substantial and overall management and control over the manufacturing and
business operations, personnel, and human resources, finances and properties of an enterprise. In
addition, Circular 82 details that certain Chinese-invested enterprises will be classified as
resident enterprises if the following are located or resident in China: senior management
personnel and departments that are responsible for daily production, operation and management;
financial and personnel decision making bodies; key properties, accounting books, company seal, and
minutes of board meetings and shareholders meetings; and half or more of the senior management or
directors having voting rights.
If the PRC tax authorities determine that our Cayman Islands holding company is a resident
enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences
could follow. First, we will be subject to enterprise income tax at a rate of 25% on our worldwide
income as well as PRC enterprise income tax reporting obligations. This would mean that income such
as interest on offering proceeds and other non-China source income would be subject to PRC
enterprise income tax at a rate of 25%, in comparison to no taxation in the Cayman Islands. Second,
although under the New EIT Law and its implementing rules
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dividends paid to us by our PRC subsidiaries would qualify as tax-exempt income, we cannot
guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign
exchange control authorities, which enforce the withholding tax, have not yet issued guidance with
respect to the processing of outbound remittances to entities that are treated as resident
enterprises for PRC enterprise income tax purposes. Finally, a 10% withholding tax will be imposed
on dividends we pay to our non-PRC enterprise shareholders, and future guidance may extend the
withholding tax to dividends we pay to our non-PRC individual shareholders and gains derived by our
non-PRC shareholders from transferring our ADSs or ordinary shares. Similar results would follow if
our BVI holding company is considered a PRC resident enterprise. In addition to the uncertainty
in how the new resident enterprise classification could apply, it is also possible that the rules
may change in the future, possibly with retroactive effect. We are closely monitoring the
development of this area of rules and are evaluating appropriate arrangements of our management
activity to avoid being classified as a PRC resident enterprise.
Chinese regulation of loans and direct investments by offshore holding companies or their
Chinese subsidiaries or affiliates may restrict our ability to execute our business strategy.
In order to execute our business strategy, we must invest the funds in our Chinese
subsidiaries, through loans or capital contributions, and in our affiliated PRC entity, ATA Online,
through loans. Under applicable Chinese laws, any loan made by us to ATA Testing or ATA Learning,
both of which are foreign-invested enterprises, cannot exceed statutory limits tied to each
companys registered capital and total investment as approved by the Ministry of Commerce or its
local counterpart, and all such loans must be registered with Chinas State Administration of
Foreign Exchange, or SAFE, or its local counterpart. Loans by us to ATA Online, as a domestic PRC
enterprise, must be approved by the relevant government authority and must also be registered with
SAFE. We may also decide to finance ATA Testing by increasing their registered capital through
capital contributions. The Ministry of Commerce or its local counterpart must approve any capital
contributions to ATA Testing or ATA Learning.
A failure by us to obtain the necessary government approvals or complete any required
registrations for a capital contribution, an increase in approved total investment or a loan on a
timely basis, may restrict our ability to execute our business strategy.
A failure by our shareholders who are Chinese citizens or resident in China to comply with
regulations issued by SAFE could restrict our ability to distribute profits, restrict our overseas
and cross-border investment activities or subject us to liability under Chinese laws, which could
adversely affect our business and prospects.
In October 2005, SAFE, issued the Notice on Issues Relating to the Administration of Foreign
Exchange in Fund-raising and Return Investment Activities of Domestic Residents Conducted via
Offshore Special Purpose Companies, or Notice 75, which became effective as of November 1, 2005.
Notice 75 states that Chinese residents must register with the relevant local SAFE branch in
connection with their establishment or control of an offshore entity established for the purpose of
overseas equity financing involving a round-trip investment whereby the offshore entity acquires or
controls onshore assets or equity interests held by the Chinese residents. Notice 75 applies to our
shareholders who are Chinese residents and also applies to our offshore acquisitions. On May 29,
2007, SAFE issued the Notice of Operation Guidance for Notice 75, or Notice 106, according to which
Chinese resident shareholders in an offshore company which has at least two years operating history
and has made investment in China can apply for registration under Notice 75. There is no deadline
for such registration.
Two of our major shareholders, Kevin Xiaofeng Ma and Walter Lin Wang, have completed their
registrations with SAFE, and we have urged our other Chinese resident shareholders to register
under Notice 75 and they are currently in the application process. However, we cannot assure you
that their applications will be accepted by SAFE. Failure by such shareholders to comply with
Notice 75 could subject us to fines or legal sanctions, restrict our overseas or cross-border
investment activities, limit our subsidiaries ability to make distributions or pay dividends or
affect our ownership structure, which could adversely affect our business and prospects. See Risks
Relating to Regulation of Our Business Because we may rely on dividends and other distributions
on equity paid by our current and future Chinese subsidiaries for our cash requirements,
restrictions under Chinese law on their ability to make such payments could materially and
adversely affect our ability to grow, make investments or acquisitions that could benefit our
business, pay dividends to you, and otherwise fund and conduct our businesses.
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Risks Relating to the Peoples Republic of China
Chinese economic, political and social conditions, as well as changes in any government
policies, laws and regulations, could adversely affect the overall economy in China or the
prospects of the industries in which we operate, which in turn could reduce our net revenues.
Substantially all of our operations are conducted in China. Accordingly, our business,
financial condition, results of operations and prospects are subject, to a significant extent, to
economic, political and social developments in China.
The Chinese economy differs from the economies of most developed countries in many respects,
including the amount of government involvement, level of development, growth rate, control of
foreign exchange and allocation of resources. Although the Chinese economy has been transitioning
from a planned economy to a more market-oriented economy since the late 1970s, the Chinese
government continues to play a significant role in regulating industry development by imposing
industrial policies. The Chinese government also exercises significant control over Chinas
economic growth through the allocation of resources, controlling the incurrence and payment of
foreign currency-denominated obligations, setting monetary policy and providing preferential
treatment to particular industries or companies. Changes in any of these policies, laws and
regulations could adversely affect the overall economy in China or the prospects of the industries
in which we operate, which could harm our business.
Chinas social and political conditions are also not as stable as those of the United States
and other developed countries. Any sudden changes to Chinas political system or the occurrence of
widespread social unrest could have negative effects on our business and results of operations. In
addition, China has contentious relations with some of its neighbors, most notably Taiwan. A
significant further deterioration in such relations could have negative effects on the Chinese
economy and lead to changes in governmental policies that would be adverse to our business
interests.
The Chinese legal system embodies uncertainties that could limit the legal protections
available to you and us.
Unlike common law systems, the Chinese legal system is based on written statutes and decided
legal cases have little precedential value. In 1979, the Chinese government began to promulgate a
comprehensive system of laws and regulations governing economic matters in general. The overall
effect of legislation since then has been to significantly enhance the protections afforded to
various forms of foreign investment in China. Our Chinese operating subsidiaries, ATA Testing and
ATA Learning, are wholly foreign-owned enterprises, which are enterprises incorporated in China and
wholly owned by foreign investors, and both are subject to laws and regulations applicable to
foreign investment in China in general and laws and regulations applicable to wholly foreign-owned
enterprises in particular. Our affiliated entity, ATA Online, is subject to laws and regulations
governing the formation and conduct of domestic PRC companies. Relevant Chinese laws, regulations
and legal requirements may change frequently, and their interpretation and enforcement involve
uncertainties. For example, we may have to resort to administrative and court proceedings to
enforce the legal protection that we enjoy either by law or contract. However, since Chinese
administrative and court authorities have significant discretion in interpreting and implementing
statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative
and court proceedings and the level of legal protection we enjoy than in more developed legal
systems. Such uncertainties, including the inability to enforce our contracts and intellectual
property rights, could materially and adversely affect our business and operations. In addition,
confidentiality protections in China may not be as effective as in the United States or other
countries. Accordingly, we cannot predict the effect of future developments in the Chinese legal
system, particularly with regard to the computer-based testing services sectors, including the
promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or
the preemption of local regulations by national laws. These uncertainties could limit the legal
protections available to us and other foreign investors, including you.
Restrictions on currency exchange may limit our ability to utilize our revenues effectively
and the ability of our Chinese subsidiaries to obtain financing.
A substantial majority of our revenues and operating expenses are denominated in Renminbi.
Restrictions on currency exchange imposed by the Chinese government may limit our ability to
utilize revenues generated in Renminbi to fund our business activities outside China, if any, or
expenditures denominated in foreign currencies. Under current Chinese regulations, Renminbi may be
freely converted into foreign currency for payments relating to current account transactions,
which include among other things dividend payments and payments for the import of goods and
services, by complying with certain procedural requirements. Although the Renminbi has been fully
convertible for current account transactions since 1996, we cannot assure you that the relevant
Chinese government authorities will not limit or eliminate our ability to purchase and retain
foreign currencies for current account transactions in the future.
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Conversion of Renminbi into foreign currencies and of foreign currencies into Renminbi for
payments relating to capital account transactions, which principally include investments and
loans, generally requires the approval of SAFE and other relevant Chinese governmental authorities.
Restrictions on the convertibility of the Renminbi for capital account transactions could affect
the ability of our Chinese subsidiaries to make investments overseas or to obtain foreign exchange
through debt or equity financing, including by means of loans or capital contributions from us.
Fluctuations in exchange rates could result in foreign currency exchange losses.
Because substantially all of our revenues and expenditures are denominated in Renminbi,
fluctuations in the exchange rate between the U.S. dollar and Renminbi will affect our balance
sheet and earnings per share in U.S. dollars. In addition, appreciation or depreciation in the
value of the Renminbi relative to the U.S. dollar would affect our financial results reported in
U.S. dollar terms without giving effect to any underlying change in our business or results of
operations. Fluctuations in the exchange rate will also affect the relative value of any dividend
we issue that will be exchanged into U.S. dollars and earnings from and the value of any U.S.
dollar-denominated investments we make in the future.
The value of the Renminbi against the U.S. dollar and other currencies is affected by, among
other things, changes in Chinas political and economic conditions and Chinas foreign exchange
policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value
of the Renminbi to the U.S. dollar. However, the Peoples Bank of China regularly intervenes in the
foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals.
Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the
U.S. dollar over the following three years. Since reaching a high against the U.S. dollar in July
2008, however, the Renminbi has traded within a narrow range against the U.S. dollar. On June 19,
2010, the Peoples Bank of China announced the removal of the de facto peg. Following this
announcement, the Renminbi has appreciated modestly, from 6.7968 Renminbi per U.S. dollar on June
21, 2010 to 6.4801 Renminbi per U.S. dollar on
June 10, 2011.
Very limited hedging transactions are available in China to reduce our exposure to exchange
rate fluctuations. To date, we have not entered into any hedging transactions in an effort to
reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging
transactions in the future, the availability and effectiveness of these hedging transactions may be
limited and we may not be able to successfully hedge our exposure at all. In addition, our currency
exchange losses may be magnified by Chinese exchange control regulations that restrict our ability
to convert Renminbi into foreign currency.
Any future outbreak of severe acute respiratory syndrome or avian flu in China, or similar
adverse public health developments, may disrupt our business and operations.
Our business and operations could be materially and adversely affected by the outbreak of
avian influenza, severe acute respiratory syndrome, or SARS, or other similar adverse public health
development. In recent years, there have been reports on the occurrences of avian influenza in
various parts of China and neighboring countries, including a few confirmed human cases. China
reported the occurrence of a number of cases of H1N1 virus in China related to the global outbreak
of H1N1 that began in the first half of 2009. Any prolonged recurrence of an adverse public health
development may result in health or other government authorities requiring the closure of our
offices or the offices of our clients, or the cancellation of exams or classes to avoid students
and others from congregating in closed spaces. Such occurrences would disrupt our business
operations and adversely affect our results of operations. We have not adopted any written
preventive measures or contingency plans to combat any future outbreak of avian flu, SARS or any
other epidemic.
Risks Relating to Our ADSs
Our ADS price and the ADS or stock prices of other companies with business operations
primarily in China have fluctuated widely in recent years, which could result in substantial losses
to investors.
The trading prices of our ADSs are volatile, and this volatility may continue. For instance,
between April 1, 2010 and June 10, 2011, our ADS price as reported on Nasdaq ranged between a low
of $2.80 and a high of $12.62. Numerous factors that are beyond our control may cause the market price
of our ADSs to fluctuate significantly. In particular, the performance and fluctuation of the
market prices of other technology companies with business operations mainly in China that have
listed their securities in the United States may affect the volatility in the price of and trading
volumes for our ADSs. In recent years, a number of Chinese companies have listed their securities,
or are in the process of preparing for listing their securities, on U.S. stock markets. Some of
these companies have experienced significant volatility, including significant price declines in
connection with their initial public offerings. The trading performances of these Chinese
companies securities at the time of or after their offerings may affect the overall investor
sentiment towards Chinese companies listed in the United States and consequently may impact the
trading performance of our ADSs. These
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broad market and industry factors may significantly affect the market price and volatility of
our ADSs, regardless of our actual operating performance.
In addition to market and industry factors, the price and trading volume for our ADSs may be
highly volatile for specific business reasons. Factors such as variations in our revenues, earnings
and cash flow, announcements of new investments, cooperation arrangements or acquisitions, and
fluctuations in market prices for our services could cause the market price for our ADSs to change
substantially. Any of these factors may result in large and sudden changes in the volume and price
at which our ADSs will trade. We cannot give any assurance that these factors will not occur in the
future.
Although publicly traded, the trading market in our ADSs has been substantially less liquid
than the ADSs or stock of many companies quoted on the Nasdaq Global Market, and this low trading
volume may adversely affect the price of our ADSs.
Although our ADSs are traded on the Nasdaq Global Market, the trading volume of our ADSs has
generally been very low. Reported average daily trading volume in our ADSs for the three-month
period ended May 30, 2011 was approximately 37,800 ADSs. Limited trading volume will subject our
ADSs to greater price volatility and may make it difficult for our shareholders to sell their ADSs
at a price that is attractive to them.
The sale or availability for sale of substantial amounts of our ADSs could adversely affect
their market price.
Sales of substantial amounts of our ADSs in the public market or the perception that these
sales could occur, could adversely affect the market price of our ADSs and could materially impair
our future ability to raise capital through offerings of our ADSs.
As of June 15, 2011,
there are 45,730,517 common shares outstanding. In addition, there
were outstanding options to purchase an aggregate of 3,262,650 common shares, including options
to purchase an aggregate of 3,033,483 common shares immediately exercisable as of June 15,
2011. All of the ADSs sold in our initial public offering are
freely tradable without restriction or further registration under the U.S. Securities Act of 1933,
or the Securities Act, unless held by our affiliates as that term is defined in Rule 144 under
the Securities Act. Subject to applicable restrictions and limitations under Rule 144 of the
Securities Act of 1933, all of our shares outstanding as of the date of this annual report eligible
for sale in the public market. In addition, the common shares subject to options for the purchase
of our common shares will become eligible for sale in the public market to the extent permitted by
the provisions of various vesting agreements, the lock-up agreements described below and Rules 144
and 701 under the Securities Act of 1933. If these additional shares are sold, or if it is
perceived that they will be sold in the public market, the trading price of our common shares could
decline.
A significant percentage of our outstanding common shares are held by a small number of our
existing shareholders, and these shareholders may have significantly greater influence on us and
our corporate actions by nature of the size of their shareholdings relative to our public
shareholders.
Four of our existing shareholders, Kevin Xiaofeng Ma, Lijun Mai, Walter Lin Wang and SB Asia
Investment Fund II L.P., beneficially own, collectively,
approximately 64.3% of our outstanding
common shares as of June 15, 2011. Each of these shareholders is an affiliate within the meaning
of the Securities Act, due to the size of their respective shareholdings in us. SB Asia Investment
Fund II L.P. has one board representative on our five-director board, and beneficially owns
approximately 33.1% of our outstanding common shares as of June 15, 2011. Accordingly, these
shareholders have had, and may continue to have, significant influence in determining the outcome
of any corporate transaction or other matter submitted to the shareholders for approval, including
mergers, consolidations and the sale of all or substantially all of our assets, election of
directors and other significant corporate actions. In addition, without the consent of these
shareholders, we could be prevented from entering into transactions that could be beneficial to us.
Anti-takeover provisions in our organizational documents may discourage our acquisition by a
third party, which could limit your opportunity to sell your shares at a premium.
Our amended and restated memorandum and articles of association include provisions that could
limit the ability of others to acquire control of us, modify our structure or cause us to engage in
change of control transactions, including, among other things, the following:
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provisions that restrict the ability of our shareholders to call meetings and to
propose special matters for consideration at shareholder meetings; and |
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provisions that authorize our board of directors, without action by our shareholders,
to issue preferred shares and to issue additional common shares, including common shares
represented by ADSs. |
These provisions could have the effect of depriving you of an opportunity to sell your ADSs at
a premium over prevailing market prices by discouraging third parties from seeking to acquire
control of us in a tender offer or similar transactions.
The voting rights of holders of ADSs must be exercised in accordance with the terms of the
deposit agreement, the ADRs, and the procedures established by the depositary. The process of
voting through the depositary may involve delays that limit the time available to you to consider
proposed shareholders actions and also may restrict your ability to subsequently revise your
voting instructions.
A holder of ADSs may exercise its voting rights with respect to the underlying common shares
only in accordance with the provisions of the deposit agreement and the ADRs. We do not recognize
holders of ADSs representing our common shares as our shareholders, and instead we recognize the
ADS depositary as our shareholder.
When the depositary receives from us notice of any shareholders meeting, it will distribute
the information in the meeting notice and any proxy solicitation materials to you. The depositary
will determine the record date for distributing these materials, and only ADS holders registered
with the depositary on that record date will, subject to applicable laws, be entitled to instruct
the depositary to vote the underlying common shares. The depositary will also determine and inform
you of the manner for you to give your voting instructions, including instructions to give
discretionary proxies to a person designated by us. Upon receipt of voting instructions of a holder
of ADSs, the depositary will endeavor to vote the underlying common shares in accordance with these
instructions. You may not receive sufficient notice of a shareholders meeting for you to withdraw
your common shares and cast your vote with respect to any proposed resolution, as a holder of our
common shares. In addition, the depositary and its agents may not be able to send materials
relating to the meeting and voting instruction forms to you, or to carry out your voting
instructions, in a timely manner. We cannot assure you that you will receive the voting materials
in time to ensure that you can instruct the depositary to vote your shares. The additional time
required for the depositary to receive from us and distribute to you meeting notices and materials,
and for you to give voting instructions to the depositary with respect to the underlying common
shares, will result in your having less time to consider meeting notices and materials than holders
of common shares who receive such notices and materials directly from us and who vote their common
shares directly. If you have given your voting instructions to the depositary and subsequently
decide to change those instructions, you may not be able to do so in time for the depositary to
vote in accordance with your revised instructions. The depositary and its agents will not be
responsible for any failure to carry out any instructions to vote, for the manner in which any vote
is cast or for the effect of any such vote.
Except in limited circumstances, the depositary for our ADSs will give us a discretionary
proxy to vote our common shares underlying your ADSs if you do not vote at shareholders meetings,
which could adversely affect your interests.
Under the deposit agreement for the ADSs, the depositary will give us a discretionary proxy to
vote our common shares underlying your ADSs at shareholders meetings if you do not vote, unless we
notify the depositary that:
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we do not wish to receive a discretionary proxy; |
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we think there is substantial shareholder opposition to the particular question; or |
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we think the subject of the particular question would have a material adverse impact on our
shareholders. |
The effect of this discretionary proxy is that, absent the situations described above, you
cannot prevent our common shares underlying your ADSs from being voted and it may make it more
difficult for shareholders to influence the management of our company. Holders of our common shares
are not subject to this discretionary proxy.
You may not receive distributions on our common shares or any value for them if such
distribution is illegal or if any required government approval cannot be obtained in order to make
such distribution available to you.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions
it or the custodian for our ADSs receives on our common shares or other deposited securities after
deducting its fees and expenses. You will receive these distributions in proportion to the number
of our common shares your ADSs represent. However, the depositary is not responsible to make a
distribution available to any holders of ADSs if it decides that it is unlawful to make such
distribution. For example, it would be unlawful to make a distribution to a holder of ADSs if it
consisted of securities that required registration under the Securities Act but
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that were not properly registered or distributed pursuant to an applicable exemption from
registration. The depositary is not responsible for making a distribution available to any holders
of ADSs if any government approval or registration required for such distribution cannot be
obtained after reasonable efforts made by the depositary. We have no obligation to take any other
action to permit the distribution of our ADSs, common shares, rights or anything else to holders of
our ADSs. This means that you may not receive the distributions we make on our common shares or any
value for them if it is unlawful or unreasonable from a regulatory perspective for us to make them
available to you. These restrictions may have a material adverse effect on the value of your ADSs.
You may be subject to limitations on transfer of your ADSs.
Your ADSs represented by ADRs are transferable on the books of the depositary. However, the
depositary may close its books at any time or from time to time when it deems expedient in
connection with the performance of its duties. The depositary may close its books from time to time
for a number of reasons, including in connection with corporate events such as a rights offering,
during which time the depositary needs to maintain an exact number of ADS holders on its books for
a specified period. The depositary may also close its books in emergencies, and on weekends and
public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs
generally when the books of the depositary are closed, or at any time if we or the depositary
thinks it is advisable to do so because of any requirement of law or any government or government
body, or under any provision of the deposit agreement, or for any other reason.
We are a Cayman Islands company and, because judicial precedent regarding the rights of
shareholders is more limited under Cayman Islands law than under U.S. federal or state laws, you
may have less protection of your shareholder rights than you would under U.S. federal or state
laws.
Our corporate affairs are governed by our amended and restated memorandum and articles of
association, the Cayman Islands Companies Law and the common law of the Cayman Islands. The rights
of shareholders to take action against the directors, actions by minority shareholders and the
fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent
governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived
in part from comparatively limited judicial precedent in the Cayman Islands as well as from English
common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The
rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands
law are not as clearly established as they would be under statutes or judicial precedent in some
jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of
securities laws than the United States. In addition, some jurisdictions, such as Delaware, have
more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. As
a result of all of the above, public shareholders may have more difficulty in protecting their
interests in the face of actions taken by management, members of the board of directors or
controlling shareholders than they would as public shareholders of a U.S. company.
Certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company and substantially all of our assets are located outside of the
United States. Nearly all of our current operations are conducted in China. In addition, most of
our directors and officers are nationals and residents of countries other than the United States. A
substantial portion of the assets of these persons are located outside the United States. As a
result, it may be difficult for you to effect service of process within the United States upon
these persons. It may also be difficult for you to enforce in U.S. court judgments obtained in U.S.
courts based on the civil liability provisions of the U.S. federal securities laws against us and
our officers and directors, none of whom is resident in the United States and the substantial
majority of whose assets is located outside of the United States. In addition, there is uncertainty
as to whether the courts of the Cayman Islands or China would recognize or enforce judgments of
U.S. courts against us or such persons predicated upon the civil liability provisions of the
securities laws of the United States or any state. In addition, there is uncertainty as to whether
such Cayman Islands or Chinese courts would be competent to hear original actions brought in the
Cayman Islands or China against us or such persons predicated upon the securities laws of the
United States or any state.
Your right to participate in any future rights offerings may be limited, which may cause
dilution to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire
our securities. However, we cannot make rights available to you in the United States unless we
register the rights and the securities to which the rights relate under the Securities Act or an
exemption from the registration requirements is available. We are under no obligation to file a
registration statement with respect to any such rights or securities or to endeavor to cause such a
registration statement to be declared effective. Moreover, we may not be able to establish an
exemption from registration under the Securities Act. Accordingly, you may be unable to participate
in our rights offerings and may experience dilution in your holdings.
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ITEM 4. |
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INFORMATION ON THE COMPANY |
A. History and Development of the Company
Our predecessor company, American Testing Authority, Inc., a New York company, began
operations in 1999, and in that same year established ATA Testing Authority (Beijing) Limited, or
ATA Testing, as a wholly owned subsidiary in China. In November 2001 our founders established ATA
Testing Authority (Holdings) Limited, or ATA BVI, in the British Virgin Islands. The following year
American Testing Authority, Inc. merged into ATA BVI and ATA BVI became our holding company.
In June 2003, we established a Chinese joint venture company, ATA Learning (Beijing) Inc., or
ATA Learning, with Yinchuan Economic and Technological Development Zone Investment Holding Co.
Ltd., or Yinchuan Holding. Initially, we held a 40% equity interest in ATA Learning. In May 2005,
we acquired Yinchuan Holdings 60% equity interest and converted ATA Learning into a wholly owned
subsidiary of ATA BVI.
We incorporated ATA Inc. in the Cayman Islands in September 2006 as our listing vehicle. ATA
Inc. became our ultimate holding company in November 2006 when it issued shares to the existing
shareholders of ATA BVI in exchange for all of the outstanding shares of ATA BVI.
ATA Learning (Wuxi) Inc., or ATA Wuxi was established in January 2008, as a subsidiary of ATA
Learning to operate our pre-occupational training programs business.
In February 2009, we completed the acquisition of the entire equity interest of Beijing
Jindixin Software Technology Company Limited, or Beijing JDX, and JDX Holdings Limited, or JDX BVI,
which are related companies incorporated in China and the British Virgin Islands, respectively,
engaged in the development and marketing of software for computer-based tests. JDX BVI was
dissolved in October 2009.
For additional information on our organizational structure, see Item 4.C. Organizational
Structure.
Our principal executive offices are located at 8th Floor, Tower E, 6 Gongyuan West Street,
Jian Guo Men Nei, Beijing 100005, Peoples Republic of China, and our telephone number is (86-10)
6518-1122. Our web site address is http://www.ata.net.cn. The information on our web site does not
form a part of this annual report. On February 1, 2008, we completed our initial public offering,
which involved the sale by us of 4,874,012 of our ADSs, representing 9,748,024 of our common
shares. Our agent for service of process in the United States in CT Corporation System, located at
111 Eight Avenue, New York, New York 10011.
B. Business overview
Overview
We believe that we are the leading provider of computer-based testing services in China. We
offer comprehensive services for the creation and delivery of computer-based tests utilizing our
nation-wide test delivery platform, proprietary testing technologies and extensive experience
providing testing services in China. Our computer-based testing services are used for professional
licensure and certification tests in various industries, including IT services, banking,
securities, teaching and insurance. Our computer-based testing services clients principally include
professional associations, such as the Securities Association of China, China Banking Association
and China Futures Association, and Chinese governmental agencies, including the PRC Ministry of
Human Resources and Social Security.
Our test center network, which we believe is the largest test center network of any commercial
testing service provider in China, comprised 2,018 authorized test centers located throughout China
as of March 31, 2011. Combined with our test delivery technologies, this network allows our clients
to administer large-scale nationwide computer-based and paper-based tests in a consistent, secure
and cost-effective manner. From our inception in 1999 through March 31, 2011, we have delivered
over 41.4 million tests, including approximately 10.3 million free tests for business development
purposes. Over the course of two days on March 5 and March 6, 2011, we delivered tests to more than
650,000 test takers for the Securities Association of China, demonstrating our ability to
administer computer-based tests across the country on a massive scale through our nationwide test
delivery platform. During the fiscal year ended March 31, 2011, approximately 7.2 million tests
were delivered using our computer-based testing technologies and services.
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Our proprietary computer-based testing technologies include our E-testing platform for
delivering computer-based tests and our content creation and management technologies. Our E-testing
platform is composed of a set of self-developed tools and applications for facilitating the
computer-based testing process, and is capable of handling large-scale tests and quickly and
securely transmitting, processing and storing large amounts of data. Our self-developed test
content creation and management technologies include our Dynamic Simulation Technology, an advanced
performance-based testing technology which leading IT certification sponsors, including Microsoft,
have adopted for their computer-simulated tests given around the world. We have also developed
content creation technologies for the conversion of paper-based tests into computer-based formats.
Leveraging our testing platform, technologies and expertise, we have expanded our service
offerings beyond our core computer-based testing services to include test-focused services targeted
at educational institutions, students and companies in China. Our career-oriented educational
course programs, which we market to educational institutions in China, help prepare students to
pass certification exams in the IT industry and other vocations. Although we continue to broaden
our services, we have shifted our focus away from career-oriented educational course programs and
towards our two major emerging businesses, the TOEIC and HR Select tests, which we believe have
stronger long-term growth potential. Hence, we have stopped investing in career-oriented
educational course programs since fiscal year 2010. We also offer targeted test preparation and
training solutions for certain professional licensure and certification tests in the securities and
teaching industries. ATA Online has launched online test preparation Internet web sites in
coordination with the Securities Association of China and the China Banking Association to help
candidates across China prepare for these organizations professional licensure and certification
tests, which are delivered through our test delivery platform. In March 2009, we launched HR
Select, our self-developed online system that utilizes our proprietary software and a large
inventory of test titles to assist companies in streamlining and optimizing their employee
selection and assessment processes. HR Select offers tools for filtering and categorizing employee
candidates, testing candidates and analyzing the test results. Since March 2009, we have been the
exclusive agent for delivering the Test of English for International Communication, or TOEIC, in
China. In September 2008, we entered into a business partnership with the PRC Ministry of Education
to develop and provide online tutorials to students enrolled in Cambridge ESOLs Cambridge Young
Learners English programs in China.
Our total net revenues increased from RMB217.5 million in the fiscal year ended March 31, 2009
to RMB245.0 million in the fiscal year ended March 31, 2010 and RMB303.9 million ($46.4 million) in
the fiscal year ended March 31, 2011. We had net income of RMB22.8 million in the fiscal year ended
March 31, 2009, net loss of RMB35.3 million in the fiscal year ended March 31, 2010 and net income
of RMB19.8 million ($3.0 million) in the fiscal year ended March 31, 2011.
Our Test Delivery Platform and Technologies
We offer our clients a comprehensive platform and suite of technologies for the development
and delivery of computer-based tests. Our E-testing platform integrates all aspects of the test
delivery process for computer-based tests, from test form compilation to test scoring and results
analysis. Our test delivery services are further enhanced by our nation-wide network of test
centers, which allows us to deliver both computer-based and paper-based tests on a large scale in a
consistent, secure and cost-effective manner. We also offer our clients advanced technologies and
software applications for the creation of sophisticated computer-based tests, including advanced
performance-based tests. By combining our advanced test content creation technologies with our test
delivery platform and network of test centers, we can offer our clients a comprehensive and
integrated solution to enhance the effectiveness of the entire testing process, as shown in the
following diagram.
Our E-Testing Platform
Our E-testing platform incorporates a number of technologies and protocols designed to ensure
the stable, cost-effective, secure, accurate, fast and easy-to-manage delivery of computer-based
tests on a large scale. It is flexible and is easily customized for many types of test content and
the specific requirements of the test sponsor. Tests delivered through our E-testing platform may
be conducted at our ATA authorized test centers or at other locations at the test sponsors
discretion. Our E-testing platform is composed of a set of tools and applications for facilitating
the computer-based testing process, including a network sub-system for managing and transferring
test content, test taker information and test results data in a secure and efficient manner. Our
E-testing platform software applications are designed to handle large-scale testing environments
and are capable of transmitting, receiving, processing and storing
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large amounts of information in
a short time span. We currently have the capability to deliver more than 1,000,000 tests per day
using our 30 servers, which can be increased to enlarge capacity. We periodically upgrade our
equipment and software applications to handle increasing testing volume as required.
Our ATA Authorized Test Center Network
To help our clients reach a broad base of test takers, we have established a large network of
authorized test centers across China and in Hong Kong, which we refer to as our ATA authorized test
centers. As of March 31, 2011, we had contractual relationships with 2,018 ATA authorized test
centers, of which 1,434 hosted tests delivered through our testing platform within the last
24-month period. 1,431 of our authorized test centers possess the right to use our ATA brand name
and logo. Our network of ATA authorized test centers provides the means for delivering and
administering tests nationally both simultaneously and on a regularly scheduled basis under
consistent and secure testing conditions.
The following map shows the geographic distribution of our ATA authorized test centers as of
March 31, 2011:
We do not own any of our ATA authorized test centers but instead enter into a standard form of
contract with qualified independent operators to act as ATA authorized test centers. Most of our
ATA authorized test centers are owned by Chinese vocational schools, which we believe enhances the
quality and dependability of the centers. Under our contracts with the test centers, we license our
ATA E-testing platform technology and provide ongoing technical support and training during the
contract period. We require each test center to provide sufficient facilities to properly
administer computer-based tests and to follow prescribed guidelines for facility maintenance and
test administration. We also conduct regular reviews of their facilities and operations. We assist
our clients in liaising and coordinating testing arrangements with our ATA authorized test centers.
Our ATA authorized test centers are divided into general test centers, which offer a wide
range of tests and have the right to use our ATA brand name and logo, and special test centers,
such as Microsoft Learning Centers, with which we enter into contracts to carry out specific tests
for specific test sponsor clients. We receive license fees from our test center operators in the
form of either a single initial license fee or a combination of initial license fee and annual
continuing license fees. Under either fee arrangement, our licensees can extend their licensing
agreement with us indefinitely.
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Our Test Content Creation and Management Technologies
We offer our clients advanced technologies and software applications for the creation of
sophisticated computer-based tests, including advanced performance-based tests.
Our Dynamic Simulation Technology is a performance-based testing technology that provides the
format for creating, illustrating, running and scoring tests in a virtual computer environment that
accurately and realistically simulates the operating environment and functions of the software
applications being tested without requiring the installation or use of those applications. Our
Dynamic Simulation Technology is designed to provide maximum interactivity and allow the test taker
to go down multi-level testing paths where each response will lead the test taker to a different
set of questions and problems. The current version of Dynamic Simulation Technology, version 5.0,
is an interpreter-based simulation technology, which represents our fifth generation of simulation
testing technologies, as shown in the table below:
Interpreter-based simulation offers high flexibility, adaptability to most applications, low
disk space usage and short lead times for developing new tests once the system is in place. Based
on feedback from our clients, we believe we are the only company in the world that has developed
and is marketing interpreter-based simulation technology for testing and educational use. For this
reason, we believe our Dynamic Simulation Technology is the worlds leading technology for the
creation and illustration of performance-based tests through simulation.
We have also developed two non-simulation testing technologies: Real Environment Technology
and ATA Markup Language. Our Real Environment Technology is used for creating, illustrating and
running performance-based tests and learning exercises that operate within the actual operating
system or software application being tested. We have also developed our ATA Markup Language for the creation and
illustration of knowledge-based test items that require the test taker to respond to specific
questions in a traditional question-and-answer format. While less sophisticated than our
performance-based testing technologies, ATA Markup Language remains a key technology for our large
base of clients who contract with us for the conversion of paper-based tests to computer-based
tests. In addition, many performance-based tests also include traditional multiple-choice questions
created and run using our ATA Markup Language and related software applications.
We have developed test item authoring tool applications for our Dynamic Simulation Technology,
Real Environment Technology and ATA Markup Language. We have also developed other authoring tools,
such as user interface cloning and translation software, for increasing the efficiency of the test
content creation and revision process. To meet individual client needs, we have developed test
engine applications for integrating tests using our testing technologies on multiple testing
platforms. For instance, we have developed test engine applications that allow running Dynamic
Simulation Technology tests on our own test delivery platform, on Microsofts test port and on
other test platforms. Our Dynamic Simulation Technology features full internationalization.
Currently content of over eight languages have been delivered through this technology around the
world.
All of our computer-based testing technologies have been developed in-house, and none
incorporates any third-party intellectual property.
In addition to incorporating our technologies into our test service offerings, we also
directly generate revenue from our Dynamic Simulation Technology and related simulation authoring
tools by licensing them to international IT certification sponsors, such as
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Microsoft, and third-party test preparation companies for the creation of test items and test preparation course
exercise items for Microsoft Learning Products, including Microsoft Certified Professional Exams,
delivered to students and test takers all over the world.
Our Service Offerings
Testing Development and Delivery Services
Computer-based test creation, delivery and analysis services. Our test delivery platform and
technologies allow us to offer our clients a comprehensive set of services for the creation,
delivery and analysis of computer-based tests as well as logistical services such as test
registration, scheduling and fee collection. We have assisted our clients in creating and
delivering a wide range of computer-based tests, including:
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licensure tests administered by governmental agencies that test the competence of
candidates for positions with various governmental agencies or for certain types of jobs,
and public exams administered by provincial-level human resources bureaus; |
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professional association or qualifications tests required by governmental agencies or
industry associations that test the competence of individuals who operate in certain
industries that require technical expertise and which carry professional titles, such as: |
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the Certification of China Banking Professionals Exam, designed and
administered by the China Banking Association under the supervision of the China
Banking Regulatory Commission; |
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the Qualifications Exam for Individuals Engaged in the Securities Industry,
designed and administered by the Securities Association of China under the supervision
of the China Securities Regulatory Commission; |
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the Insurance Agent Qualifications Exam, designed and administered by the
Insurance Association of China under the supervision of the China Insurance Regulatory
Commission; |
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IT vendor tests that assess the technical skills and competence of IT
professionals in relation to specific types of IT applications, computer operating
systems or other IT skill sets, and that allow test takers to obtain a professional
license or certification in a specific subject area, job title or career path; and |
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enterprise assessment tests that various enterprises use for recruitment and
internal personnel assessment purposes. |
Utilizing our computer-based test content creation technologies, we assist our clients in
developing sophisticated computer-based tests, including performance-based tests. Creation of
effective and user-friendly computer-based tests involves a multi-step process, including:
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Test design. Our content development consultants work together with the client to determine
the test purpose, intended audience, test objectives and required competency level to
formulate an overall test outline. We then arrange for the client to work with our subject
matter experts, or to engage outside subject matter experts with specific experience in the
subject area, to work with us on the scope of knowledge covered by the test and to design and
author specific testing items for required knowledge points. |
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Test item authoring. Based on the test outline and using our advanced test engine
technologies, we work together with subject matter experts to create test items designed to
determine a test takers proficiency and speed in solving both practical and conceptual
problems. The test items are designed to support immediate test scoring and results analysis.
Test items generally fall into two types: multiple-choice items and performance-based items.
Once all of the test items have been created, our content development consultants and subject
matter experts commence a review to ensure the validity of each test item, clarity of language
and overall quality. All of the test items are deposited in a master test item pool. |
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Test form and item bank construction. Once the test items are ready, we set test item
parameters to be used for building up test item banks to enable test forms to be formulated.
Test forms with equal level of difficulty are generated through random item selection from the
test item bank based on the pre-defined blueprint of the test to ensure fairness across test
forms.
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Final user acceptance beta test. Before publication, the test undergoes a final user
acceptance beta test during which volunteer test takers take the test and provide feedback.
Based on the test results from the beta test, we are able to evaluate the efficacy of the
test, eliminate problematic test items and otherwise fine tune the test items to ensure
quality. |
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Continuous upgrades through analysis and user feedback. As we deliver tests in real-world
environments, we monitor and analyze the quality and adequacy of the test content and make
upgrades as we develop or adopt new technologies and techniques. We also communicate with test
users and collect feedback from the test sponsors and test takers to ensure that desired
improvements are made in a timely manner. |
Depending on the clients needs, we can perform some or all of the above steps for each
client. For example, in some cases, clients may have already created all of the test items and may
only require us to build the test using our ATA E-testing platform. Computer-based tests can also
be designed for delivery as on-going tests, which can be taken by the test taker at any time at his
or her choice, for example by downloading the test from the clients web site, or as regularly
scheduled tests, which must be taken by test takers at a specified time with advanced scheduling
required.
Our computer-based testing delivery services generally include the following, subject to the
test sponsors specific needs:
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installing our ATA E-testing platform on the clients computer system to assist with
centralizing administrative matters relating to the test or, in the case of repeat
clients, upgrading the existing platform as necessary, for new tests; |
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providing technical support throughout the testing process; |
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uploading test information and performing test rehearsals and final testing
environment control; and |
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processing test scores, summarizing and analyzing test scores and results. |
We also offer a number of logistical support services relating to test administration that we
incorporate into the licensing fee for our test delivery platform based on a clients individual
needs. These support services include:
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managing test taker registration and scheduling; |
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managing test taker fee collection; |
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arranging test stations and pre-test training of staff at each ATA authorized test
center; |
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providing test data management, such as test score publishing; and |
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preparing and delivering certificates for test takers who have passed the test
sponsor certification requirements. |
We usually offer test content creation services and test delivery services as an integrated
package and collect a fixed fee per test per test taker. The fee we charge depends on the length
and complexity of the test, the amount of effort it takes to transform the testing content into a
computer-based test format and other factors in the test development and administration process,
such as security levels and the amount of logistical services provided.
Distribution and administration of TOEIC exams in China. Since March 2009, we have been the
exclusive distributor and test administrator of TOEIC exams in China, which are operated by ETS,
the worlds largest educational research and assessment organization. Originally designed in 1979
by ETS for governmental agencies and corporations, TOEIC measures the ability of non-native
speakers of English to communicate in English in the workplace. According to ETS, the TOEIC exam
has been used by over 10,000 companies, government agencies and English language learning programs
in 120 countries, with more than six million TOEIC exams administered around the world each year.
TOEIC has become the top professional English language assessment tool in the world, according to
ETS.
TOEIC tests include large-scale tests open to the general public for a set fee as well as
on-demand tests given for specific enterprises or organizations. We administered our first TOEIC
exam in March 2009, in which 3,909 exam takers participated in three cities across China. During
the fiscal years ended March 31, 2010 and 2011, we administered over 83,000 and 227,000 TOEIC
billable exams across China. We collect a per-test taker fee for each test delivered. TOEIC exams
in China are currently only delivered in a paper-based format. However, we are undergoing
feasibility studies with ETS to develop computer-based TOEIC exams to be delivered in China in the
future through our ATA authorized test center network.
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Career-Oriented Educational Services
Our career-oriented educational services include single course programs, degree major course
programs and pre-occupational training programs focusing on preparing students to pass IT and other
vocational certification tests. We market these educational services to universities and vocational
schools throughout China to provide to their students. These course programs package the testing
and certification component of our testing services with licensed content to provide an integrated
learning and assessment solution. Many of the tests contained in our course programs have
incorporated our advanced performance-based testing technologies to encourage hands-on real-world
interactive learning experiences.
Single course programs. Each single course program we offer is typically centered on a
specific type of computer software application or other technology that requires significant
training and practice to master and for which certification is offered. We work closely with both
the certification providers, which are usually well-known IT vendors, and the academic institutions to ensure the course and
final exam content fully satisfies all of their respective requirements and maximizes the students
learning experience. Upon successful completion of the course work and related computer-based
examination, the student will obtain a qualification certification from the IT vendor or other
certification provider as well as academic credit from the students school. We generally provide
the following services to the academic institution as part of our course programs:
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installing the ATA E-testing platform on the schools computer system or, in the case
of a renewal of the course license, performing an upgrade of the existing platform for the
new course; |
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at the beginning of each course period, providing students and teachers with course
materials, which include textbooks, compact disks, visual lab equipment, slides, flash
video case studies and exercise items; |
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during the course period, providing ongoing support relating to the course and test
software and the course materials, such as content updates, software upgrades, telephone
support for teachers and students, online support including downloadable teaching guides,
articles by well-known instructors and sample test materials available at our web site; |
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at the end of each course period, uploading authorization information to permit the
school to administer the final exam; |
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delivering a second exam at no extra charge to each enrolled student who fails the
final exam on the first try; |
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on request and subject to additional fees, providing training sessions for course
teachers during the summer or winter holidays for a separate fee charged to the schools,
which we record as training revenue; and |
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where necessary, preparing and delivering certificates for test takers who have
passed the test certification requirement. |
We charge educational institutions a fixed fee for these services on a per-student, per-course
basis based on our perceived market value of the certification to be awarded to the student at the
completion of the course.
Degree major course programs. Our degree major course programs are designed to help graduates
prepare for particular types of jobs and career paths. These programs are essentially combinations
of multiple single course programs designed to help students acquire a cluster of skill sets.
Generally, the entire degree major course program can be completed within two to three years and
comprises all courses necessary for the students college major. We provide substantially the same
support and other services as we provide for single course programs.
Pre-occupational training programs. Vocational school students in China are generally required
to spend one semester prior to graduation in an internship. However, many students have difficulty
finding quality internships that provide the opportunity to hone practical skills prior to entering
the job market. To provide these students with more alternatives, we have worked with vocational
schools and our IT vendor clients to develop pre-occupational training programs to help meet the
internship requirement. These programs provide students with a simulated internship environment
replicating what these students would experience in an actual internship and that are designed to
prepare students for actual job positions. A typical pre-occupational training program will last
two to three months. Software applications using our performance-based testing technology help
guide and monitor the students progress in completing the required tasks and are able to provide
constant feedback to enhance the learning experience and improve the students performance. Our
pre-occupational training programs are offered principally to students enrolled in schools offering
our course programs and are particularly well-suited for students taking one of our degree major
course programs.
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Test Preparation and Training Solutions
In late 2006, we began offering test preparation and training solutions by integrating our
testing and assessment technologies with test preparation content targeted at professional
licensure and certification tests in China. Building on our established reputation in, and in-depth
understanding of, the Chinese market for professional licensure and certification tests in the
securities, futures, banking, insurance and teaching industries, we began offering test preparation
and training programs and services to test candidates preparing to take professional certification
tests in these industries.
Online test preparation and training platform for the securities and banking industries.
Leveraging the increased scale of ATA-delivered securities and banking professional licensure and
certification tests, ATA Online has launched online test preparation Internet web sites in
coordination with the Securities Association of China to provide a flexible and scalable platform
aimed at helping test candidates across China to practice and prepare for professional licensure
and certification tests delivered by ATA. Test preparation customers gain access to Internet web
sites that contain the latest test-related topics, preparation materials provided by the test
sponsors and streaming video teaching sessions and practice tests developed by ATA. A stored value
card-based credit system allows each customer unlimited use of online mock testing during a
specified service period, which normally ranges from 90 to 180 days from the date of activation of
the card. These cards are sold directly to test candidates or to our test sponsor clients, who then
distribute the stored value cards nationwide to interested test candidates.
We plan to market similar test preparation and training web sites to our other test delivery
clients to assist them in launching nationwide, scalable and flexible test preparation and training
programs.
NTET Tutorial Platform test preparation software for the teaching industry. Since 2006, we
have offered software comprising a comprehensive set of training materials for preparing teachers
for certification under the NTET test, which is conducted by Chinas Ministry of Education and
delivered through our test delivery platform and test center network. This software package, which
we refer to as our NTET Tutorial Platform, is installed on a schools computer system and offers
teachers access to user-friendly and interactive tutorial programs, practice questions and learning
exercises through the schools intranet. We have had only minimal sales of our NTET Tutorial
Platform software since October 2008 as a result of the delayed implementation of the national
teachers licensure program. Further, we had no NTET sales in the fiscal year ended March 31,
2011.
Cambridge ESOL Young Learners English online tutorials. In September 2008, we entered into a
business partnership with the PRC Ministry of Education to develop and provide online tutorials to
students enrolled in Cambridge ESOLs Cambridge Young Learners English programs in China. The
tutorials contain audio-visual study aids and practice items that we have developed in conjunction
with the Institute of Online Education of Beijing Foreign Studies University. We began earning
revenues from these online tutorials in September 2009.
HR Select Employee Assessment Solution
In March 2009, we launched our self-developed HR Select employee assessment solution. HR
Select is an online system that utilizes our proprietary software and a large inventory of test
titles to help employers in China maximize the efficiency and accuracy of their employee
recruitment process. HR Select covers the entire employee selection process from resume filtering
to talent assessment and skills testing to test results analysis.
HR Select incorporates sophisticated database technologies for retaining and categorizing key
candidate data, allowing human resource managers to effectively and efficiently process and filter
a large number of candidate resumes. More importantly, we believe HR Selects platform for testing,
comparing and analyzing general, industry-specific and position-specific capabilities and
skill-sets makes it a unique offering in the market. Employers using HR Select can choose to adopt
any of a multitude of evaluation parameters, including:
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General skills, including among others foreign language skills, software application
skills, management skills, reading comprehension ability and data processing skills; |
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Position-specific skills, including customized tests for IT, finance, management,
customer service, administrative and sales positions; and |
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Compatibility traits, which look at non-skills elements that indicate a candidates
likelihood of success, such as personal values, self-image, self-motivation and other
personality traits. |
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HR Select leverages our computer-based testing technologies and expertise to allow employers
to evaluate candidates on each of these parameters and to analyze and categorize the results to
make effective recruitment decisions. We have also leveraged our particular expertise in certain
industries where we have been delivering computer-based tests and educational services, including
the IT and finance industries, to provide targeted services to employer clients. HR Select
currently offers tailored evaluation tests for 600 positions with over 260 evaluation modules. For
example, TOEIC and SHL assessment titles are available via the HR Select service to assess a
candidates business English skill and job aptitude respectively. Employers may adopt ready-made
tests available in the HR Select system, or use their own self-developed tests. If they use their
own tests, they can choose to keep the test confidential or permit other HR Select clients to view
the tests. By allowing test content to be shared, we believe HR Select can facilitate
standardization of recruitment criteria within industries. HR Select incorporates our
computer-based testing technologies to allow clients to deliver the evaluation tests online in a
secure, accurate and easy-to-manage manner. HR Select can be administered at ATA authorized test
centers or via our customized online platform.
Our current HR Select clients principally include large domestic and foreign-invested
companies in highly skill-intensive industries such as insurance and
banking. By the end of the fiscal year
ended March 31, 2011, the four largest Chinese state-owned banks have all become customers of our
computer-based testing services that incorporate our HR Select solution. We expect to market HR Select
to the large and growing small and medium enterprise market in China where recruitment resources
are limited and where the consequences of poor hiring decisions are greater. Pricing starts at a
volume-limited annual subscription, with additional fees charged depending on volume, specific test
titles utilized and whether ATA authorized test centers are used.
Data Storage and Security
One of the most important aspects of our computer-based testing services is ensuring the
integrity and security of the test-taking process. To accomplish this, we use multiple technologies
and methods to ensure the security of test content, test results and other sensitive data used or
obtained in relation to our services.
We have developed and implemented the following technologies and measures to protect security
throughout all stages of test development and delivery:
Preparation and Storage of Test Items
To reduce the risks associated with potential unauthorized disclosure or misuse of test
questions by ATA personnel during the process of creating test item banks, we divide test item
authoring and management tasks among multiple persons and limit each persons access to the test
item content through the use of access permissions. Each test item author is only responsible for
creating a limited amount of test item content and is permitted access only to that content for
which that person is responsible. As a result, no one has full access to the contents beyond his or
her scope of work. Test item bank managers receive limited permissions and are not given access to
view the content of individual test items. Moreover, our test item authoring and test item bank
management tools record and track all access and modifications to test items or the test item pool
to detect any breaches to the security protocols. Once the test item banks are created, the content
is encrypted and stored on our secure central servers or the clients servers. Our servers are
located in a central machine room operated by one of the most well-established server hosting
service providers in China. These servers are protected by firewalls and stored using
NetApptm equipment, which permits real-time back-up. We encrypt all test item
banks using our self-developed encryption technologies, which prevent decryption or reverse engineering through the use of electronic fingerprinting,
anti-tracking and trapping technologies.
Creation of Test Forms and Transmission of Test Materials to the Test Site
Our software applications automatically compile individual test forms from the test item bank
according to the test blueprint and pre-arranged parameters. During this process, no access or
viewing of the content of individual test items is permitted and all steps in the process are
digitally recorded. The encrypted test forms are delivered to the test sites server either on hard
disc or through a secure network, generally one day before the day of the test. The relevant
information on each test taker is separately transferred in encrypted format to the test site via
the Internet. A hardware dongle containing an encrypted time stamp is used to ensure that the test
begins and ends on time. A hardware dongle is a hardware device that must be inserted into the USB
port of the test sites central computer to decrypt and operate the test content. We design our own
hardware dongles, which incorporate ATA-owned integrated circuit technology, and outsource its
production to multiple factories in China. A decryption algorithm used along with the hardware
dongle to complete decryption of test materials and commence the test.
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Conduct of the Test
We train all test center personnel on protocols and supervision techniques to be used during
test time. Test center administrators confirm test takers identities through photographs,
fingerprints and other biometric data. We also issue to each test taker upon registration a
password that must be inputted on the test day to start the test. Once the test session has begun,
software installed as part of each test tracks all actions and operations taken during the test and
records them on the test site central server in real time. The testing software prevents test
takers from accessing any network during test time. When a test taker opens up a question, it is
decrypted and displayed. To protect against cheating, the order in which test answer choices appear
is randomly generated with each answer choice encoded as a unique number and letter chain.
Immediately upon the test takers completion of each test item, the data recorded is re-encoded and
re-encrypted.
Transmission, Reading and Storage of Test Results
In most instances, tests are scored on the test site server immediately following conclusion
of the test and subsequently uploaded to our central servers. All transferred data is encrypted and
data code integrity is verified using MD5 and Hash technologies. Following scoring, we store all
test content and results on our firewall-protected central servers.
Intellectual Property
Intellectual property protections, including copyrights, trademarks and trade secrets are
important to our success. We rely on copyright and trademark law, trade secret protection and
confidentiality agreements with our employees, clients, business partners and others to protect our
intellectual property rights. All of our senior management and engineering employees are required
to sign agreements to acknowledge that all inventions, trade secrets, works of authorship,
innovations and other processes generated by them that relate to our business are our property, and
to assign to us any ownership rights in those works. Despite our efforts, it may be possible for
third parties to obtain and use our intellectual property without authorization.
We have registered 76 software copyrights relevant to our product and service offerings with
the Copyright Protection Center of China.
As of March 31, 2011, we have also registered 108 domain names relating to our web sites,
including www.ata.net.cn, the primary URL for our web site, with the Internet Corporation for
Assigned Names and Numbers and the China Internet Network Information Center, a domain name
registration service provider in China.
We have chosen not to obtain any patents for our testing technologies for a number of reasons.
Principally, we believe it is the industry norm in China not to obtain patents for technologies
that are not in the form of hardware. The process for patenting technologies is cumbersome and
generally takes approximately 18 months or more, and due to the prevalence of intellectual property
infringement and relatively weak enforcement mechanisms in China, we believe the risks involved in
obtaining a patent, which would be publicly accessible, outweigh the potential benefits. Expertise
underlying our testing technologies enjoys protection in China as trade secrets under Chinas
Anti-Unfair Competition Law.
Clients
The quality and flexibility of our product and service offerings has attracted a broad base of
clients. Our clients principally include Chinese governmental agencies, professional associations,
well-known IT vendors and Chinese educational institutions as well as individual test preparation
services consumers. The Securities Association of China and the China Banking Association accounted
for 38.1% and 17.0%, respectively, of our total net revenues for the fiscal year ended March 31,
2011. No other client accounted for more than 10% of our total net revenues for the fiscal year
ended March 31, 2011.
As of March 31, 2011, we had 270 contracts with test sponsors for our computer-based testing
services. For the fiscal year ended March 31, 2011, our five largest computer-based testing
services clients based on revenue were:
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the Securities Association of China, which has been designated by the China
Securities Regulatory Commission as the sole administrator of securities industry
qualification tests in China; |
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the China Banking Association, which has been designated by the China Banking
Regulatory Commission as the sole administrator of banking industry qualification tests in
China; |
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the Professional Skills Qualification Center of the PRC Ministry of Human Resources
and Social Security;
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the China Futures Association, which has been designated by the China Securities
Regulatory Commission as the sole administrator of futures industry qualification tests in
China; and |
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FPSB China Ltd. |
These five clients represented an aggregate of 67.4% of our total net revenues for the fiscal
year ended March 31, 2011.
Sales and Business Development
Our sales and business development department, primarily composed of members of our senior
management and professional sales team, is responsible for identifying and developing new markets
and client opportunities for our product and service offerings. For our computer-based testing
services, we target key governmental agencies, professional associations, enterprises and other
potential clients to help them develop standardized certification, qualification or assessment
policies. Once we have identified a potential client, we generally submit an initial proposal
outlining the services we can provide based on our analysis of their test-related needs. We may
develop and conduct trial tests tailored to the clients needs based on the terms of a memorandum
of understanding signed with the client. We generally enter into a final contract with the client
only after successful completion of the trial tests. During the entire selling cycle, we also
actively seek opportunities to cross-sell and up-sell our services, including test preparation
services and ancillary testing services to the client. The following diagram illustrates the key
stages in our testing services business development process.
Marketing
To generate demand and market awareness, we engage in a variety of marketing activities to
promote our product and service offerings. We host and invite potential clients, such as key
governmental agencies and governing bodies, to industry conferences on topics such as the
development of computer-based testing technologies. We also attend conferences and trade shows to
demonstrate and promote our technologies and product and service offerings. We conduct marketing
for our career-oriented educational services through promotional activities in cooperation with
local governmental departments and educational institutions and through our local sales agents. Our
on-campus marketing activities include promoting the IT vendors certification tests together with
our course programs and other career-oriented educational services, while linking both to our ATA
brand name, through prominently placed marketing materials like posters and other advertising
means. We promote wider recognition of our ATA brand by placing our logo prominently outside ATA
authorized test centers and in test and course program materials. We are also developing joint
marketing efforts with certain independent operators of our ATA authorized test centers. In
connection with our launch of HR Select and distribution of TOEIC, we have redirected most of our
educational services sales and marketing efforts since March 2009 to design and operate marketing
efforts toward private enterprises. We have launched advertising campaigns across all major resume
service providers web sites in China to market HR Select and TOEIC.
Competition
In the computer-based testing services market, we compete primarily on the basis of
technology, price, management experience and established infrastructure. We believe our overall
testing services and technologies, along with our nationwide test center network, provide us with a
competitive advantage. We believe we are currently the market leader in computer-based testing
services in China due to the combination of our experience in and familiarity with the China
computer-based testing services market, our advanced technology, our large nationwide network of
test centers, our established relationships with key test sponsors and governmental agencies and
our competitive cost levels.
For our HR Select employee assessment solution, while there are other companies providing
services to corporate human resources departments, we are differentiated by our focus on offering
more professional testing services with proprietary testing technologies.
Traditional Chinese test preparation material providers, such as publishing companies, indirectly
compete with our test preparation and training solutions. However, we are not aware of any
significant competitors in China in the online test preparation and training solutions business.
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While we anticipate new market entrants and increased efforts by existing international
players to expand their presence in China, we believe that relatively high entry barriers, such as
the time and costs associated with establishing a large-scale test center network, will make it
difficult for new entrants or international competitors to quickly gain market share from us in
China. We believe potential domestic entrants lack the technology and commercial relationships that
we have already developed with domestic and international test sponsors. International competitors
will likely face challenges in establishing effective relationships with key Chinese government and
industry test sponsors or local educational institutions.
Seasonality
We have experienced seasonality and expect in the future to continue to experience seasonality
in net revenues and accounts receivable related to our test delivery services, with the quarters
ending June 30 and December 31 typically having higher net revenues from testing services and the
quarters ending September 30 and March 31 typically having lower net revenues from testing
services. This is primarily because the tests from which we derive substantial revenues are mostly
delivered in the quarters ending June 30 and December 31. Demand for test preparation and training
solutions are generally highest close to test and certification requirement deadlines, which are
typically during the quarter ending December 31. Therefore we expect revenues from test preparation
and training solutions to be the highest in the quarter ending December 31. We also expect some
seasonality in our accounts receivable related to degree major programs, because we collect from
our clients typically around the months of October to November, and a large portion of our clients
settle payment with us two to five months after that time.
Regulation
This section sets forth a summary of the most significant laws, regulations, policies and
requirements that affect our business activities in China, the industries in which we operate, and
our shareholders right to receive dividends and other distributions from us.
Regulation of the Software Industry
In China, holders of computer software copyrights enjoy protection under the Copyright Law of
the Peoples Republic of China, or the Copyright Law. Under the Copyright Law, Chinas State
Council and the State Copyright Administration have also promulgated various regulations relating
to the protection of software copyrights in China. Under these regulations, computer software that
is independently developed and exists in a physical form will be protected, and software copyright
owners may license or transfer their software copyrights to others. Registration of software
copyrights and exclusive licensing and transfer contracts with the Copyright Protection Center of
China (previously, the State Copyright Administration) or its local branches are encouraged. Such
registration is not mandatory under Chinese law, but can enhance the protections available to the
registering parties. For example, the registration certificate serves an evidentiary function
enabling the registering parties to prove they have protectable rights. We have registered 51
software copyrights with the Copyright Protection Center of China.
Chinas Ministry of Industry and Information Technology (and its predecessors), or MIIT, has
promulgated regulations to regulate the production, sale, import or export of software products in
China. Under these regulations, all domestically produced software products to be operated or sold
in China must be duly registered and filed with the provincial branches of MIIT. We have complied
with the registration and filing requirements necessary to sell our software products in China.
These registrations generally remain in effect for five years and are subject to renewal.
Regulation of Vocational Education
Chinese laws and regulations impose restrictions on foreign investment in educational
institutions in China. However, Chinese laws and regulations do not impose restrictions on foreign
investment in companies providing course and test content or related products and services to
educational institutions. In addition, the Chinese government has issued a series of circulars and
regulations promoting the development of vocational education, including The Decision to Enhance
the Promotion of the Reform and Development of Vocational Education and The Decision to Enhance
the Development of Vocational Education published by the State Council, respectively, on September
24, 2002 and October 28, 2005. These circulars and regulations require all levels of governments in
China to intensify their support for vocational education and to gradually increase the financial
resources that local and provincial governments allocate to vocational education.
Restrictions on Telecommunications Industry
The telecommunications industry, including computer information and Internet access services,
is highly regulated by the Chinese government. Regulations issued or implemented by the State
Council, MIIT and other relevant government authorities cover virtually
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every aspect of telecommunications network operations, including entry into the
telecommunications industry, the scope of permissible business activities, interconnection and
transmission line arrangements, tariff policy and foreign investment.
Since March 1998, the National Peoples Congress of the PRC has directed MIIT to assume
responsibility for, among other things:
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formulating and enforcing telecommunications industry policy, standards and
regulations; |
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granting licenses to provide telecommunications and Internet services; |
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formulating tariff and service charge policies for telecommunications and Internet
services; |
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supervising the operations of telecommunications and Internet service providers; and |
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In addition to the regulations promulgated by the Chinese central government, some local
governments have also promulgated local rules applicable to Internet companies operating within
their respective jurisdictions.
Foreign Ownership Restrictions on Internet Content Provision Businesses
In September 2000, the State Council promulgated the Telecommunications Regulations. The
Telecommunications Regulations categorize all telecommunications businesses in China as either
infrastructure telecommunications businesses or value-added telecommunications businesses. In
February 2003, MIIT amended the original classification of telecommunications business with
Internet content provision services being classified as value-added telecommunications businesses.
The Telecommunications Regulations also set forth extensive guidelines with respect to different
aspects of telecommunications operations in China.
In December 2001, in order to comply with Chinas commitments with respect to its entry into
the World Trade Organization, the State Council promulgated the Administrative Rules on
Foreign-Invested Telecommunications Enterprises, which was amended in September 2008. The
Administrative Rules on Foreign-Invested Telecommunications Enterprises set forth detailed
requirements with respect to capitalization, investor qualifications and application procedures in
connection with the establishment of a foreign invested telecommunications enterprise. Pursuant to
the Administrative Rules on Foreign-Invested Telecommunications Enterprises, the ultimate capital
contribution ratio of the foreign investor or investors in a foreign-funded telecommunications
enterprise that provides value-added telecommunications services shall not exceed 50%. In addition,
pursuant to the Foreign Investment Industrial Guidance Catalogue, the permitted foreign investment
ratio of value-added telecommunications services is no more than 50%.
However, for a foreign investor to acquire any equity interest in a value-added
telecommunication business in China, it must satisfy a number of stringent performance and
operational experience requirements, including demonstrating a track record and experience in
operating value-added telecommunication business overseas. Moreover, foreign investors that meet
these requirements must obtain approvals from MIIT and the Ministry of Commerce or their authorized
local counterparts, which retain considerable discretion in granting approvals.
On July 26, 2006, MIIT publicly released the Notice on Strengthening the Administration of
Foreign Investment in Operating Value-added Telecom Business, dated July 13, 2006, or the MIIT
Notice, which reiterates certain provisions under the 2002 Administrative Rules on Foreign-Invested
Telecommunications Enterprises. According to the MIIT Notice, if any foreign investor intends to
invest in a Chinese telecommunications business, a foreign-invested telecommunications enterprise
shall be established and such enterprise shall apply for the relevant telecommunications business
licenses. Under the MIIT Notice, domestic telecommunications enterprises are prohibited from
renting, transferring or selling a telecommunications license to foreign investors in any form.
As a result of current Chinese laws and regulations that impose substantial restrictions on
foreign investment in the Internet businesses in China, we conduct our online test preparation
business in China through a series of contractual arrangements entered into among us, ATA Learning,
and our newly formed affiliated PRC entity, ATA Online (Beijing) Education Technology Limited, or
ATA Online, which is a domestic Chinese company incorporated in the PRC and owned by Kevin Xiaofeng
Ma, our chairman and chief executive officer, and Walter Lin Wang, our director and president, both
of whom are PRC citizens. See Item 4.C. Organizational Structure. ATA Online has obtained the
licenses and approvals that are required to operate the online test preparation business.
35
Our contractual arrangements with ATA Online include a technical support agreement and a
strategic consulting service agreement. In addition, ATA Learning has entered into an equity pledge
agreement with each of the shareholders of ATA Online pursuant to which each of the shareholders
has pledged all of his or her interest in ATA Online to ATA Learning as security for the
performance of ATA Onlines obligations under the technical support agreement and the strategic
consulting service agreement. Pursuant to a call option and cooperation agreement with ATA Online
and its shareholders, ATA BVI or any third party designated by ATA BVI has the right to acquire, in
whole or in part, the respective equity interests in ATA Online of its shareholders or ATA Onlines
assets when permitted by applicable PRC laws and regulations. However, we do not have any direct
ownership interests or direct voting rights in ATA Online.
In the opinion of Jincheng Tongda & Neal Law Firm, our PRC legal counsel:
|
|
|
the ownership structures of ATA Online and our wholly owned subsidiaries in China are
in compliance with existing published Chinese laws and regulations; |
|
|
|
|
our contractual arrangements among our wholly owned subsidiaries in China and ATA
Online and its shareholders, are valid and binding, will not result in any material
violation of published Chinese laws or regulations currently in effect, and are enforceable
in accordance with their terms and conditions; and |
|
|
|
|
the business operations of our company, all of our Chinese subsidiaries and ATA Online,
as described in this annual report, are in compliance with existing published Chinese laws
and regulations in all material aspects. |
However, there are substantial uncertainties regarding the interpretation and application of
current or future Chinese laws and regulations, including the laws and regulations governing the
enforcement and performance of our contractual arrangements in the event of imposition of statutory
liens, bankruptcy and criminal proceedings. Accordingly, we cannot assure you that the Chinese
regulatory authorities will not ultimately take a contrary view. If the Chinese government finds
that the agreements that establish the structure of our operations in China do not comply with
Chinese government restrictions on foreign investment in our industry, we could be subject to
severe penalties.
Internet Content Provider Licensure Requirements
The provision of online test preparation services and content on Internet web sites is subject
to Chinese laws and regulations relating to the telecommunications industry and the Internet, and
regulated by various government authorities, including MIIT and the State Administration of
Industry and Commerce, or SAIC. The principal regulations governing the telecommunications industry
and the Internet include:
|
|
|
The Telecommunications Regulations (2000); |
|
|
|
|
The Administrative Measures for Telecommunications Business Operating Licenses (2001);
and |
|
|
|
|
The Internet Information Services Administrative Measures (2000). |
Under these regulations, Internet content provision services are classified as value-added
telecommunications businesses, and a commercial operator must obtain a Telecommunications and
Information Services Operating License, or ICP license, from the appropriate telecommunications
authority in order to carry out commercial Internet content provision operations in China. In
addition, the regulations also provide that operators involved in Internet content provision that
operate in sensitive and strategic sectors, including news, publishing, education, health care,
medicine and medical devices, must obtain additional approvals from the relevant authorities in
charge of those sectors.
Certain local governments have promulgated local rules applicable to Internet companies
operating within their respective jurisdictions. In Beijing, the Beijing Administration of Industry
and Commerce has promulgated a number of Internet-related rules. On October 31, 2004, a rule was
enacted requiring owners of commercial web sites located within Beijing to file their commercial
web sites with the Beijing Administration of Industry and Commerce.
ATA Online holds an ICP license issued by the Beijing Telecommunications Administration
Bureau, a local branch of the MIIT, which allows ATA Online to provide Internet content
distribution services. This license is essential to the operation of ATA Onlines online test
preparation services business.
36
The MIIT Notice requires that a value-added telecommunications business operator (or its
shareholders) should own any domain names and trademarks used by it to engage in the value-added
telecommunications business, and have premises and facilities appropriate for such business. To
comply with the MIIT Notice, we have transferred to ATA Online the domain names owned by our
subsidiaries that are used principally in connection with our online business activities.
Regulation of Internet Content
The Chinese government has promulgated measures relating to Internet content through a number
of ministries and agencies, including the MIIT, the Ministry of Culture and the State Press and
Publications Administration. These measures specifically prohibit Internet activities that result
in the publication of any content that is found to, among other things, propagate obscenity,
gambling or violence, instigate crimes, undermine public morality or the cultural traditions of
China, or compromise State security or secrets. If an ICP license holder violates these measures,
the Chinese government may revoke its ICP license and shut down its web sites.
Regulation of Online and Distance Education
Pursuant to the Administrative Regulations on Educational Web sites and Online and Distance
Education Schools issued by the Ministry of Education in 2000, educational web sites and online
education schools may provide education services in relation to higher education, elementary
education, pre-school education, teaching education, occupational education, adult education, other
education and public educational information services. Educational web sites refers to
organizations providing education or education-related information services to web site visitors by
means of a database or online education platform connected via the Internet or an educational
television station through an Internet service provider, or ISP. Online education schools refer
to education web sites providing academic education services or training services with the issuance
of various certificates.
Setting up educational web sites and online education schools is subject to approval from
relevant education authorities, depending on the specific types of education provided. Any
educational web site and online education school shall, upon receipt of approval, indicate on its
web site such approval information as well as the approval date and file number.
According to the Administrative License Law promulgated by the National Peoples Congress on
August 27, 2003 and effective as of July 1, 2004, only laws promulgated by the National Peoples
Congress and regulations and decisions promulgated by the State Council may set down administrative
license requirements. On June 29, 2004, the State Council promulgated the Decision on Setting Down
Administrative Licenses for the Administrative Examination and Approval Items Really Necessary to
be Retained, in which the administrative license for online education schools was retained, while
the administrative license for educational web sites was not retained. ATA Online is not required
to obtain a license as an online education school because ATA Online does not intend to offer
through its web site academic education services or training services that result in the issuance
of a degree or other certification.
Regulation of Broadcasting Audio-Visual Programs through the Internet or Other Information
Network
The State Administration of Radio, Film and Television, or SARFT, promulgated the Rules for
Administration of Broadcasting of Audio-Visual Programs through the Internet and Other Information
Networks, or the Broadcasting Rules, in 2004, which became effective on October 11, 2004. The
Broadcasting Rules apply to the activities of broadcasting, integrating, transmitting and
downloading of audio-visual programs with computers, televisions or mobile phones as the main
terminals and through various types of information networks. Pursuant to the Broadcasting Rules, a
Permit for Broadcasting Audio-Visual Programs via Information Network is required to engage in
these Internet broadcasting activities. On April 13, 2005, the State Council announced a policy on
private investments in businesses in China relating to cultural matters that prohibits private
investments in businesses relating to the dissemination of audio-visual programs through
information networks. On December 20, 2007, SARFT and MIIT jointly promulgated the Administrative
Provisions on Internet Audio-Visual Program Service, or the Audio-Visual Service Provisions, which
became effective on January 31, 2008. Pursuant to the Audio-Visual Service Provisions, a Permit for
Disseminating Audio-Visual Programs via Information Network issued by the competent radio, film and
television authority, or completion of the relevant filing formalities with such authority, is
required to engage in the Internet audio-visual program service. One of the criteria that any
entity applying to engage in the Internet audio-visual program service must meet is that such
entity should be a wholly state-owned entity or state-controlled entity, which should have the
legal status of legal person, and there is no record indicating that such entity has violated laws
or regulations within three years prior to its application. According to the clarification by SARFT
and MIIT in their Answers to Questions of Press regarding the Administrative Provisions on Internet
Audio-Visual Program Service, entities that have been incorporated to engage in the Internet
audio-visual program service in compliance with the applicable laws or regulations prior to the
promulgation of the Audio-Visual Service Provisions and have no record of violating laws or
regulations can re-register and continue their businesses. As these regulations are relatively new,
there are significant uncertainties relating to their interpretation and implementation, including
the definition of audio-visual programs as specified in these regulations. We cannot assure you
that ATA
37
Online will be able to obtain a Permit for Broadcasting Audio-Visual Programs via Information
Network if it is determined that one is required to operate the online test preparation business.
Regulation of Information Security
Internet content in China is also regulated and restricted by the PRC government to protect
State security. The National Peoples Congress, Chinas national legislative body, has enacted a
law that may subject to criminal punishment in China any effort to: (1) gain improper entry into a
computer or system of strategic importance; (2) disseminate politically disruptive information; (3)
leak State secrets; (4) spread false commercial information; or (5) infringe intellectual property
rights.
The Ministry of Public Security has promulgated measures that prohibit use of the Internet in
ways that, among other things, result in a leakage of State secrets or a spread of socially
destabilizing content. The Ministry of Public Security has supervision and inspection rights in
this regard, and we may be subject to the jurisdiction of the local security bureaus. If an ICP
license holder violates these measures, the PRC government may revoke its ICP license and shut down
its web sites.
Regulation of Domain Names and Web Site Names
PRC law requires owners of Internet domain names to register their domain names with qualified
domain name registration agencies approved by MIIT and obtain a registration certificate from such
registration agencies. A registered domain name owner has an exclusive use right over its domain
name. Unregistered domain names may not receive proper legal protections and may be misappropriated
by unauthorized third parties. As of March 31, 2011, we have registered 108 domain names relating
to our web sites, including www.ata.net.cn, the primary URL for our web site, with the
Internet Corporation for Assigned Names and Numbers and the China Internet Network Information
Center, a domain name registration service provider in China.
PRC law requires entities operating commercial web sites to register their web site names with
SAIC or its local offices and obtain a commercial web site name registration certificate. If any
entity operates a commercial web site without obtaining such certificate, it may be charged a fine
or suffer other penalties by the SAIC or its local offices. Our web sites used in connection with
our testing and education services are considered non-commercial web sites as we do not provide
products and services through those web sites, and therefore the names of those web sites are not
required to be registered with SAIC. ATA Online has registered the web site name used in connection
with the online test preparation business with Beijing municipal SAIC.
Regulation of Privacy Protection
PRC law does not prohibit Internet content providers from collecting and analyzing personal
information from their users. PRC law prohibits Internet content providers from disclosing to any
third parties any information transmitted by users through their networks unless otherwise
permitted by law. If an Internet content provider violates these regulations, MIIT or its local
offices may impose penalties and the Internet content provider may be liable for damages caused to
its users.
Regulation of Foreign Exchange
Chinas government imposes restrictions on the convertibility of the Renminbi and on the
collection and use of foreign currency by Chinese entities. Under current regulations, the Renminbi
is convertible for current account transactions, which include dividend distributions, interest
payments, and the import and export of goods and services. Conversion of Renminbi into foreign
currency and foreign currency into Renminbi for capital account transactions, such as direct
investment, portfolio investment and loans, however, is still generally subject to the prior
approval of the PRC State Administration of Foreign Exchange, or SAFE.
Under current Chinese regulations, foreign-invested enterprises such as our Chinese
subsidiaries are required to apply to SAFE for a Foreign Exchange Registration Certificate for
Foreign-Invested Enterprise. With such a foreign exchange registration certificate (which is
subject to review and renewal by SAFE on an annual basis), a foreign-invested enterprise may open
foreign exchange bank accounts at banks authorized to conduct foreign exchange business by SAFE and
may buy, sell and remit foreign exchange through such banks, subject to documentation and approval
requirements. Foreign-invested enterprises are required to open and maintain separate foreign
exchange accounts for capital account transactions and current account transactions. In addition,
there are restrictions on the amount of foreign currency that foreign-invested enterprises may
retain in such accounts.
Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions
In October 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign
Exchange in Fund-Raising and Return Investment Activities of Domestic Residents Conducted via
Offshore Special Purpose Companies, or Notice 75, which became
38
effective as of November 1, 2005. Notice 75 states that Chinese residents must register with
the relevant local SAFE branch in connection with their establishment or control of an offshore
entity established for the purpose of overseas equity financing involving a round-trip investment
whereby the offshore entity acquires or controls onshore assets or equity interests held by the
Chinese residents. Notice 75 applies to our shareholders who are Chinese residents and also applies
to our offshore acquisitions. On May 29, 2007, SAFE issued the Notice of Operation Guidance for
Notice 75, or Notice 106, according to which Chinese resident shareholders in an offshore company
which has at least two years operating history and has made investment in China can apply for
registration under Notice 75. There is no deadline for such registration.
Two of our major shareholders, Kevin Xiaofeng Ma and Walter Lin Wang, have completed their
registrations with SAFE, and we have urged our other Chinese resident shareholders to register
under Notice 75 and they are preparing for such application. However, we cannot assure you that the
application will be accepted by SAFE.
Failure by such shareholders to comply with Notice 75 could subject us to fines or legal
sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries
ability to make distributions or pay dividends or affect our ownership structure, which could
adversely affect our business and prospects.
Regulation of Overseas Listings
On August 8, 2006, six PRC regulatory agencies, including the Chinese Securities Regulatory
Commission, or CSRC, promulgated the Provisions Regarding Mergers and Acquisitions of Domestic
Enterprise by Foreign Investors, or the M&A Rule, which became effective on September 8, 2006
without retroactive effect. The M&A Rule, among other things, requires that an offshore company
controlled by PRC companies or individuals that has acquired a PRC domestic company for the purpose
of listing the PRC domestic companys equity interest on an overseas stock exchange must obtain the
approval of the CSRC prior to the listing and trading of such offshore companys securities on an
overseas stock exchange. On September 21, 2006, the CSRC, pursuant to the M&A Rule, published on
its official web site procedures specifying documents and materials required to be submitted to it
by offshore companies seeking CSRC approval of their overseas listings.
We believe CSRC approval was not required for our initial public offering in February 2008
because the CSRC approval required under the M&A Rule only applies to an offshore company that has
acquired a domestic PRC company for the purpose of listing the domestic PRC companys equity
interest on an overseas stock exchange, while (i) we obtained our equity interest in each of our
PRC subsidiaries by means of direct investment other than by acquisition of the equity or assets of
a PRC domestic company and (ii) our contractual arrangements with ATA Online do not constitute the
acquisition of ATA Online. See Item 3.D. Key Information Risk Factors Risks Relating to
Regulation of Our Business If the China Securities Regulatory Commission, or CSRC, or another
PRC regulatory agency determines that CSRC approval was required in connection with our initial
public offering, we may become subject to penalties.
C. Organizational Structure
Corporate Structure and Arrangements with Our Affiliated PRC Entity
The following diagram illustrates our corporate and share ownership structure. Except for ATA
BVI, which is incorporated in the British Virgin Islands, all of our subsidiaries and our
affiliated PRC entity are incorporated in the PRC. For a detailed description of the Companys
significant subsidiaries, see Item 4.A History and Development of the Company.
39
To comply with PRC laws and regulations restricting foreign ownership in distributors of
Internet content, our online test preparation business in China is conducted through a series of
contractual arrangements entered into among ATA BVI, ATA Learning and ATA Online (Beijing)
Education Technology Limited, or ATA Online, a PRC entity incorporated in the PRC and owned by
Kevin Xiaofeng Ma, our co-founder, chairman and chief executive officer and Walter Lin Wang, our
co-founder, director and president, in the percentages described in the diagram above. ATA Online
holds the license required to operate the online portion of our test preparation and training
solutions business. ATA Learning (Wuxi) Inc., or ATA Wuxi was established in January 2008, as a
subsidiary of ATA Learning to operate our pre-occupational training programs business. We do not
have any direct ownership interest or direct shareholding rights in ATA Online and as a result do
not have direct control or direct oversight over ATA Online. For a detailed description of these
contractual arrangements, see Item 7.B. Major Shareholders and Related Party Transactions
Related Party Transactions. As a result of these contractual arrangements, under U.S. GAAP, we are
considered the primary beneficiary of ATA Online. Accordingly, we consolidate ATA Onlines results
in our consolidated financial statements.
Our subsidiaries or ATA Online enter into commercial contracts with third party customers and
clients based upon a judgment we make as to which entity is the appropriate entity for the
provision of the type of service being offered. We primarily sell our testing services and the
non-online portion of our test preparation and training solutions business through ATA Testing, our
education services through ATA Learning and our online test preparation services through ATA
Online.
For risks associated with our contractual arrangements with ATA Online and its shareholders,
see Item 3.D. Key Information Risk Factors Risks Relating to Regulation of Our Business
Substantial uncertainties and restrictions exist with respect to the application and implementation
of Chinese laws and regulations relating to Internet content distribution. If the Chinese
government
40
finds that the structure for our online test preparation services and other services we
provide through the Internet do not comply with Chinese laws and regulations, we could be subject
to penalties and may not be able to continue those businesses. and Our contractual
arrangements with ATA Online and its shareholders do not provide us with ownership interest in ATA
Online. If ATA Online or its shareholders fail to perform their respective obligations under these
contractual arrangements, we may have to legally enforce such arrangements and our business,
financial condition and results of operations may be materially and adversely affected if these
arrangements cannot be enforced.
D. Property, Plant and Equipment
Our principal executive offices are located in approximately 3,232 square meters of office
space used by us at Tower E, 6 Gongyuan West Street, Jian Guo Men Nei, Beijing 100005, China, among
which 2,170 square meters of office space are owned by us and 1,062 square meters of office space
are leased by us. We also occupy approximately 2,800 square meters of total leased office space in
our subsidiaries and branches located in Shanghai, Fuzhou and Guangdong. We believe that our
existing facilities are adequate for our current requirements and that additional space can be
obtained on commercially reasonable terms to meet our future requirements.
|
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ITEM 4A. |
|
UNRESOLVED STAFF COMMENTS |
Not applicable.
|
|
|
ITEM 5. |
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
A. Operating Results
Overview
Our Business
We believe that we are the leading provider of computer-based testing services in China. We
offer comprehensive services for the creation and delivery of computer-based tests utilizing our
nation-wide test delivery platform, proprietary testing technologies and extensive experience
providing testing services in China. We experienced significant growth in our business during the
fiscal years ended March 31, 2009, 2010 and 2011. Our total net revenues increased from RMB217.5
million in the fiscal year ended March 31, 2009 to RMB245.0 million in the fiscal year ended March
31, 2010 and RMB303.9 million ($46.4 million) in the fiscal year ended March 31, 2011. We had net
income of RMB22.8 million in the fiscal years ended March 31, 2009, a net loss of RMB35.3 million
in the fiscal year ended March 31, 2010 and a net income of
RMB19.8 million ($3.0 million) in the fiscal
year ended March 31, 2011.
We started our business in 1999 focusing on providing computer-based testing services to test
sponsors. Our testing services revenues have grown primarily as a result of increases in the number
of testing services clients and the number of test takers who take tests created and delivered
using our testing technologies. Testing services revenues accounted for 63.0%, 76.4%, and 80.0% of
our total net revenues in the fiscal years ended March 31, 2009, 2010 and 2011, respectively. We
expect our testing services revenues to continue to be the largest source of our total net revenues
as a result of new contracts with test sponsors in the banking, securities and other sectors. In
March 2009, we launched HR Select, our self-developed online system that utilizes our proprietary
software and a large inventory of test titles to assist companies in streamlining and optimizing
their employee selection and assessment processes. HR Select offers tools for filtering and
categorizing employee candidates, testing candidates and analyzing the test results. Since March
2009, we have been the exclusive agent for delivering the Test of English for International
Communication, or TOEIC, in China. Revenues from HR Select and distribution and administration of
TOEIC exams are included in testing services revenues. The following graph shows the growth in the
number of tests delivered using our testing technologies for the twelve months ended March 31,
2007, 2008, 2009, 2010 and 2011.
41
Number of Exams Delivered (1)
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|
(1) |
|
Includes Microsoft royalty tests overseas and tests delivered through our test delivery
platform and tests using our Dynamic Simulation Technology. Also includes free tests delivered
for business development purposes. The number of tests delivered excluding the free tests in
the fiscal years ended March 31, 2007, 2008, 2009, 2010 and 2011 was 3,335,701, 3,632,285,
5,063,379, 5,760,147 and 6,907,158, respectively. We delivered 9,155,185 free tests in the
fiscal year ended March 31, 2008 for the on-line nationwide accounting knowledge contest.
|
Leveraging our testing platform, technologies and expertise, we also offer service offerings
beyond our core computer-based testing services to include test-focused services targeted at
educational institutions, students and companies in China. Since 2002, we have marketed to
educational institutions in China career-oriented educational course programs designed to prepare
students to pass certification exams in the IT industry and other vocations. Fees from test-based
educational services accounted for 19.6%, 13.0% and 8.5% of our total net revenues in the fiscal
years ended March 31, 2009, 2010 and 2011, respectively. We expect net revenues from our test-based
education services to continue to decline as a proportion of our total net revenues. Since December
2008, we have redirected most of our sales and marketing efforts from our test-based education
services towards our newly developed testing services such as HR Select and TOEIC where we believe
there is greater market opportunity.
We also offer targeted test preparation and training solutions for certain professional
licensure and certification tests in the securities and teaching industries. ATA Online has
launched online test preparation Internet web sites in coordination with the Securities Association
of China to help candidates across China prepare for these organizations professional licensure
and certification tests, which are delivered through our test delivery platform. We also began
offering, in November 2006, our NTET Tutorial Platform software, which comprises a comprehensive
set of training materials to prepare teachers for certification under the National Teachers Skill
Test of Applied Educational Technology in Secondary and Elementary Schools, or NTET test, which is
delivered nationwide through our test delivery platform. We have had only minimal sales of our NTET
Tutorial Platform software since October 2008 as a result of a delay in the timing of the teachers
certification testing requirement deadline. Further, we had no NTET sales in the fiscal year ended
March 31, 2011. During the fiscal year ended March 31, 2009, we entered into an agreement with the
PRC Ministry of Education to develop and provide online tutorials to students enrolled in Cambridge
ESOLs Cambridge Young Learners English programs in China. The programs were launched during the
fiscal year ended March 31, 2010, and revenues from the programs are included in test preparation
and training solutions revenues. Revenues from our test preparation and training solutions
accounted for 11.5%, 4.6% and 5.1% of our total revenue in the fiscal years ended March 31, 2009,
2010 and 2011, respectively.
On February 28, 2009, the Company acquired Beijing JDX and JDX BVI for RMB10.7 million.
Beijing JDX and JDX BVI are related companies incorporated in China and the British Virgin Islands,
respectively, engaged in the development and marketing of software for computer-based tests. The
results of Beijing JDX and JDX BVI have been included in our consolidated results since February
28, 2009. JDX BVI was dissolved in October 2009.
42
Factors Affecting Our Results of Operations
The key factors affecting our results of operations are:
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growth in Chinas professional services sector resulting in increasing demand for
qualified and certified talent in China; |
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|
overall economic growth and rising income levels in China contributing to increased
spending on education, testing and test preparation; |
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government and industry initiatives to standardize and license professionals in
industries such as securities, futures, banking, law and accounting; |
|
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|
growth in the use of computer-based tests and performance-based tests and willingness
of test sponsors and educational program providers to outsource test content development
and delivery for sophisticated computer-based and performance-based tests; |
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|
the increasing importance of identifying qualified talent contributing to increasing
demand for testing and certification programs that can confirm the qualifications of the
applicant or job seeker; |
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|
acceptance by educational institutions of our career-oriented and IT-related
educational programs; and |
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our ability to continue to introduce new services and the market success of our
recently introduced services, including our HR Select service launched in March 2009,
distribution and administration of TOEIC exams in China beginning in March 2009 and the
Cambridge Young Learners English online tutorials program in September 2009. |
Although we anticipate the above factors will continue to increase demand for our products and
services in China, a slowing or reversal of any of the above factors could cause our revenue growth
to slow or stop, or to not grow as fast as we might expect.
In addition, our results of operations have been, and may continue to be, significantly
affected by the following factors:
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share-based compensation; |
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the impact of PRC tax policies, including certain preferential tax rates and tax
holidays; |
|
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sales and marketing efforts for our newer services, including our HR Select service,
TOEIC business and Cambridge Young Learners English online tutorials; and |
|
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the relative proportion of our net revenues derived from higher-gross margin and
lower-gross margin product and service offerings. |
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the continued delay in the government implementation of the national teachers
certification requirement. |
Net Revenues
We derive revenues from sale of computer-based testing services, test-based educational
services, test preparation and training solutions, and other products and services. Our net
revenues are presented net of PRC business taxes. The following table sets forth a breakdown of our
total net revenues for the periods.
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|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
For the fiscal year Ended March 31, |
|
|
2009 |
|
2010 |
|
2011 |
|
|
RMB |
|
% of net revenues |
|
RMB |
|
% of net revenues |
|
RMB |
|
US$ |
|
% of net revenues |
|
|
(in thousands, except for percentages) |
Net Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Testing services |
|
|
137,046 |
|
|
|
63.0 |
% |
|
|
187,158 |
|
|
|
76.4 |
% |
|
|
243,103 |
|
|
|
37,125 |
|
|
|
80.0 |
% |
Test-based educational services |
|
|
42,546 |
|
|
|
19.6 |
% |
|
|
31,787 |
|
|
|
13.0 |
% |
|
|
25,727 |
|
|
|
3,929 |
|
|
|
8.5 |
% |
Test preparation and training solutions |
|
|
25,071 |
|
|
|
11.5 |
% |
|
|
11,149 |
|
|
|
4.6 |
% |
|
|
15,427 |
|
|
|
2,356 |
|
|
|
5.1 |
% |
Other |
|
|
12,882 |
|
|
|
5.9 |
% |
|
|
14,938 |
|
|
|
6.0 |
% |
|
|
19,647 |
|
|
|
3,000 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
|
217,545 |
|
|
|
100.0 |
% |
|
|
245,032 |
|
|
|
100.0 |
% |
|
|
303,904 |
|
|
|
46,410 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
43
Testing Services
We derive testing services revenues from fees charged to test sponsors for our test delivery
services and from simulation testing technology licensing.
Test delivery services. We generate test delivery services revenues through fees charged for
providing computer-based testing services to test sponsors such as governmental agencies, and other
sponsors of licensure and certification tests. We also offer testing services to private
enterprises as part of our HR Select employee assessment solution. We offer our clients a
comprehensive set of services for the compilation, delivery and analysis of computer-based tests
using our E-testing platform, as well as logistical services such as test registration and fee
collection. Tests delivered through our E-testing platform may be conducted at our ATA authorized
test centers or at other locations at the test sponsors discretion. We generate revenues from our
test delivery services through fees charged to test sponsors based on the total number of test
takers taking a requested test. Our clients typically pay us within two to six months after
delivery of the test. We recognize revenue for test delivery services upon completion of the
relevant test.
We have experienced seasonality and expect in the future to continue to experience seasonality
in net revenues and accounts receivable related to our test delivery services, with the quarters
ending June 30 and December 31 typically having higher net revenues from testing services and the
quarters ending September 30 and March 31 typically having lower net revenues from testing
services. This is primarily because the tests from which we derive substantial revenues are mostly
delivered in the quarters ending June 30 and December 31.
Simulation testing technology licensing. We license our Dynamic Simulation Technology and
other simulation testing technologies to IT certification sponsors, such as Microsoft, and
international test preparation service providers. Our technology licensing arrangements include
annual license fees and royalty fees. Annual license fees are prepaid at the end of the quarter
ending June 30 of each year, while royalty fees are payable quarterly. We recognize revenue from
royalty fees in the quarter in which our simulation testing technology licenses are delivered,
which is evidenced by the quarterly usage reports received from the licensees. Annual license fee
revenues are recognized over the year on a straight-line basis. We have not experienced significant
seasonality in revenues or accounts receivable in relation to our simulation testing technology
licensing.
Significant Factors Affecting Testing Services
The most significant factor directly affecting our revenues from fees charged for our testing
services are the number of test takers. The number of test takers for a test is driven by our
ability to secure contracts with test sponsors for the creation and delivery of computer-based test
titles popular with test takers. The volume of tests we offer is determined by the willingness of
test sponsors to use our services. Growth in the number of enterprises adopting our HR Select
service and the prevalence of the TOEIC exam in China also impact our testing services revenues.
Our revenues from fees charged for our testing services are also affected by the price we can
charge per test, which generally remains fairly stable once we are engaged by a test sponsor to
help deliver a particular test.
Demand and pricing for a test is affected by whether a certain profession, career or job
position for which the certification, licensure or qualification test is being given is considered
desirable by potential test takers. Some industries may experience fluctuations in the number of
people attempting to become qualified to participate in the industry, which will depend on the
overall health of the relevant industry, changes in average salary levels in the relevant industry,
the popularity of certain types of careers and employers, governmental policies that impact the
relevant industry, or other factors. Tests that test proficiency in specific IT-related skill sets
are particularly sensitive to changes in or the obsolescence of the relevant technologies.
In addition, obtaining contracts from test sponsors for new test titles and for upgrade of
existing test titles often requires considerable time and resources. Many of our clients administer
tests to a large number of people on a regular basis, and maintaining consistency and stability
from year to year in the test delivery format is important to them. The decision process involved
in adopting a new type of test or a new test delivery format can be difficult and complex. These
factors often result in significant delays in our ability to secure contracts, and make it
difficult to predict our revenues from fees from test sponsors in any given year. On the other
hand, for test sponsors that administer many tests on a regular basis, our ability to secure an
initial contract and to effectively meet their test delivery requirements under the contract can
help us obtain future test title contracts from that test sponsor. This enables us to increase and
diversify our revenues and to hinder competitors from obtaining contracts with that test sponsor.
In addition, our ability to license our simulation technology to leading IT vendors and other
clients require cutting-edge computer-based simulation testing technologies that depends largely on
our ability to maintain and extend our technology leadership in this area.
44
In this regard, our revenues from fees from test sponsors may be negatively affected if
Microsoft exercises its contractual option to purchase the source code of our Dynamic Simulation
Technology. See Item 3.D. Key Information Risk Factors Risks Relating to Our Business If
Microsoft exercises its contractual option to acquire the source code of our Dynamic Simulation
Technology, or DST, Microsoft or a company to which Microsoft licenses or sells such technology may
be able to more effectively compete with us. We have not received any indication from Microsoft
that it intends to exercise this purchase option.
Test-Based Educational Services
We receive fees from test-based educational services charged to educational institutions for
our degree major course programs, single course programs and pre-occupational training programs.
Degree major course programs. Our degree major course programs are comprised of a series of
individual course programs designed to help students acquire a cluster of skill sets that can best
prepare them for specific job types and careers, and, in some cases, allow them to acquire
certifications from well-known IT vendors. Our degree major course programs are designed to be
completed within one to five years, with the majority being completed in two to three years.
We generate revenues from our degree major course programs through fees charged to educational
institutions. Our fees are charged per student per year and are agreed prior to delivery of any
course or test materials. Our fee is payable shortly after confirmation by the educational
institution of the number of students enrolled in each degree major course program near the
beginning of each school year. Since first-year students can still change their degree major in the
first few months after commencement of the school year, billing and payment collection for our
first-year courses often does not occur until later in the school year. The fees are not refundable
if the student fails to complete one or more of the courses or the entire degree major course
program or fails any of the tests.
Single course programs. Our single course programs typically focus on a specific type of
computer software application or other technology that requires significant training and practice
to master and for which certification is offered. We generate revenues from our single course
programs through fees charged to educational institutions. We charge a pre-agreed fee for each
student taking a course. Generally 100% of the total fee is due prior to delivery of the course
materials at the beginning of the course period based on the number of students who enroll in the
course. We recognize revenue on a straight-line basis over the service period or the contractual
period, whichever is longer.
Pre-occupational training programs. Our pre-occupational training programs provide trained
instructors to teach students practical skills through tailor-designed exercises that more closely
align their skills with specific job requirements. We charge fees to the educational institution
for providing the training to its students. Participating educational institutions send students to
our training facilities and we collect fees based on the number of class units taken over the
typical training period of three to four months. We recognize revenue from licensing our
pre-occupational training programs over the service delivery period on a straight-line basis.
Significant Factors Affecting Test-Based Educational Services
A number of factors affect our revenue from test-based educational services including:
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|
Our ability to add schools that offer our course programs; |
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|
Our ability to add new course programs to existing educational institution clients; and |
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|
Our ability to secure rights from IT vendors for curriculum and test content. |
Test Preparation and Training Solutions
We derive test preparation and training solutions revenue from the sale of training software
products and online test preparation and training services. We historically also generated some
revenue from the sales of tutorial software to schools to conduct computer-based exercises and
tests.
Online test preparation and training services. ATA Online provides online test preparation and
training for professional licensure and certification tests delivered through our testing platform
for the Securities Association of China. Revenues from online test preparation and training
services are generated by selling online training to end users directly or through distributors on
a consignment basis. The online training entitles the end users access to online test preparation
and training services during a specified service period, which normally ranges between 90 to 180
days from the activation. Revenue of online membership is recognized on a straight-line
45
basis ratably over the service period commencing at the point of time the online training is
activated. If the online training sold to the end users are not activated before the expiration
date, related online service revenue is recognized on the expiration date. For the online training
granted with fixed online hours, we compare the revenue recognized to the actual completion status,
and make any revenue adjustments to reflect the actual completion status.
Training software products. We offer our training software products through independent sales
agents. In the fiscal year ended March 31, 2008, substantially all of our training software
products revenue derived from the sales of NTET Tutorial Platform software, which comprises a
comprehensive set of training materials for preparing teachers for certification under the NTET
test. We began offering our NTET Tutorial Platform in November 2006. We sell all title and
distribution rights to the distributor upon delivery. We do not provide upgrades or any additional
post-contract services, which are the responsibility of the sales agents who sell or otherwise
dispose of our NTET Tutorial Platform. We recognize this revenue upon delivery of the software and
once collectability is reasonably assured. However, as a result of the delay in the timing of the
teachers certification requirement deadline, we have sold a minimal amount of our NTET Tutorial
Platform software since October 2008. Further, we had no NTET sales in the fiscal year ended March
31, 2011.
Significant Factors Affecting Test Preparation and Training Solutions
A number of factors affect our revenues from test preparation and training solutions. Demand
for test preparation and training solutions for a particular test depends on the relative level of
importance or difficulty of the test, with greater demand for test preparation and training
solutions for more important and more difficult tests. Therefore, our ability to secure test
delivery services contracts for more important and more difficult tests may affect our test
preparation and training solutions business. As we generally offer test preparation and training
solutions for tests that are delivered through our test delivery platform, our ability to grow our
test preparation and training solutions business is also affected by the willingness of our test
sponsor clients to permit us to provide test preparation and training solutions for their tests.
Some test sponsor clients may not permit us to provide test preparation and training solutions in
relation to tests for which we provide test delivery and other services due to a perceived conflict
of interest. In addition, because we generally do not develop the learning content used in our test
preparation and training solutions, our ability to license test preparation learning content and
materials from the relevant test sponsor or third party content provider is critical to the
expansion of the number of tests for which we offer test preparation and training solutions. Sales
of some of our test preparation products also depend on government budgets available for procuring
these products. For example, sales of our NTET preparation software depend on a significant degree
of the availability of government budgets for procuring software for schools to have their teachers
prepared for the national teachers qualification exam, which in turn depends on the deadline for
obtaining such qualification. Due to a delay in this deadline, related budgets have been reduced
since calendar year 2008. Governmental budgets may vary year to year for a number of reasons, which
can affect sales of these products.
In addition, our revenues from existing test preparation and training solutions depend on the
number of users of our test preparation and training solutions and the price we can charge for
them. These in turn depend on a number of factors, including whether test takers are aware of our
test preparation and training solutions and the timing of the test being delivered. We market our
current test preparation and training solutions through either distributors or the test sponsors,
and therefore, the number of test preparation and training solutions users depends on the
effectiveness of these marketing channels.
Other Revenue
We derive other revenues from licensing fees paid to us by operators of our ATA authorized
test centers, test content creation services, issuance of certificates delivered to passing
candidates, and other fees and services.
Licensing fees from ATA authorized test centers. We have established our nationwide network of
ATA authorized test centers by contracting with qualified independent operators that act as ATA
authorized test centers for us. Under our contracts with test center operators, we license our ATA
name and ATA E-testing platform technology and provide ongoing technical support, upgrades and
training during the contract period in exchange for license fees. We receive license fees from our
test center operators in the form of either a single initial license fee or a combination of
initial license fee and annual continuing license fees. Under either fee arrangement, our licensees
can extend their licensing agreement with us indefinitely. We recognize revenue from initial
license fees on a straight-line basis over the expected licensing period, which currently is ten
years. We recognize revenue from annual license fees once collectability is reasonably assured,
which has generally been once we receive cash payment, over the remaining months of the year to
which the annual license fees relate.
Test content creation services. Our test content creation services include the installation of
our technology on client testing platforms, the conversion of paper-based tests into computer-based
tests, and other related services. We build test items for computer-
46
based tests using our advanced testing technologies and we license our testing technologies to
clients to enable them to create and administer their own tests. We have also developed other
advanced testing technologies for creating sophisticated computer-based tests. We generate revenues
from our test content creation services through service fees charged to governmental agencies, IT
vendors and other sponsors of licensure, certification and qualification tests. We recognize
revenue from our test content creation services upon the acceptance of the services by the client.
Certificates. Many of our testing services clients, including well-known test sponsors, charge
passing candidates a separate fee to receive a certificate for a test passed. We deliver these
certificates to these candidates upon request. We charge a per-certificate price for the
certificates and recognize revenues from certificate issuances upon delivery of the certificate.
Test administration software products. We offer our test administration software products to
our clients. We deliver these software products, which are developed by us with all underlying
intellectual property owned by us, to clients upon requests. We charge a per-software copy price
for the software and recognize revenue upon delivery of the software.
Other fees and services. From time to time and as requested by our clients, we may provide
teacher training services, IT consulting and system integration services, commission charges and
other testing-related services to our clients. We recognize revenue upon completion of the
services, which usually occurs within a short period of time. We may also receive payments for
additional copies of training materials and test peripherals, for which we recognize revenue upon
receiving cash.
Cost of Revenues
Our cost of revenues consists primarily of test monitoring costs, royalty fees for IT vendors
and test sponsor licensing arrangements, payroll compensation, cost of inventories sold, technical
support and other related costs, all of which are directly attributable to the provision of our
testing services, test-based educational services, test preparation and training solutions and our
other products and services. The following table shows our cost of revenues and gross profit for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year Ended March 31, |
|
|
2009 |
|
2010 |
|
2011 |
|
|
RMB |
|
% |
|
RMB |
|
% |
|
RMB |
|
US$ |
|
% |
|
|
(in thousands, except for percentages) |
Net Revenues |
|
|
217,545 |
|
|
|
100.0 |
% |
|
|
245,032 |
|
|
|
100.0 |
% |
|
|
303,904 |
|
|
|
46,410 |
|
|
|
100.0 |
% |
Cost of Revenues |
|
|
92,608 |
|
|
|
42.6 |
% |
|
|
129,535 |
|
|
|
52.9 |
% |
|
|
149,216 |
|
|
|
22,787 |
|
|
|
49.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
124,937 |
|
|
|
57.4 |
% |
|
|
115,497 |
|
|
|
47.1 |
% |
|
|
154,688 |
|
|
|
23,623 |
|
|
|
50.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Test Monitoring Costs
Test monitoring costs consist of fees paid to test centers, including a fixed fee per test
taker, which varies for different tests, for hire of test proctors, rental of testing facilities
and a fee for the peripheral items used for the provision of our testing services, such as USB
flash drives used for security control keys, computer cameras used during testing for communication
and identification, compact discs used to store and deliver our testing software, and signage used
to identify and brand our ATA authorized test centers.
Royalty Fees
Royalty fees consist of fees paid to IT vendors for the use of their proprietary content in
our course programs and our computer-based tests, fees paid to ETS for the rights to be the
exclusive country master distributor in mainland China for TOEIC, and fees paid to SHL for the
right to be used in the HR Select program.
For fees paid to IT vendors, we pay substantially all of these royalty fees under an
enrollment model, whereby royalty fees are determined based on the number of students who enroll in
the course.
Payroll Compensation
Payroll compensation consists of base salary and related welfare benefits paid to staff in our
services implementation and customer support departments.
47
Cost of Inventory
Cost of inventory is comprised of cost of the printed learning material and test paper that
are pre-printed by third parties and that we record as inventory and the cost of inventory
write-down due to obsolescence. In the case of learning material, when a school contracts with us
for degree major and single course programs, we deliver the related compact discs and textbooks and
other course materials prior to the start of the course programs. These learning materials will be
recognized as costs upon delivery. In the case of test paper, cost is recognized when the test
papers are used in delivering the paper-based exam. Cost of inventory is recognized on a
first-in-first-out basis.
Factors Affecting Gross Margin
Our gross margin is primarily affected by changes in gross margins from our testing services,
which in turn are significantly affected by our revenue per test and test related costs, including
the fees we pay for test monitoring to test centers. Our gross margin is also affected by the size
of, and increases or decreases in, royalty payments to IT vendors and other content providers for
our course programs.
Operating Expenses
Our operating expenses consist of general and administrative expenses, sales and marketing
expenses, research and development expenses, and provision for doubtful accounts.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and benefits, travel,
administration and share-based compensation expenses for our administrative, management and finance
personnel, as well as other expenses including professional fees, office expenses and rental costs.
Sales and Marketing Expenses
Our sales and marketing expenses consist primarily of salaries and benefits, travel, and
share-based compensation expenses for our sales and marketing personnel, as well as other expenses
including sales agency fees, conference hosting expenses, advertising and promotional expenses,
entertainment expenses and other sales and marketing expenses.
Research and Development Expenses
Our research and development expenses consist primarily of costs of equipment used in our
research and development activities, salaries and benefits for our research and development
personnel, cost of outsourcing services and other costs relating to the design, development,
testing and enhancement of our products and services.
Provision for Doubtful Accounts
The provision for doubtful accounts represents our best estimate of the amount of probable
credit losses resulting from our customers or non-customer business partners inability to make
required payments. We consider age of doubtful receivable, historical collection experience, and
business partners individual facts.
Taxation
Cayman Islands & British Virgin Islands
Under the current laws of the Cayman Islands and the British Virgin Islands, the Company, and
ATA BVI are not subject to income tax. In addition, upon any payments of dividends by the Company
or ATA BVI, no Cayman Islands or British Virgin Islands withholding tax is imposed.
Peoples Republic of China
Our subsidiaries and our variable interest entity, or VIE, operating in the PRC are subject to
PRC taxes as described below:
48
Enterprise income tax. Effective from January 1, 2008, the New EIT Law imposes a tax rate of 25% on
all enterprises, including foreign-invested enterprises, and terminates many of the tax exemptions,
reductions and preferential treatments available under previous tax laws and regulations. However,
enterprises that were established before March 16, 2007 and were entitled to preferential tax
treatments can continue to enjoy them (i) in the case of certain preferential tax rates that are
specified by tax legislations, for a transition period of five years from January 1, 2008 and (ii)
in the case of certain tax exemption or reduction for a specified term, until the expiration of
such term. Under the New EIT Law, qualified high-and-new technology enterprises eligible for key
support from the State (HNTE) are entitled to a preferential tax rate of 15% and subject to an
annual review during the valid period of their HNTE certificates.. In December 2008, ATA Testing
was recognized as a HNTE and obtained a HNTE certificate, which entitled ATA Testing to a
preferential tax rate of 15% for calendar year 2008 to 2010. ATA Testing is currently in the process of
renewing its HNTE certificate for another three years. Upon successful renewal, ATA Testing should
be entitled to a preferential tax rate of 15% retroactively from January 1, 2011. In the event ATA
Testing is unable to review its HNTE certificate, it will be subject to a statutory enterprise
income tax rate of 25%. In December 2009, each of ATA Learning, ATA Online and Beijing JDX received
an approval from the tax authority that it qualified as an HNTE for three years, entitling them to
a preferential income tax rate of 15% for calendar years 2009 to 2011 ATA Learning, ATA Online and
Beijing JDX will be subject to income tax at 25% from calendar year 2012 onwards unless they can
re-qualify as HNTE. See Item 3. Key InformationD. Risk FactorsRisks Relating to Regulation of
Our BusinessThe discontinuation of any of the preferential tax treatments currently enjoyed by
our subsidiaries in the PRC could materially increase our tax obligations.
In addition, under the New EIT Law, an enterprise established under the laws of a foreign
country or region whose de facto management body is located within the PRC territory is
considered a resident enterprise and will generally be subject to the enterprise income tax at the
rate of 25% on its global income. According to the Implementation Rules, de facto management body
refers to a managing body that exercises, in substance, overall management and control over the
production and business, personnel, accounting and assets of an enterprises. We have preliminarily
determined that our overseas entities are not PRC resident enterprises for PRC income tax purposes.
However, if we and our overseas entity were considered PRC resident enterprises, we would be
subject to the enterprise income tax at the rate of 25% on our global income. See Item 3. Key
InformationD. Risk FactorsRisks Relating to Regulation of Our BusinessUnder the New EIT Law,
we may be classified as a resident enterprise of China. Such classification will likely result in
unfavorable tax consequences to us and U.S. holders of our ADSs or ordinary shares, and Item 10.
Additional Information E. Taxation Peoples Republic of China Taxation.
In addition, the New EIT Law and the Implementation Rules provide that a withholding tax of
10% (or other applicable withholding tax rates based on tax treaties between the PRC and other
jurisdictions) will generally be applicable to dividends payable to foreign investors, and, unlike
the prior tax law, does not specifically exempt corporations that pay dividends from withholding
all or part of such income tax when they pay dividends to their foreign investors. To the extent we
and our overseas entity are not considered as PRC resident enterprises, the dividends that our PRC
subsidiary pay to us will be subject to this withholding tax. See Item 3. Key InformationD. Risk
FactorsRisks Relating to Regulation of Our BusinessUnder the New EIT Law, we may be classified
as a resident enterprise of China. Such classification will likely result in unfavorable tax
consequences to us and U.S. holders of our ADSs or ordinary shares. The undistributed earnings
generated before January 1, 2008 shall be exempt from withholding tax when such earnings are
distributed to the foreign investor in the year 2008 or thereafter. As of March 31, 2011, we have
not provided for income taxes on accumulated earnings of RMB46.1 million ($7.0 million) generated
by our PRC consolidated entities since January 1, 2008 as we plan to indefinitely reinvest these
earnings in the PRC.
Under applicable Chinese tax laws, foreign-invested enterprises and domestic Chinese companies
may carry forward tax losses up to five years. In view of cumulated losses noted by certain of our
PRC subsidiaries and affiliated entity, as of March 31, 2011, we provided full valuation allowance
for their deferred income tax assets after consideration of the schedule reversal of existing
deferred income tax liabilities.
Value-added tax refunds. Pursuant to a PRC tax policy intended to encourage the development of
software and integrated circuit industries, ATA Testing and Beijing JDX are entitled to value-added
tax rate at no more than 3% of the sale value of some of our software products. ATA Testing, ATA
Learning and Beijing JDX are subject to value added tax at rates ranging from 3% to 17%.
Business tax. ATA Testing, ATA Learning, ATA Online, ATA Wuxi and Beijing JDX are subject to
business tax at a rate of 5%. We pay business tax on gross revenues generated from service and
license fees at a rate of 5%. This business tax is included as a reduction of revenue in our
consolidated statements of operations.
49
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires
us to make judgments, estimates and assumptions that affect the reported amounts of our assets and
liabilities, disclosure of contingent assets and liabilities on the date of each set of
consolidated financial statements and the reported amounts of revenues and expenses during each
financial reporting period. We continually evaluate these estimates and assumptions based on the
most recently available information, our own historical experience and various other assumptions
that we believe to be reasonable under the circumstances. Since the use of estimates is an integral
component of the financial reporting process, actual results could differ from those estimates as a
result of changes in our estimates or changes in the facts or circumstances underlying our
estimates and assumptions.
An accounting policy is considered to be critical if it requires an accounting estimate to be
made based on assumptions about matters that are highly uncertain at the time such estimate is
made, and if different accounting estimates that reasonably could have been used, or changes in the
accounting estimates that are reasonably likely to occur periodically, could materially impact the
consolidated financial statements. Some of our accounting policies require higher degrees of
judgment than others in their application. We consider the policies discussed below to be critical
to an understanding of our consolidated financial statements as their application places the most
significant demands on our managements judgment. When reviewing our consolidated financial
statements, you should take into account:
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|
our critical accounting policies discussed below; |
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|
|
the related judgments made by us and other uncertainties affecting the application of
these policies; |
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|
the sensitivity of our reported results to changes in prevailing facts and
circumstances and our related estimates and assumptions; and |
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|
|
the risks and uncertainties described under Item 3.D. Key Information Risk
Factors. |
See note 2 to our audited consolidated financial statements for additional information
regarding our significant accounting policies.
Revenue Recognition
Our
net revenues from test-based educational services represented 19.6%, 13.0% and 8.5% of total
net revenues for the year ended March 31, 2009, 2010 and 2011. We recognize revenue for fees from
educational institutions in accordance with the provisions of FASB ASC Subtopic 605-985
Revenue-Software. We have concluded, based on our past experience with our educational institution
clients and our anticipated service model, that vendor specific objective evidence, or VSOE, does
not exist for the post-contract services, or PCS, and other services provided in the degree major
and single course programs, which are the only undelivered elements subsequent to the beginning of
the programs. If the service arrangements with schools change from our current model to such where
significant evidence for VSOE does exist for the PCS and services provided then we may no longer
recognize revenue from educational institutions ratably over the service period on a straight-line
basis. In such a case, we may instead recognize revenue on a relative fair value basis.
Bad Debt Allowance
We perform ongoing credit evaluations of our customers financial conditions and generally do
not require collateral on accounts receivable.
The activity in the allowance for doubtful accounts for accounts receivable for the years
ended March 31, 2009, 2010 and 2011 is as follows:
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
For the fiscal year Ended March 31, |
|
|
2009 |
|
2010 |
|
2011 |
|
|
RMB |
|
RMB |
|
RMB |
|
US$ |
Beginning allowance for doubtful accounts |
|
|
623,993 |
|
|
|
3,198,960 |
|
|
|
29,934,512 |
|
|
|
4,571,341 |
|
Additions charged to bad debt expense |
|
|
6,531,940 |
|
|
|
27,052,862 |
|
|
|
2,235,627 |
|
|
|
341,406 |
|
Write-off of accounts receivable |
|
|
(3,956,973 |
) |
|
|
(317,310 |
) |
|
|
(4,231,941 |
) |
|
|
(646,266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance for doubtful accounts |
|
|
3,198,960 |
|
|
|
29,934,512 |
|
|
|
27,938,198 |
|
|
|
4,266,481 |
|
|
|
|
|
|
|
|
|
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|
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|
50
The significant decrease in bad debt expense from March 31, 2010 to March 31, 2011 was
primarily due to a bad debt charge related to accounts receivable from sales of our NTET Tutorial
Platform software during fiscal year ended March 31, 2010.
Intangible assets
As of March 31, 2011, our intangible assets consisted of testing service technology, customer
relationships and distribution license. We acquired the testing service technology and customer
relationships through business acquisition and we acquired the distribution license directly from a
vendor. Intangible assets are amortized on a straight-line basis over their respective estimated
useful lives, which range from 3 to 12 years. We have no intangible assets with indefinite useful
lives. The determination of the fair value of the intangible assets acquired involves certain
judgments and estimates. These judgments can include, but are not limited to, the cash flows that
an asset is expected to generate in the future. A change in the amount allocated to identifiable
intangible assets would change the amount of amortization expense recognized related to those
identifiable intangible assets. The fair values of our identifiable intangible assets were
determined by management with the assistance of independent appraisers.
The testing service technology we acquired in a business combination was initially recognized
at fair value. In estimating the fair value of the acquired testing related technology, the cost
approach was utilized. Incorporated in the cost approach is the economic principle of substitution
that states: an informed purchaser would pay no more for a property than the cost of purchasing or
producing a substitute property with the same utility as the appraised property. We estimated the
number of man-hours required to recreate the technology, which was multiplied by estimated hourly
cost, to determine the replacement cost for the newly acquired technology. The estimated man-hour
to recreate was based on a review of the man-hours incurred when the respective technology was
originally created and our estimation of the effort required to recreate the software today. The
development cost per hour figure represents the average hourly rate that would be paid to develop
each software system today. After calculating the replacement cost for the newly acquired
technology, a depreciation factor of 50% was applied to the calculated technological replacement
cost to arrive at the fair value. The depreciation factor was based on the estimate of the
frequency of significant changes to the technology, which was also used to estimate the remaining
useful life of the technology.
The customer relationships we acquired in a business combination were initially recognized at
fair value. The fair value of the customer relationships was estimated based on the excess cash
flow method, a form of the income approach. The principle behind the excess cash flow method,
through the use of a discounted cash flow, is that the value of an intangible asset is equal to the
present value of the cash flow attributable only to that intangible asset. The excess cash flow
method provides an estimate of the fair value of an intangible asset by deducting operating
expenses and economic charges (contributory asset charges) from the revenue expected to be
generated by the underlying asset. The projected cash flows are then discounted to their present
value equivalent. The value of the tax amortization benefit is added to the sum of the present
value of cash flows to arrive at the fair value of the subject intangible assets. We analyzed
revenue by customer between 2003 through 2008 for historical patterns of attrition, the nature of
customer relationships and typical customer life cycle to estimate the annual churn rate, or
customer turnover rate, as 15%, which was then used to determine the cash flow period and remaining
useful life of the customer relationships. The Capital Asset Pricing Model was adopted to determine
the weighted average cost of capital.
In March 2009, we signed an agreement with Educational Testing Service (ETS) pursuant to
which we are the exclusive agent for ETSs Test of English for International Communication
(TOEIC) exam in China for ten years from March 2009. We paid ETS a $3 million fee in March 2009
for such royalty, which will be amortized over the ten year contract period.
Income Taxes
We assess the likelihood that our net deferred income tax assets will be realized. To the
extent that we believe that it is more likely than not that some portion or the entire amount of
deferred income tax assets will not be realized, we establish a valuation allowance.
In assessing the realizability of deferred income tax assets, we consider whether it is more
likely than not that some portion or all of the deferred income tax assets will not be realized.
The ultimate realization of deferred income tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible or tax
loss carried forward are utilized. We consider the scheduled reversal of deferred income tax
liability, projected future taxable income and tax planning strategies in making this assessment.
As of March 31, 2011, we believe it is more likely than not that we will realize the deferred
income tax assets, net of the valuation allowance of RMB 3.7 million. The amount of the deferred
income tax assets considered realizable as of March 31, 2011 could be reduced in the near term if
estimates of future taxable income are reduced.
51
For each of the year ended March 31, 2009, 2010 and 2011, we had no unrecognized tax benefits
relating to uncertain tax positions. Also, we do not expect that the amount of unrecognized tax
benefits will significantly increase within the next twelve months.
According to the PRC Tax Administration and Collection Law, the statute of limitations is
three years if the underpayment of taxes is due to computational errors made by the taxpayer or the
withholding agent. The statute of limitations is extended to five years under special circumstances
where the underpayment of taxes is more than RMB 100,000. In the case of transfer pricing issues,
the statute of limitations is ten years. There is no statute of limitations in the case of tax
evasion. The income tax return of each of the Companys PRC consolidated entities is subject to
examination by the relevant tax authorities for the calendar tax years beginning in 2006.
Share-Based Compensation to Employees
The cost of all share-based payment transactions are recognized in our consolidated financial
statements based on their grant-date fair value over the requisite service period, which is
generally the period from the date of grant to the date when the share compensation is no longer
contingent upon additional service from the employee, or the vesting period. For graded vesting
share-based awards, we recognize the compensation cost over the requisite service period for each
separately vesting portion of the award as if the award is, in substance, multiple awards. When no
future services are required to be performed by the employee in exchange for an award of equity
instruments, and if such award does not contain a performance or market condition, the cost of the
award (as measured based on the grant-date fair value of the equity instrument) is expensed on the
grant date.
The determination of fair value of equity awards such as options requires making complex and
subjective judgments about the projected financial and operating results of the subject company. It
also requires making certain assumptions relating to cost of capital, general market and
macroeconomic conditions, industry trends, comparable companies, share price volatility of the
subject company, expected terms of options and discount rates. These assumptions are inherently
uncertain. Changes in these assumptions could significantly affect the amount of employee
share-based compensation expense we recognize in our consolidated financial statements.
We
recorded share-based compensation expenses of RMB5.2 million,
RMB1.9 million and RMB 1.6 million ($0.3 million) for the share options in the fiscal years ended March 31, 2009, 2010 and
2011, respectively. As of March 31, 2011, there were RMB1.1 million of total unrecognized
compensation costs related to non-vested share options. These costs are expected to be recognized
over a weighted average period of approximately 2.9 years.
We determined the estimated fair value of our employees share options granted in July 2008,
February 2009 and March 2010 based on valuations conducted by Jones Lang LaSalle Sallmanns Limited,
an independent third-party valuation firm.
The fair value of the options on the date of grant was determined using the binomial option
pricing method under the following assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
2009 |
|
2010 |
|
2011 |
Estimated weighted average fair value at grant date of underlying common shares (per share) |
|
$ |
4.79 |
|
|
$ |
2.15 |
|
|
|
|
|
Expected weighted average volatility |
|
|
73 |
% |
|
|
67 |
% |
|
|
|
|
Weighted average risk-free interest rate (per annum) |
|
|
3.53 |
% |
|
|
3.89 |
% |
|
|
|
|
Expected weighted average dividends |
|
|
|
|
|
|
|
|
|
|
|
|
Suboptimal exercise factor |
|
|
2.0x |
|
|
|
2.0x |
|
|
|
|
|
For the share options we granted in July 2008, February 2009 and March 2010, the fair value of
underlying shares was $6.33, $2.685 and $2.15 respectively and was determined based on the traded
price of our ADRs on the option grant date.
For our share options issued in July 2008, February 2009 and March 2010, we used an expected
volatility that ranged from 66% to 83%, which were based on implied volatilities from traded
options of comparable publicly traded training and testing services companies operating in the
United States and the historical volatility of the Companys ADRs. Changes in our estimates and
assumptions regarding the expected volatility of our common shares could significantly impact the
estimated fair values of our share options determined under the binomial valuation model and, as a
result, our net earnings and the net earnings applicable to our common shareholders.
52
Since the share options, once exercised, will primarily trade in the United States and there
was no comparable PRC zero coupon rate, the risk-free rate for periods within the contractual life
of the option is based on the United States treasury yield curve in effect at the time of grant.
Results of Operations
The following table sets forth a summary, for the periods indicated, of our consolidated
results of operations and each item expressed as a percentage of our total net revenues. Our
historical results presented below are not necessarily indicative of the results that may be
expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year Ended March 31, |
|
|
2009 |
|
2010 |
|
2011 |
|
|
RMB |
|
% of net revenues |
|
RMB |
|
% of net revenues |
|
RMB |
|
US$ |
|
% of net revenues |
|
|
(In thousands, except for percentages and per share data) |
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Testing services |
|
|
137,046 |
|
|
|
63.0 |
% |
|
|
187,158 |
|
|
|
76.4 |
% |
|
|
243,103 |
|
|
|
37,125 |
|
|
|
80.0 |
% |
Test-based educational services |
|
|
42,546 |
|
|
|
19.6 |
% |
|
|
31,786 |
|
|
|
13.0 |
% |
|
|
25,727 |
|
|
|
3,929 |
|
|
|
8.5 |
% |
Test preparation and training solutions |
|
|
25,071 |
|
|
|
11.5 |
% |
|
|
11,149 |
|
|
|
4.6 |
% |
|
|
15,427 |
|
|
|
2,356 |
|
|
|
5.1 |
% |
Other |
|
|
12,882 |
|
|
|
5.9 |
% |
|
|
14,938 |
|
|
|
6.1 |
% |
|
|
19,647 |
|
|
|
3,000 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
|
217,545 |
|
|
|
100.0 |
% |
|
|
245,032 |
|
|
|
100.0 |
% |
|
|
303,904 |
|
|
|
46,410 |
|
|
|
100.0 |
% |
Cost of revenues |
|
|
92,608 |
|
|
|
42.6 |
% |
|
|
129,535 |
|
|
|
52.9 |
% |
|
|
149,216 |
|
|
|
22,787 |
|
|
|
49.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
124,937 |
|
|
|
57.4 |
% |
|
|
115,497 |
|
|
|
47.1 |
% |
|
|
154,688 |
|
|
|
23,623 |
|
|
|
50.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
16,241 |
|
|
|
7.5 |
% |
|
|
22,708 |
|
|
|
9.3 |
% |
|
|
22,756 |
|
|
|
3,475 |
|
|
|
7.5 |
% |
Sales and marketing |
|
|
24,922 |
|
|
|
11.5 |
% |
|
|
38,951 |
|
|
|
15.9 |
% |
|
|
54,382 |
|
|
|
8,305 |
|
|
|
17.9 |
% |
General and administrative |
|
|
47,555 |
|
|
|
21.9 |
% |
|
|
56,839 |
|
|
|
23.2 |
% |
|
|
54,422 |
|
|
|
8,311 |
|
|
|
17.9 |
% |
Provision for doubtful accounts |
|
|
9,831 |
|
|
|
4.5 |
% |
|
|
27,053 |
|
|
|
11.0 |
% |
|
|
2,236 |
|
|
|
341 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses |
|
|
98,549 |
|
|
|
45.3 |
% |
|
|
145,551 |
|
|
|
59.4 |
% |
|
|
133,796 |
|
|
|
20,432 |
|
|
|
44.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
26,388 |
|
|
|
12.1 |
% |
|
|
(30,055 |
) |
|
|
(12.3 |
)% |
|
|
20,892 |
|
|
|
3,191 |
|
|
|
6.9 |
% |
Interest income |
|
|
395 |
|
|
|
0.2 |
% |
|
|
731 |
|
|
|
0.3 |
% |
|
|
1,036 |
|
|
|
158 |
|
|
|
0.3 |
% |
Subsidy income |
|
|
2,000 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
Foreign
currency exchange gains (losses), net |
|
|
665 |
|
|
|
0.3 |
% |
|
|
(284 |
) |
|
|
(0.1 |
)% |
|
|
1,138 |
|
|
|
174 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income tax |
|
|
29,448 |
|
|
|
13.5 |
% |
|
|
(29,608 |
) |
|
|
(12.1 |
)% |
|
|
23,066 |
|
|
|
3,523 |
|
|
|
7.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
6,638 |
|
|
|
3.0 |
% |
|
|
5,742 |
|
|
|
2.3 |
% |
|
|
3,312 |
|
|
|
506 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
22,810 |
|
|
|
10.5 |
% |
|
|
(35,350 |
) |
|
|
(14.4 |
)% |
|
|
19,754 |
|
|
|
3,017 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year Ended March 31, |
|
|
2009 |
|
2010 |
|
2011 |
|
|
RMB |
|
RMB |
|
RMB |
|
US$ |
Basic earnings (loss) per common share |
|
|
0.50 |
|
|
|
(0.79 |
) |
|
|
0.44 |
|
|
|
0.07 |
|
Diluted earnings (loss) per common share |
|
|
0.49 |
|
|
|
(0.79 |
) |
|
|
0.44 |
|
|
|
0.07 |
|
Fiscal Year Ended March 31, 2011 Compared to Fiscal Year Ended March 31, 2010
Net Revenues
Our total net revenues increased by RMB58.9 million, or 24.0%, to RMB303.9 million ($46.4
million) in the fiscal year ended March 31, 2011 from RMB245.0 million in the fiscal year ended
March 31, 2010, primarily as a result of increases in net revenues from our testing services.
53
Testing services. Testing services net revenues increased by RMB55.9 million, or 29.9% to
RMB243.1 million ($37.1 million) in the fiscal year ended March 31, 2011 from RMB187.2 million in
the fiscal year ended March 31, 2010. The total number of billable tests delivered, which affects
our testing services net revenues, increased to 6,907,158 in the fiscal year ended March 31, 2011
from 5,760,147 in the fiscal year ended March 31, 2010. Our average revenue per test delivered also
increased to RMB35.2 ($5.4) in the fiscal year ended March 31, 2011 from RMB32.5 in the fiscal year
ended March 31, 2010. This increase in both the average revenue per test and the number of tests
delivered was primarily due to an increase in revenues from testing services provided to the
Securities Association of China. Our net revenues from testing services provided to the Securities
Association of China grew to RMB103.5 million ($15.8 million) in the fiscal year ended March 31,
2011 from RMB73.7 million in the fiscal year ended March 31, 2010. The number of tests delivered
for the Securities Association of China increased to 2.7 million in the fiscal year ended March 31,
2011 from 2.0 million in the fiscal year ended March 31, 2010. Our net revenues from TOEIC grew to
RMB24.2 million ($3.7million) from RMB19.3 million, and our net revenues from HR Select, which we
introduced at the beginning of the fiscal year ended March 31, 2010, grew to RMB29.8 million ($4.5
million) from RMB10.5 million.
Test-based educational services. Revenues from test-based educational services decreased by
RMB6.1 million, or 19.1%, to RMB25.7 million ($3.9 million) in the fiscal year ended March 31, 2011
from RMB31.8 million in the fiscal year ended March 31, 2010, primarily due to a decrease in degree
program course revenues from RMB26.0 million to RMB19.0 million. We are no longer devoting
significant resources to growing or marketing our test-based educational services.
Test preparation and training solutions. Our revenues from test preparation and training
solutions increased by RMB4.3 million, or 38.4%, to RMB15.4 million ($2.4 million) in the fiscal
year ended March 31, 2011 from RMB11.1 million in the fiscal year ended March 31, 2010, primarily
as a result of higher volume in online courses for the Securities Association of China.
Other revenues. Other revenues increased by RMB 4.7 million, or 31.5%, to RMB19.6 million
($3.0million) in the fiscal year ended March 31, 2011 from RMB15.0 million in the fiscal year ended
March 31, 2010, primarily due to an increase in revenues from sales of certificates, commission
charges and testing-related services.
Gross Profit
Our gross profit rose by RMB39.2 million to RMB154.7 million ($23.6 million) in the fiscal
year ended March 31, 2011 from RMB115.5 million in the fiscal year ended March 31, 2010. Our gross
margin increased to 50.9% in the fiscal year ended March 31, 2011 from 47.1% in the fiscal year
ended March 31, 2010. The increase in our gross margin was primarily due to the increase in testing
services net revenues, which has a relatively higher margins and RMB5.5 million impairment
of the prepaid royalty fee for certain course materials related to the Companys partnership with
Microsoft in the fiscal year ended March 31, 2010 which did not recur in the current period.
Operating Expenses
Our operating expenses decreased by RMB11.8 million, or 8.1%, to RMB133.8 million ($20.4
million) in the fiscal year ended March 31, 2011 from RMB145.6 million in the fiscal year ended
March 31, 2010.
General and administrative expenses. Our general and administrative expenses decreased by
RMB2.4 million, or 4.3%, to RMB54.4 million ($8.3 million) in the fiscal year ended March 31, 2011
from RMB56.8 million in the fiscal year ended March 31, 2010 primarily due to a decrease in
share-based compensation expense of RMB 2.3 million ($0.3 million) as a result of a transfer
of 150,000 common shares from a principal shareholder to Benson Tsang upon his appointment
as our CFO in the fiscal year.
Sales and marketing expenses. Our sales and marketing expenses increased by RMB15.4 million,
or 39.6%, to RMB54.4 million ($8.3 million) in the fiscal year ended March 31, 2011 from RMB39.0
million in the fiscal year ended March 31, 2010. Sales and marketing expenses as a percentage of
our total net revenues increased to 17.9% in the fiscal year ended March 31, 2011 from 15.9% in the
fiscal year ended March 31, 2010. This increase was primarily related to RMB10.0 million increase
in marketing expenditures and RMB5.4 million increase in salaries and compensation as a result of
our continued efforts to grow our HR Select and TOEIC testing services. We expect that our sales
and marketing expenses will continue to increase in the near term as we continue to expand our
marketing efforts, particularly in relation to our new service offerings.
54
Research and development expenses. Our research and development expenses increased slightly to
RMB22.8 million ($3.5 million) in the fiscal year ended March 31, 2011 from RMB22.7 million in the
fiscal year ended March 31, 2010.
Provision for doubtful accounts. Bad debt expenses decreased by RMB24.8 million, or 91.7%, to
RMB2.2 million ($0.3 million) in the fiscal year ended March 31, 2011 from RMB27.1 million in the
fiscal year ended March 31, 2010, most of which related to the full provision of accounts
receivable from sales of our NTET Tutorial Platform software of RMB23.7 million in the fiscal year
ended March 31, 2010.
Interest Income
Our interest income was RMB1.0 million ($0.2 million) in the fiscal year ended March 31, 2011
and RMB0.7 million in the fiscal year ended March 31, 2010. Our interest income was slightly higher
in the fiscal year ended March 31, 2011 because of a higher average cash balance during the fiscal
year ended March 31, 2011.
Foreign Currency Exchange Gains (Losses), Net
We recorded a net foreign currency exchange gain of RMB1.1 million ($0.2 million) in the
fiscal year ended March 31, 2011, compared with a net loss of RMB0.3 million in the fiscal year
ended March 31, 2010, primarily due to the increase of the effects of appreciation of Renminbi
against the U.S. dollar in relation to the remeasurement of our RMB denominated bank deposits held
by ATA Inc., whose functional currency is the U.S. dollar.
Income Tax Expense
We had income tax expense of RMB3.3 million ($0.5 million) in the fiscal year ended March 31,
2011, compared to RMB5.7 million in the fiscal year ended March 31, 2010. Our income tax expense
was primarily attributable to the net operating income generated by ATA Testing. We had income tax
expense in the fiscal year ended March 31, 2010 despite having a loss before income tax of RMB29.6
million mainly due to the impact from non-tax-deductible expenses.
Net Income (Loss)
As a result of the above factors, we had net income of RMB19.8 million ($3.0 million) in the
fiscal year ended March 31, 2011 compared to net loss of RMB35.3 million in the fiscal year ended
March 31, 2010.
Our basic earnings per common share and diluted earnings per common share were RMB0.44 ($0.07)
in the fiscal year ended March 31, 2011, compared to basic loss per common share and diluted loss
per common share of RMB0.79 in the fiscal year ended March 31, 2010.
Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009
Net Revenues
Our total net revenues increased by RMB27.5 million, or 12.6%, to RMB245.0 million in the
fiscal year ended March 31, 2010 from RMB217.5 million in the fiscal year ended March 31, 2009,
primarily as a result of increases in net revenues from our testing services.
Testing services. Testing services net revenues increased by RMB50.1 million, or 36.6% to
RMB187.2 million in the fiscal year ended March 31, 2010 from RMB137.0 million in the fiscal year
ended March 31, 2009. The total number of tests delivered, which affects our testing services net
revenues, increased to 5,760,147 in the fiscal year ended March 31, 2010 from 5,063,379 in the
fiscal year ended March 31, 2009. Our average revenue per test delivered also increased to RMB32.5
in the fiscal year ended March 31, 2010 from RMB27.1 in the fiscal year ended March 31, 2009. This
increase in both the average revenue per test and the number of tests delivered was due, in part,
to a significant increase in the number of finance industry-related tests delivered, which tests
also have relatively high revenues per test. Our net revenues from testing services provided to the
China Banking Association, the Securities Association of China and the China Futures Association
grew to an aggregate of RMB130.6 million in the fiscal year ended March 31, 2010 from RMB108.9
million in the fiscal year ended March 31, 2009. The number of tests delivered for these three
clients increased to 3.1 million in the fiscal year ended March 31, 2010 from 2.4 million in the
fiscal year ended March 31, 2009. Our net revenues from TOEIC, which we introduced at the end of
the fiscal year ended March 31, 2009, grew to RMB19.3 million, and our net revenues from HR Select,
which was newly introduced at the beginning of the fiscal year ended March 31, 2010, were RMB10.5
million.
55
Test-based educational services. Revenues from test-based educational services decreased by
RMB10.8 million, or 25.3%, to RMB31.8 million in the fiscal year ended March 31, 2010 from RMB42.5
million in the fiscal year ended March 31, 2009. Degree major course program revenues decreased
RMB5.5 million, or 17.5%, to RMB26.0 million in the fiscal year ended March 31, 2010 from RMB31.5
million in the fiscal year ended March 31, 2009. Single course program revenues decreased to RMB4.3
million in the fiscal year ended March 31, 2010 from RMB4.6 million in the fiscal year ended March
31, 2009. Pre-occupational training program revenues decreased by RMB2.1 million, or 58.3%, to
RMB1.5 million in the fiscal year ended March 31, 2010 from RMB3.6 million in the fiscal year
ended March 31, 2009 as a result of an decrease in the number of students participating in these
programs. We are no longer devoting significant resources to growing or marketing our test-based
educational services.
Test preparation and training solutions. Our revenues from test preparation and training
solutions decreased to RMB11.1 million in the fiscal year ended March 31, 2010 from RMB25.1
million in the fiscal year ended March 31, 2009, primarily as a result of decreases in the sales of
our NTET Tutorial Platform. Revenues from our NTET Tutorial Platform were insignificant in the
fiscal year ended March 31, 2010, compared to RMB16.1 million in the fiscal year ended March 31,
2009 as we ceased substantially all sales of the NTET Tutorial Platform due to the delay in the
implementation of the national NTET test. Revenues from our online test preparation services for
finance industry-related tests increased by RMB1.2 million, or 13.3%, to RMB10.2 million in the
fiscal year ended March 31, 2010 from RMB9.0 million in the fiscal year ended March 31, 2009.
Other revenues. Other revenues increased by RMB2.1 million, or 16.0%, to RMB15.0 million in
the fiscal year ended March 31, 2010 from RMB12.9 million in the fiscal year ended March 31, 2009,
primarily due to an increase in revenues from sales of JDX software, test content development
services and other test peripherals.
Gross Profit
Our gross profit decreased by RMB9.4 million to RMB115.5 million in the fiscal year ended
March 31, 2010 from RMB124.9 million in the fiscal year ended March 31, 2009. Our gross margin
decreased to 47.1% in the fiscal year ended March 31, 2010 from 57.4% in the fiscal year ended
March 31, 2009. The decrease in our gross margin was primarily due to higher staff salaries and
compensation of RMB3.7 million resulting from the increase in headcount to support the business
growth, higher testing monitoring costs of RMB4.3 million related to our TOEIC and HR Select
businesses, an impairment of RMB5.5 million related to the prepaid royalty fee for certain content
that the Company believes will not be used in the future, increase in amortization and depreciation
expenses of RMB 3.2 million related to technology upgrades and increase in the TOEIC royalty fee of
RMB5.8 million. The decrease in our gross margin was also due to the significant decrease in the
sales of our NTET Platform Tutorial software, which has relatively high gross margin, in the fiscal
year ended March 31, 2010.
Operating Expenses
Our operating expenses increased by RMB47.0 million, or 47.7%, to RMB145.6 million in the
fiscal year ended March 31, 2010 from RMB98.5 million in the fiscal year ended March 31, 2009.
General and administrative expenses. Our general and administrative expenses increased by
RMB9.2 million, or 19.5%, to RMB56.8 million in the fiscal year ended March 31, 2010 from RMB47.6
million in the fiscal year ended March 31, 2009. Salaries and compensation expenses increased by
RMB4.0 million, or 23.3%, to RMB21.2 million in the fiscal year ended March 31, 2010, from RMB17.2
million in the fiscal year ended March 31, 2009, primarily due to the expansion of the management
team. Our share-based compensation increased by RMB2.1 million, or 53.8%, to RMB6.0 million in the
fiscal year ended March 31, 2010, from RMB3.9 million in the fiscal year ended March 31, 2009,
primarily related to a transfer of existing shares to Benson Tsang, our current chief financial
officer, and grant of restricted shares (which are referred to in the Consolidated Financial
Statements and accompanying Notes as nonvested shares per FASB ASC Topic 718) to Bo Lin, our
current chief operating officer.
Sales and marketing expenses. Our sales and marketing expenses increased by RMB14.0 million,
or 56.3%, to RMB39.0 million in the fiscal year ended March 31, 2010 from RMB24.9 million in the
fiscal year ended March 31, 2009. Sales and marketing expenses as a percentage of our total net
revenues increased to 15.9% in the fiscal year ended March 31, 2010 from 11.5% in the fiscal year
ended March 31, 2009. This increase was primarily related to RMB6.4 million increase in marketing
expenditures and RMB6.9 million increase in salaries and compensation due to additional sales and
marketing headcounts to grow our HR Select and TOEIC testing services. We expect that our sales and
marketing expenses will continue to increase in the near term as we continue to expand our
marketing efforts, particularly in relation to our new service offerings.
Research and development expenses. Our research and development expenses increased by RMB6.5
million, or 39.8%, to RMB22.7 million in the fiscal year ended March 31, 2010 from RMB16.2 million
in the fiscal year ended March 31, 2009. This
56
increase was due primarily to the RMB 3.1 million
increase in employees salaries and compensation, and RMB 3.0 million higher system development
expenses for new businesses and updating of our current test item database.
Provision for doubtful accounts. Bad debt expenses increased by RMB17.2 million, or 175.7%, to
RMB27.1 million in the fiscal year ended March 31, 2010, from RMB9.8 million in the fiscal year
ended March 31, 2009, primarily due to a provision related to accounts receivable from sales of our
NTET Tutorial Platform software. In the fiscal year ended March 31, 2010, we experienced a delay in
the cash collection of our receivables from NTET customers. As of March 31, 2010, our accounts
receivable from NTET customers that were aged more than one year were RMB24.7 million. Based on the
ageing of such receivables, we concluded it is probable that we will be unable to collect the
remaining balance due and a full provision for NTET accounts receivable was recognized during the
fiscal year ended March 31, 2010.
Interest Income
Our interest income was RMB0.7 million in the fiscal year ended March 31, 2010 and RMB0.4
million in the fiscal year ended March 31, 2009. Our interest income was slightly higher in the
fiscal year ended March 31, 2010 because of changes in relevant interest rates on deposits.
Subsidy Income
We recorded no subsidy income in the fiscal year ended March 31, 2010, compared to our subsidy
income of RMB2.0 million in the fiscal year ended March 31, 2009, which was a refund from the local
government, as a reward for our successful listing on an overseas stock market.
Foreign Currency Exchange Gains (Losses), Net
We recorded a net foreign currency exchange loss of RMB0.3 million in the fiscal year ended
March 31, 2010, compared with a net gain of RMB0.7 million in the fiscal year ended March 31, 2009,
primarily due to the decrease of the effects of appreciation of Renminbi against the U.S. dollar in
relation to the remeasurement of foreign currency-denominated monetary assets and liabilities,
primarily U.S. dollar cash held by our PRC subsidiaries.
Income Tax Expense
We had income tax expense of RMB5.7 million in the fiscal year ended March 31, 2010, compared
to RMB6.6 million in the fiscal year ended March 31, 2009. We had income tax expense in the fiscal
year ended March 31, 2010 despite having a loss before income tax of RMB29.6 million mainly due to
the impact from non-tax-deductible expenses, which reduced our income tax benefit by RMB 7.6
million. Increase in valuation allowance for deferred income tax assets of RMB3.7 million also had
an impact on our effective income tax rate in the fiscal year ended March 31, 2010.
Net Income (Loss)
As a result of the above factors, we had net loss of RMB35.3 million in the fiscal year ended
March 31, 2010 compared to net income of RMB22.8 million in the fiscal year ended March 31, 2009.
Our basic loss per common share and diluted loss per common share were RMB0.79 in the fiscal
year ended March 31, 2010, compared to basic earnings per common share of RMB0.50 and diluted
earnings per common share of RMB0.49 in the fiscal year ended March 31, 2009.
B. Liquidity and Capital Resources
We have financed our working capital and capital expenditure requirements primarily through
cash provided by operating activities and the proceeds from our 2008 initial public offering.
As of March 31, 2011, we had RMB268.1 million ($40.9 million) in cash. Our cash was primarily
deposited with reputable banks in China and Hong Kong. We intend to finance our future additional
working capital and capital expenditure needs principally from cash provided by operating
activities.
The following table summarizes our net cash flows with respect to operating activities,
investing activities and financing activities in the fiscal years ended March 31, 2009, 2010 and
2011:
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year Ended March 31, |
|
|
2009 |
|
2010 |
|
2011 |
|
|
RMB |
|
RMB |
|
RMB |
|
US$ |
|
|
|
|
|
|
(In thousands) |
|
|
|
|
Net cash provided by (used in)
operating activities |
|
|
31,538 |
|
|
|
(27,965 |
) |
|
|
62,098 |
|
|
|
9,483 |
|
Net cash used in investing activities |
|
|
(35,053 |
) |
|
|
(61,663 |
) |
|
|
(3,875 |
) |
|
|
(592 |
) |
Net cash used in financing activities |
|
|
(10,640 |
) |
|
|
(6,670 |
) |
|
|
|
|
|
|
|
|
Effect of foreign exchange rate
changes on cash |
|
|
(7,539 |
) |
|
|
(331 |
) |
|
|
(4,039 |
) |
|
|
(617 |
) |
Net increase (decrease) in cash |
|
|
(21,694 |
) |
|
|
(96,629 |
) |
|
|
54,184 |
|
|
|
8,274 |
|
Cash at beginning of year |
|
|
332,197 |
|
|
|
310,503 |
|
|
|
213,874 |
|
|
|
32,661 |
|
Cash at end of year |
|
|
310,503 |
|
|
|
213,874 |
|
|
|
268,058 |
|
|
|
40,935 |
|
Operating Activities
Net cash provided by operating activities was RMB62.1 million ($9.5 million) in the fiscal
year ended March 31, 2011 compared to net cash used in operating activities of RMB28.0 million in
the fiscal year ended March 31, 2010. The improvement in our cash flow from operating activities in
the fiscal year ended March 31, 2011 was primarily attributable to RMB142.6 million increase in
cash collection from our revenues, primarily due to the increase of testing service revenue and
improvement of cash collection, partially offset by an increase of RMB47.3 million in cash
expenditures on test monitoring costs, payroll and marketing costs.
Net cash used in operating activities was RMB28.0 million in the fiscal year ended March 31,
2010 compared to net cash provided by operating activities of RMB31.5 million in the fiscal year
ended March 31, 2009. Our net cash flow from operating activities in the fiscal year ended March
31, 2010 was impacted by our significant increase in cash expenditures of RMB36.2 million on test
monitoring costs and other operating expenses primarily due to the increased number of the tests
delivered and development and marketing efforts for TOEIC, HR Select and Cambridge ESOL Young
Learners English services. Contributing to this decreased cash flow was a decrease in cash
collected from our testing service and test preparation and training solutions, primarily due to a
decrease of RMB16.1 million advance received from test takers in relation to test in June for the
China Banking Association. The test registration deadline for the test in June was postponed to
early April 2010 as compared to late March 2009, which resulted in a decrease in advance received
from test takers from RMB17.0 million as of March 31, 2009 to RMB0.9 million as of March 31, 2010.
Investing Activities
Net cash used in investing activities in the fiscal year ended March 31, 2011 of RMB3.9
million ($0.6 million) was primarily attributable to capital expenditures for the purchase of
computers and electronic equipment.
Net cash used in investing activities in the fiscal year ended March 31, 2010 of RMB61.7
million was primarily attributable to capital expenditures, including the RMB52.6 million paid in
July 2009 for the purchase of our office space in Beijing.
Financing Activities
We had no net cash from or used in financing activities in the fiscal year ended March 31,
2011.
Net cash used in financing activities in the fiscal year ended March 31, 2010 of RMB6.7
million was primarily attributable to RMB11.9 million used to repurchase our common shares in the
open market, offset by proceeds of RMB5.2 million from the collection of loans to shareholders.
On June 1, 2011, the Company announced that its Board of Directors has declared a special cash
dividend of $0.215 per common share, or US$0.43 per ADS. The total amount of cash distributed in
the dividend is expected to be approximately $10 million, which will be paid from the cash held by
ATA Inc. As of March 31, 2011, ATA Inc. had $17.8 million cash. The dividend will be paid on or
around August 1, 2011 to all shareholders of record as of the close of business on June 30, 2011.
For a discussion of the limitations on the ability of our operating subsidiaries to pay dividends
to us, see Item 8.A, Financial Information Dividend Policy.
We believe that our current cash and expected future cash flows from operating activities,
particularly from testing services and test preparation and training solutions, is sufficient to
meet our present working capital requirements. Our current expansion plans do not require significant capital
commitments. We do not expect our short-term and long-term cash requirements to be materially
different. Nevertheless, we may require additional sources of liquidity in the event of changes in
business conditions or other future developments. Factors affecting our sources of liquidity
include our sales performance and changes in working capital. Any changes in the significant
factors affecting our revenues from testing services, test-based educational services and test
preparation and training
58
solutions may cause material fluctuations in our cash generated from
operations. See Net Revenues for a description of these significant factors. Changes in
working capital, including any significant shortening or lengthening of our accounts receivable
cycle or client prepayment cycles, may also cause fluctuations in our cash generated from
operations. If our sources of liquidity are insufficient to satisfy our cash requirements, we may
seek to sell additional equity or debt securities to meet our cash needs. The sale of convertible
debt securities or additional equity securities could result in dilution to our shareholders. The
incurrence of indebtedness would result in debt service obligations and could result in operating
and financial covenants that would restrict our operations. We cannot assure you that financing
will be available in amounts or on terms acceptable to us, if at all.
We generally deposit our excess cash in interest-bearing bank accounts located at banks in
China and Hong Kong.
Capital Expenditures
The following table sets forth our historical capital expenditures for the periods indicated.
Actual future capital expenditures may differ from the amounts indicated below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year Ended March 31, |
|
|
2009 |
|
2010 |
|
2011 |
|
|
RMB |
|
RMB |
|
RMB |
|
US$ |
|
|
|
|
|
|
(In thousands) |
|
|
|
|
Total capital expenditures |
|
|
34,688 |
|
|
|
59,357 |
|
|
|
3,875 |
|
|
|
592 |
|
Historically, our capital expenditures have been made primarily for the purchase of office
space, software, computer equipment and servers. Our capital expenditures in the fiscal year ended
March 31, 2010 were higher than in the past because of our payment of RMB52.6 million in July 2009
for the purchase of our office in Beijing.
Foreign Currency Exchange
ATA Inc. and ATA BVIs functional currency is the U.S. dollar. As of March 31, 2011, we had
RMB268.1 million (US$40.9 million) in cash, including RMB112.4 million (US$ 17.2 million)
RMB-denominated bank deposits in Hong Kong held by ATA Inc. The functional currency of our PRC
subsidiaries and variable interest entity is Renminbi. The non-Renminbi portion of our revenues
primarily consists of U.S. dollar-denominated licensing fees and royalty payments, while the
non-Renminbi portion of our expenditures primarily consists of
professional fees and royalty payments, either
denominated in U.S. dollars or Hong Kong dollars. Fluctuations in exchange rates, primarily those
involving the U.S. dollar against the Renminbi, may affect our costs and operating margins and our
reported operating results. Under the current foreign exchange system in China, our operations in
China may not be able to hedge effectively against currency risk, including any possible future
Renminbi devaluation. See Item 3.D. Key Information Risk Factors Risks Relating to the
Peoples Republic of China Fluctuations in exchange rates could result in foreign currency
exchange losses.
Recent Accounting Pronouncements
In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (EITF Issue No. 08-1, Revenue
Arrangements with Multiple Deliverables). ASU 2009-13 amends FASB ASC Subtopic 605-25, Revenue
Recognition Multiple-Element Arrangements, to eliminate the requirement that all undelivered
elements have vendor specific objective evidence of selling price (VSOE) or third party evidence of
selling price (TPE) before an entity can recognize the portion of an overall arrangement fee that
is attributable to items that already have been delivered. In the absence of VSOE and TPE for one or more delivered or
undelivered elements in a multiple-element arrangement, entities will be required to estimate the
selling prices of those elements. The overall arrangement fee will be allocated to each element
(both delivered and undelivered items) based on their relative selling prices, regardless of
whether those selling prices are evidenced by VSOE or TPE or are based on the entitys estimated
selling price. Application of the residual method of allocating an overall arrangement fee
between delivered and undelivered elements will no longer be permitted upon adoption of ASU
2009-13. Additionally, the new guidance will require entities to disclose more information about
their multiple-element revenue arrangements. ASU 2009-13 is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. Early adoption is permitted. The Company does not expect the adoption of ASU 2009-13 in the
year ended March 31, 2012 to have a material impact on its consolidated financial statements.
59
C. Research and Development
Research and development is important to our continued success. Our research and development
initiatives are designed to improve our existing testing technologies and to develop new and
innovative technologies. We conduct our research and development activities primarily in-house but
may also from time to time outsource certain research and development activities. We have an
experienced team of engineers with expertise in the fields of computing, software, system design,
and test design and conversion. Our research and development team consisted 104 people as of March
31, 2011. We will continue to look selectively for experienced software engineers and other
technology talent to further increase our technological capabilities. While we focus on development
of technologies that can be commercialized and integrated into our service offerings in the short
term, we also invest in the research and development of testing technologies for the medium and
long term in preparation for the next generation and cutting-edge products and services. In
addition, we are developing upgrades of our key technologies, including our Dynamic Simulation
technology, our ETX platform and our HR Select interface. Our total expenses for research and
development were RMB16.2 million, RMB22.7 million and RMB22.8 million ($3.5 million) in the fiscal
years ended March 31, 2009, 2010 and 2011, respectively.
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends,
uncertainties, demands, commitments or events for the period from April 1, 2008 to March 31, 2011
that are reasonably likely to have a material adverse effect on our revenues, income,
profitability, liquidity or capital resources, or that caused the disclosed financial information
to be not necessarily indicative of future operating results or financial conditions.
E. Off-Balance Sheet Arrangements
We do not currently have, and do not expect in the future to have, any off-balance sheet
arrangements or commitments. In our ongoing business, we do not plan to enter into transactions
involving, or otherwise form relationships with, unconsolidated entities or financial partnerships
established for the purpose of facilitating off-balance sheet arrangements or commitments.
F. Tabular Disclosure of Contractual Obligations
Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations as of fiscal year ended March 31,
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than 5 |
|
|
Total |
|
Within 1 Year |
|
1-3 Years |
|
3-5 Years |
|
Year |
|
|
(In thousands of RMB) |
Operating Lease Obligations |
|
|
12,761 |
|
|
|
5,084 |
|
|
|
7,677 |
|
|
|
|
|
|
|
|
|
Our operating lease obligations have comprised of our office lease obligations for our offices
in China. These office leases expire at different times over the period from the date of this
annual report through January 2014, and will become subject to renewal. We will evaluate the need
to renew each office lease on a case-by-case basis prior to its expiration.
Indebtedness
We currently do not have any outstanding debt, debt securities, contingent liabilities,
mortgages, or liens.
G. Safe Harbor
This release contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, and as defined in the Private Securities Litigation Reform Act of 1995. See
IntroductionForward-Looking Statements.
60
|
|
|
ITEM 6. |
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. Directors and Senior Management
The following table sets forth certain information relating to our directors and executive
officers as of the date of this annual report. The business address of each of our directors and
executive officers is 8th Floor, Tower E, 6 Gongyuan West Street, Jian Guo Men Nei, Beijing 100005,
China.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position |
Kevin Xiaofeng Ma
|
|
|
47 |
|
|
Chairman of the Board of Directors, Chief Executive Officer |
Walter Lin Wang
|
|
|
49 |
|
|
Director, President |
Benson Tsang
|
|
|
46 |
|
|
Chief Financial Officer, Financial and Principal Accounting Officer |
Andrew Yan
|
|
|
53 |
|
|
Director |
Hope Ni
|
|
|
39 |
|
|
Director |
Alec Tsui
|
|
|
62 |
|
|
Director |
Jianmin Ding
|
|
|
45 |
|
|
Vice President |
Patrick Tien
|
|
|
54 |
|
|
Vice President of Channel and Sales |
Alex Tong
|
|
|
48 |
|
|
Vice President of Business Development |
Shuqiu Zhao
|
|
|
39 |
|
|
Vice President |
Degang Xie
|
|
|
39 |
|
|
Vice President |
Amy Tung
|
|
|
39 |
|
|
Vice President, Finance |
Kevin Xiaofeng Ma is co-founder, chairman of the board and chief executive officer of our company.
Prior to co-founding our company, Mr. Ma co-founded Dynamic Technology Corporation and served as
its chief executive officer from 1996 to 1998. From 1990 to 1996, Mr. Ma served as general manager
in the Hainan High-Tech Industry International Cooperation Center. Previously, Mr. Ma gained
experience as vice president at the Beijing MDI High-Tech Center, as
director of Beijing Zhongjia
Integrated Intelligent System Engineering, and as reporter of China Radio International. Mr. Ma is
a member of the board of directors of a number of private enterprises with operations in China,
which do not compete with our business. Mr. Ma graduated from Nanjing University with a bachelors
degree in economics.
Walter Lin Wang is a co-founder, director and president of our company. Prior to co-founding our
company, Mr. Wang practiced independent IT consulting. Mr. Wang also worked as an engineer at the
PRC Ministry of Railways. Mr. Wang holds a bachelors degree in computer science from Southwest
Jiaotong University and a masters degree in computer science from University of Central Florida.
Benson Tsang became our chief financial officer and financial and principal accounting officer in
March 2010. Mr. Tsang has more than 21 years of experience in accounting, financial management, and
the capital markets. He has held senior financial and management positions in multinational
corporations and international accounting firms, and has financial and accounting experience with
companies listed on the New York Stock Exchange, The Stock Exchange of Hong Kong, and the Singapore
Exchange. Mr. Tsang served as Chief Financial Officer of WuXi Pharmatech (Cayman) Inc. (NYSE: WX)
from July 2006 to February 2009. Prior to that, Mr. Tsang held senior financial and management
positions in private and public companies, including PCCW Ltd. and Global Tech Holdings Ltd. He
served with PricewaterhouseCoopers and Deloitte Touche Tohmatsu from 1988 to 1996, and between
March 2009 and March 2010, Mr. Tsang provided consulting services through his own firm, the Benita
Consulting Company. Mr. Tsang is also an independent director of Shangpharma Corporation, a
Nasdaq-listed company. Mr. Tsang is a member of the Canadian Institute of Chartered Accountants and
the Hong Kong Institute of Certified Public Accountants. He received a Bachelor of Commerce degree
and an MBA degree from McMaster University in Canada.
Andrew Yan is a director of our company, and is an independent director pursuant to Nasdaq Stock
Market Rule 5605(a)(2). He is the managing partner of SAIF Partners and SB Asia Investment Fund II
L.P., and president & executive managing director of Softbank Asia Infrastructure Fund. Before
joining Softbank Asia Infrastructure Fund in 2001, Mr. Yan was a managing director and the head of
the Hong Kong office of Emerging Markets Partnership from 1994 to 2001. From 1993 to 1994, he was
the director responsible for strategic planning and business development for the Asia Pacific region at Sprint International
Corporation. From 1990 to 1993, Mr Yan worked in the World Bank and the renowned Hudson Institute
as an economist and research fellow, respectively, in Washington D.C. From 1982 to 1984, he was the Chief
Engineer at the Jianghuai Airplane Corp.. Mr. Yan was voted by the China Venture Capital
Association as The Venture Investor of the Year in both 2004 and 2007. He was also selected as
one of the Fifty Finest Private Equity Investors in the World by the Private Equity International
in 2007; No. 1 Venture Capitalist of the Year by Forbes (China)
61
in 2008 and 2009. He was the
Venture Capital Professional of the Year by Asia Venture Capital Journal in 2009. He is currently
an independent non-executive director of China Resources Land Limited and Fosun International
Limited; non-executive director of Digital China Holdings Limited, MOBI Development Co., Ltd., NVC
Lighting Holding Limited and China Huiyuan Juice Group Limited. Mr. Yan is also an Independent
Director of Giant Interactive Group Inc.; director of Acorn International Inc., Global Education &
Technology Group Ltd and Eternal Asia Supply Chain Co., Ltd. (all 10 companies are listed in the
Hong Kong Stock Exchange, NYSE, Nasdaq or Shenzhen Stock Exchange). He also holds directorship in
several SAIF portfolio companies. Mr. Yan received a Master of Arts degree from Princeton
University as well as a bachelors degree in engineering from the Nanjing Aeronautic Institute in
the PRC.
Hope Ni is an Independent Director on our board. Ms. Ni is the Chief Executive Officer of Rising
Year Group Limited, which focuses on investments and business advisory services. Ms. Ni was the
chairman of the board of directors of China Fundamental Acquisition Corp. from May 2008 to February
2010, and in February 2010, China Fundamental Acquisition acquired Beijing Wowjoint and the
surviving company was listed on Nasdaq in May 2010. Until January 2008, Ms. Ni served as the chief
financial officer and director for Cogo Group Inc., a Nasdaq -listed company which she joined in
August 2004. From January 2008 to December 2008, Ms. Ni served as the Vice Chairman of Cogo Group.
Prior to joining Cogo, Ms. Ni spent six years as a practicing attorney at Skadden, Arps, Slate,
Meagher & Flom LLP in New York and Hong Kong, specializing in corporate finance. Prior to that, Ms.
Ni worked at Merrill Lynchs investment banking division in New York. Ms. Ni is also an independent
director at JA Solar Holdings Co., Ltd., a Nasdaq -listed company and KongZhong Corporation, a
Nasdaq -listed company and Digital China Holdings Ltd., a Hong Kong Main Board listed company. Ms.
Ni received her J.D. degree from the University of Pennsylvania Law School and her bachelors
degree in Applied Economics and Business Management from Cornell University.
Alec Tsui is an independent director on our board. Mr. Tsui is currently an independent
non-executive director of a number of listed companies in Hong Kong, including China Chengtong
Development Group Ltd., COSCO International Holdings, China Power International Development
Limited, China BlueChemical Limited, , Pacific Online Ltd, and China Oilfield Services Limited and
Arnhold Holdings Limited. He was also an independent non-executive director of Melco Crown
Entertainment Ltd. which is listed on the Nasdaq Global Market. He was the chairman of the Hong
Kong Securities Institute from 2001 to 2004. He was an advisor and a council member of the Shenzhen
Stock Exchange from 2001 to 2002. He joined the Hong Kong Stock Exchange in 1994 as an executive
director of the finance and operations services division and became its chief executive in 1997.
Prior to that Mr. Tsui served at the Securities and Futures Commission of Hong Kong from 1989 to
1993. Mr. Tsui graduated from the University of Tennessee with a bachelors degree and a Master of
Engineering degree in industrial engineering. He completed a program for senior managers in
government at the John F. Kennedy School of Government of Harvard University.
Jianmin Ding is a vice president in charge of marketing and business development of our company.
Mr. Ding has been with ATA since 2001. Prior to joining us, Mr. Ding was the chairman and CEO of
Shanghai Linping Property Ltd. Mr. Ding graduated from Nanjing University with a bachelors degree
in economics.
Patrick Tien is a vice president, in charge of channel and sales, of our company. Prior to joining
us in November 2005, Mr. Tien worked as a project general director at Microsoft Learning from 1991
to 2005. Mr. Tien holds a bachelors degree in computer science from Chung Yuan Christian
University, and a masters degree in computer engineering from University of Massachusetts, Lowell.
Alex Tong is a vice president, in charge of business development, of our company. Prior to joining
us in September 2005, Mr. Tong worked as the Asia Pacific General Manager at the Royal Institution
of Charted Surveyors from 2003 to 2005. Prior to that, Mr. Tong worked for Thomson Prometric in the position
of executive director from 1999 to 2003 and as the managing director at Pearson NCS Hong Kong Ltd.
from 1997 to 1999. Mr. Tong graduated from University of Nottingham with a bachelors degree in
education and a masters degree of philosophy in education and from the Chinese University of Hong
Kong with an executive MBA.
Shuqiu Zhao is a vice president in charge of marketing and business development of our company. Mr.
Zhao also oversees our test delivery services and has been with ATA since 2000. Prior to joining
us, Mr. Zhao worked as the general manager of the computer education center of the Shanghai Pudong
New Area. Mr. Zhao graduated from Harbin Institute of Technology with a bachelors degree in
technology.
Degang Xie is a vice president, in charge of the research and development of our company. Mr. Xie
has been with ATA since 1999. Prior to joining us, Mr. Xie worked as chief engineer of Nanjing
Oceansoftware Ltd. Mr. Xie graduated from Nanjing University with a bachelors degree in physics.
62
Amy Tung is currently a vice president of finance in our company. Prior to joining us in August
2006, she worked as Controller at Bayer Healthcare Limited from 2005 to 2006, as Senior Financial
Analyst at BEA Systems (Hong Kong) Limited from 2004 to 2005 and as Finance Manager at Bureau
Veritas Consumer Products Services (Hong Kong) Limited from 2002 to 2004. Ms. Tung graduated from
the Chinese University of Hong Kong with a masters degree in business administration and Columbia
University with a masters degree in financial engineering. Ms. Tung is also a member of the
Association of Chartered Certified Accountants and the Institute of Chartered Secretaries and
Administrators.
Bo Lin, who became our chief operating officer in July 2009, changed to the role of consultant
by the Company in April 2011.
B. Compensation
For the fiscal year ended March 31, 2011, we and our subsidiaries paid aggregate cash
compensation of approximately RMB9.7 million ($1.5 million) to our directors and executive officers
as a group. No options and restricted shares were granted to directors and executive officers
during the fiscal year ended March 31, 2011. We do not pay or set aside any amounts for pension,
retirement or other benefits for our officers and directors.
Share Incentives
We adopted a share incentive plan, or the 2005 Plan, in April 2005. We adopted our 2008
Employee Share Incentive Plan, or the 2008 Plan, in January 2008. Our share incentive plans are
intended to promote our success and to increase shareholder value by providing an additional means
to attract, motivate, retain and reward selected directors, officers, employees and other eligible
persons. An aggregate of 3,310,300 common shares are reserved for issuance under the 2005 Plan.
Subject to any amendment of our 2008 Plan by our directors, the maximum aggregate number of common
shares that may be issued pursuant to all awards under the 2008 Plan is 336,307 shares, plus,
unless the board of directors determines a lesser amount, an annual increase on January 1 of each
calendar year beginning in 2009 equal to the lesser of (x) one percent (1%) of the number of shares
issued and outstanding on December 31 of the immediately preceding calendar year, and (y) 336,307
shares.
As of
June 15, 2011, we have granted 2,995,300 share options and
300,000 restricted shares that are outstanding under the 2005
Plan, and 295,238 share options and 943,621 restricted shares
under the 2008 Plan, respectively, to selected directors, officers,
employees and individual consultants and advisors, and 3,033,483
share options and 185,817 restricted shares are vested, as of the
date of this report. The contractual term of these options is ten
years.
Options and restricted shares granted under our share incentive plans generally do not vest
unless the grantee remains under our employment or in service with us on the given vesting date.
Generally, if the grantees employment or service with us is terminated for cause, all such
grantees options under our share incentive plans, vested and unvested, immediately terminate and
become unexercisable. On the other hand, if the grantees employment or service with us is
terminated for any reason other than for cause, all such grantees vested options terminate and
become unexercisable ninety days following the grantees last day of employment or service with us.
In circumstances where there is a death or total disability of the grantee, generally all unvested
options immediately terminate and become unexercisable while vested options terminate and become
unexercisable twelve months after the last date of employment or service with us.
Our board of directors may amend, alter, suspend, or terminate our share incentive plans at
any time, provided, however, that our board of directors must first seek the approval of the
participants of our share incentive plans if such amendment, alteration, suspension or termination
would adversely affect the rights of participants under any option granted prior to that date.
Without further action by our board of directors, the 2005 Plan will terminate in 2015 and the 2008
Plan will terminate in 2018.
63
The table below sets forth the share option and restricted share grants made to our current
directors and executive officers pursuant to our share incentive plans:
Share options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Common Shares to |
|
Exercise Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
be Issued Upon |
|
per Common |
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Exercise of Options |
|
Share |
|
Date of Grant |
|
Vesting Start Date |
|
Date of Expiration |
Andrew Yan |
|
|
330,400 |
|
|
$ |
2.263 |
|
|
April 12, 2005 |
|
May 1, 2005 |
|
April 11, 2015 |
Hope Ni |
|
|
50,000 |
|
|
$ |
4.75 |
|
|
January 28, 2008 |
|
January 28, 2008 |
|
January 27, 2018 |
Alec Tsui |
|
|
50,000 |
|
|
$ |
4.75 |
|
|
January 28, 2008 |
|
January 28, 2008 |
|
January 27, 2018 |
Benson Tsang |
|
|
300,000 |
|
|
$ |
2.115 |
|
|
March 29, 2010 |
|
March 29, 2010 |
|
March 28, 2020 |
Jianmin Ding |
|
|
303,800 |
|
|
$ |
2.263 |
|
|
April 12, 2005 |
|
May 1, 2005 |
|
April 11, 2015 |
Patrick Tien |
|
|
220,000 |
|
|
$ |
3.60 |
|
|
December 16, 2005 |
|
January 1, 2006 |
|
December 15, 2015 |
Alex Tong |
|
|
100,000 |
|
|
$ |
3.60 |
|
|
December 16, 2005 |
|
January 1, 2006 |
|
December 15, 2015 |
Degang Xie |
|
|
31,000 |
|
|
$ |
2.263 |
|
|
April 12, 2005 |
|
May 1, 2005 |
|
April 11, 2015 |
Shuqiu Zhao |
|
|
23,000 |
|
|
$ |
2.263 |
|
|
April 12, 2005 |
|
May 1, 2005 |
|
April 11, 2015 |
|
|
|
8,000 |
|
|
$ |
3.60 |
|
|
October 1, 2007 |
|
July 1, 2007 |
|
September 30, 2017 |
Amy Tung |
|
|
50,000 |
|
|
$ |
3.60 |
|
|
December 27, 2006 |
|
October 31, 2006 |
|
December 26, 2016 |
Restricted shares
|
|
|
|
|
|
|
|
|
Name |
|
Restricted Shares |
|
Date of Grant |
|
Vesting Start Date |
Kevin Xiaofeng Ma
|
|
|
200,000 |
|
|
May 30, 2011
|
|
June 1, 2011 |
Walter Lin Wang
|
|
|
200,000 |
|
|
May 30, 2011
|
|
June 1, 2011 |
Andrew Yan
|
|
|
100,000 |
|
|
May 30, 2011
|
|
June 1, 2011 |
Jianmin Ding
|
|
|
160,000 |
|
|
May 30, 2011
|
|
June 1, 2011 |
Shuqiu Zhao
|
|
|
100,000 |
|
|
May 30, 2011
|
|
June 1, 2011 |
Shuqiu Zhao
|
|
|
30,000 |
|
|
February 12, 2009
|
|
February 12, 2009 |
Degang Xie
|
|
|
20,000 |
|
|
February 12, 2009
|
|
February 12, 2009 |
C. Board Practices
Duties of Directors
Under Cayman Islands Law, our directors have a statutory duty of loyalty to act honestly in
good faith with a view to our best interests. Our directors also have a duty to exercise the care,
diligence and skills that a reasonably prudent person would exercise in comparable circumstances.
In fulfilling their duty of care to us, our directors must ensure compliance with our amended and
restated memorandum and articles of association. A shareholder has the right to seek damages if a
duty owed by our directors is breached.
The functions and powers of our board of directors include, among others:
|
|
|
convening shareholders annual general meetings and reporting its work to
shareholders at such meetings; |
|
|
|
|
issuing authorized but unissued shares; |
|
|
|
|
declaring dividends and distributions; |
|
|
|
|
exercising the borrowing powers of our company and mortgaging the property of our
company; |
|
|
|
|
approving the transfer of shares of our company, including the registering of such shares in our share register; and |
|
|
|
|
exercising any other powers conferred by the shareholders meetings or under our
amended and restated memorandum and articles of association. |
Terms of Directors
We have a board of five directors divided into class A, class B and class C directors. As of
the date of this annual report, the class A directors are Kevin Xiaofeng Ma and Walter Lin Wang,
the class B director is Andrew Yan, and the class C directors are Hope Ni and Alec Tsui. Each class
of directors will stand for election every year at our annual general meeting of shareholders on a
rotating basis, beginning with our class A directors at the first annual general meeting of our
shareholders. Our chief executive officer, which currently is Kevin Xiaofeng Ma, shall not, while
holding office, be subject to retirement or be taken into account in determining the number of
directors to retire in any year. Neither we nor our subsidiaries have any directors service
contracts providing for benefits upon termination of employment
64
Board Practices
Our board of directors has established an audit committee, a compensation committee and a
nominations committee.
Audit Committee
Our audit committee consists of Hope Ni and Alec Tsui. Hope Ni is the chairman of our audit
committee. Our board of directors has determined that Hope Ni and Alec Tsui are independent
directors within the meaning of Nasdaq Stock Market Rule 5605(a)(2) and meet the criteria for
independence set forth in Rule 10A-3(b) of the Exchange Act. Hope Ni meets the criteria of an audit
committee financial expert as set forth under the applicable rules of the SEC. The third seat on
our audit committee is vacant in reliance on Nasdaq Stock Market Rule 5615(a)(3), which permits a
foreign private issuer like us to follow home country practices in relation to the composition of
its audit committee. In this regard we have elected to adopt the practices of our home country, the
Cayman Islands, which does not require us to have a three member audit committee or to fill all
three seats on the audit committee at this time.
Our audit committee is responsible for, among other things:
|
|
|
appointing the independent auditor; |
|
|
|
|
pre-approving all auditing and non-auditing services permitted to be performed by the
independent auditor; |
|
|
|
|
annually reviewing the independent auditors report describing the auditing firms
internal quality-control procedures, any material issues raised by the most recent
internal quality-control review, or peer review, of the independent auditor and all
relationships between the independent auditor and our company; |
|
|
|
|
setting clear hiring policies for employees and former employees of the independent
auditor; |
|
|
|
|
reviewing with the independent auditor any audit problems or difficulties and
managements responses; |
|
|
|
|
reviewing and approving all related party transactions on an ongoing basis; |
|
|
|
|
reviewing and discussing the annual audited financial statements with management and
the independent auditor; |
|
|
|
|
reviewing and discussing with management and the independent auditor major issues
regarding accounting principles and financial statement presentations; |
|
|
|
|
reviewing reports prepared by management or the independent auditor relating to
significant financial reporting issues and judgments; |
|
|
|
|
discussing earnings press releases with management, as well as financial information
and earnings guidance provided to analysts and rating agencies; |
|
|
|
|
reviewing with management and the independent auditor the effect of regulatory and
accounting initiatives, as well as off-balance sheet structures, on our financial
statements; |
|
|
|
|
discussing policies with respect to risk assessment and risk management with
management, internal auditors and the independent auditor; |
|
|
|
|
timely reviewing reports from the independent auditor regarding all critical
accounting policies and practices to be used by our company, all alternative treatments of
financial information within U.S. GAAP that have been discussed with management and all
other material written communications between the independent auditor and management; |
|
|
|
|
establishing procedures for the receipt, retention and treatment of complaints
received from our employees regarding accounting, internal accounting controls, or
auditing matters, and the confidential, anonymous submission by our employees of concerns
regarding questionable accounting or auditing matters; |
|
|
|
|
annually reviewing and reassessing the adequacy of our audit committee charter; |
65
|
|
|
such other matters that are specifically delegated to our audit committee by our
board of directors from time to time; |
|
|
|
|
meeting separately, periodically, with management, internal auditors and the
independent auditor; and |
|
|
|
|
reporting regularly to the full board of directors. |
Compensation Committee
Our compensation committee consists of Andrew Yan, Hope Ni and Alec Tsui. Andrew Yan is the
chairman of our compensation committee. Our board of directors has determined that all of our
compensation committee members are independent directors within the meaning of Nasdaq Stock
Market Rule 5605(a)(2).
Our compensation committee is responsible for:
|
|
|
reviewing and approving our overall compensation policies; |
|
|
|
|
reviewing and approving corporate goals and objectives relevant to the compensation
of our chief executive officer, evaluating our chief executive officers performance in
light of those goals and objectives, reporting the results of such evaluation to the board
of directors, and determining our chief executive officers compensation level based on
this evaluation; |
|
|
|
|
determining the compensation level of our other executive officers; |
|
|
|
|
making recommendations to the board of directors with respect to our
incentive-compensation plan and equity-based compensation plans; |
|
|
|
|
administering our equity-based compensation plans in accordance with the terms
thereof; and |
|
|
|
|
such other matters that are specifically delegated to the compensation committee by
our board of directors from time to time. |
Nominations Committee
Our nominations committee consists of Kevin Xiaofeng Ma, Andrew Yan and Alec Tsui. Kevin
Xiaofeng Ma is the chairman of the nominations committee. Although Nasdaq Stock Market Rules
generally require all members of the nominations committee of a listed company to be independent
directors within the meaning of Nasdaq Stock Market Rule 5605(a)(2), Nasdaq Stock Market Rule
5615(a)(3) permits a foreign private issuer like us to follow home country practices in relation
to composition of its nominations committee. In this regard, we have elected to adopt the practices
of our home country, the Cayman Islands, which does not require that any of the members of a
companys nominations committee be independent directors.
Our nominations committee is responsible for, among other things:
|
|
|
seeking and evaluating qualified individuals to become new directors as needed; |
|
|
|
|
reviewing and making recommendations to the board of directors regarding the
independence and suitability of each board member for continued service; and |
|
|
|
|
evaluating the nature, structure and composition of other board committees. |
Corporate Governance
Our board of directors has adopted a code of ethics, which is applicable to our senior
executive and financial officers. In addition, our board of directors has adopted a code of
conduct, which is applicable to all of our directors, officers, employees and advisors. Our code of
ethics and our code of conduct are publicly available on our web site,
http://www.ata.net.cn. In addition, our board of directors has adopted a set of corporate
governance guidelines. The guidelines reflect certain guiding principles with respect to our
boards structure, procedures and committees. The guidelines are not intended to change or
interpret any law, or our amended and restated memorandum and articles of association.
66
Interested Transactions
A director may vote with respect to any contract or transaction in which he or she is
interested, provided that the nature of the interest of any director in such contract or
transaction is disclosed by him or her at or prior to its consideration and any vote in that
matter.
D. Employees
We had 489, 537, and 488 employees as of March 31, 2009, 2010 and 2011, respectively. As of
March 31, 2011, we had 125 employees in sales and marketing, 104 in research and development, 173
in client service and support and 86 in general and administrative functions.
In April 2005, we adopted a share incentive plan, or the 2005 Plan. In January 2008, we
adopted our 2008 Employee Share Incentive Plan, or the 2008 Plan. We use our share incentive plans
as an additional means to further attract, motivate, retain and reward selected directors,
officers, employees and third-party consultants and advisors. For more information, see Item 6.B.
Directors, Senior Management and Employees Share Incentives Share Option Plan. We believe
these initiatives have contributed to our ability to attract and retain talent.
As required by Chinese laws and regulations, we participate in various employee benefit plans
that are organized by municipal and provincial governments, including housing, pension, medical and
unemployment benefit plans. We make monthly payments to these plans in respect of each employee
based on the employees compensation. We believe that we maintain a good working relationship with
our employees and we have not experienced any significant labor disputes. Our employees have not
entered into any collective bargaining agreements.
According to our contracts with our employees, our employees are generally prohibited from
engaging in any activities that compete with our business during the period of their employment and
for two years after termination of their employment with us. Furthermore, all employees are
prohibited, for a period of two years following termination, from soliciting other employees to
leave us and, for a period of five years following termination, from soliciting our existing
clients. However, we may have difficulty enforcing these non-competition and non-solicitation terms
in China because the Chinese legal system, especially with respect to the enforcement of such
terms, is still developing.
E. Share Ownership
The following table sets forth information with respect to the beneficial ownership, within
the meaning of Section 13(d)(3) of the Exchange Act, of our common shares as of June 15, 2011 by:
|
|
|
each person known to us to own beneficially more than 5% of our common shares, and |
|
|
|
|
each of our directors and executive officers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares Beneficially |
|
|
|
|
|
|
Owned |
|
|
|
|
|
|
Number (1) |
|
Number (2) |
|
|
|
|
Directors and Executive Officers: |
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Xiaofeng Ma (3) |
|
|
6,294,988 |
|
|
|
|
13.8 |
% |
|
|
|
Walter Lin Wang (4) |
|
|
3,123,576 |
|
|
|
|
6.8 |
% |
|
|
|
Benson Tsang |
|
|
* |
|
|
|
|
* |
|
|
|
|
Andrew Yan |
|
|
* |
|
|
|
|
* |
|
|
|
|
Hope Ni |
|
|
* |
|
|
|
|
* |
|
|
|
|
Alec Tsui |
|
|
* |
|
|
|
|
* |
|
|
|
|
Jianmin Ding |
|
|
* |
|
|
|
|
* |
|
|
|
|
Patrick Tien |
|
|
* |
|
|
|
|
* |
|
|
|
|
Alex Tong |
|
|
* |
|
|
|
|
* |
|
|
|
|
Shuqiu Zhao |
|
|
* |
|
|
|
|
* |
|
|
|
|
Degang Xie |
|
|
* |
|
|
|
|
* |
|
|
|
|
Amy Tung |
|
|
* |
|
|
|
|
* |
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares Beneficially |
|
|
|
|
|
|
Owned |
|
|
|
|
|
|
Number (1) |
|
Number (2) |
|
|
|
|
Directors and Executive Officers Combined |
|
|
11,057,264 |
|
|
|
|
24.2 |
% |
|
|
|
Principal Shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
SB Asia Investment Fund II L.P. (5) |
|
|
15,147,208 |
|
|
|
|
33.1 |
% |
|
|
|
HSBC International Trustee Limited (6) |
|
|
14,389,540 |
|
|
|
|
31.5 |
% |
|
|
|
Able Knight Development Limited (3) |
|
|
6,094,988 |
|
|
|
|
13.3 |
% |
|
|
|
Lijun Mai (7) |
|
|
4,845,000 |
|
|
|
|
10.6 |
% |
|
|
|
Wealth Treasure Management Limited (4) |
|
|
2,923,576 |
|
|
|
|
6.4 |
% |
|
|
|
Government of Singapore Investment Corporation Pte Ltd (8) |
|
|
2,866,282 |
|
|
|
|
6.3 |
% |
|
|
|
|
|
|
* |
|
Beneficially owns less than 1% of our common shares. |
|
(1) |
|
The number of common shares beneficially owned by each of the listed persons includes common
shares that such person has the right to acquire within 60 days after June 15, 2011. |
|
(2) |
|
Percentage of beneficial ownership for each of the persons listed above is determined by
dividing (i) the number of common shares beneficially owned by such person by (ii) the total
number of common shares outstanding, plus the number of common shares such person has the
right to acquire within 60 days after June 15, 2011. The total number of our common shares
outstanding as of June 15, 2011 is 45,730,517. |
|
(3) |
|
Includes 6,094,988 common shares held by
Able Knight Development Limited, which is a British Virgin Islands company ultimately wholly
owned by HSBC International Trustee Limited as trustee of an irrevocable trust constituted
under the laws of the Cayman Islands with Kevin Xiaofeng Ma as the settlor and certain family
members of Kevin Xiaofeng Ma as the beneficiaries. Kevin Xiaofeng Ma is the sole director of
Able Knight Development Limited. The business address of Able Knight Development Limited is
Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands. |
|
(4) |
|
Includes 2,923,576 common shares held by
Wealth Treasure Management Limited. Wealth Treasure Management Limited is a British Virgin
Islands company ultimately wholly owned by HSBC International Trustee Limited as trustee of an
irrevocable trust constituted under the laws of Cayman Islands with Walter Lin Wang as the
settlor and one of the beneficiaries. Walter Lin Wang is the sole director of Wealth Treasure
Management Limited. The business address of Wealth Treasure Management Limited is Portcullis
TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands. |
|
(5) |
|
Based on a Schedule 13D filed jointly by SB Asia Investment Fund II L.P., SAIF II GP L.P.,
SAIF Partners II L.P. and SAIF II GP Capital Ltd. on March 15,
2010. Includes 12,707,436
common shares and 1,219,886 ADSs, representing 2,439,772 common shares held by SB Asia
Investment Fund II L.P., a Cayman Islands limited partnership. SAIF II GP Capital Ltd. is the
sole general partner of SAIF Partners II L.P., which is the sole general partner of SAIF II GP
L.P., which is in turn the sole general partner of SB Asia Investment Fund II L.P., which is
the record owner of the common shares. |
|
(6) |
|
Based on a Schedule 13G filed by HSBC International
Trustee Limited on February 10, 2011.
Includes 8,935,584 common shares and 2,726,978 American Depositary Shares (representing
5,453,956 common shares) beneficially held by HSBC International Trustee Limited solely in its
capacity as trustee of various trusts. The registered address of HSBC International Trustee
Limited is 21 Collyer Quay, #09-01 HSBC Building, Singapore 049320. |
|
(7) |
|
Based on a Schedule 13G filed jointly by Lijun Mai, Mutual Step Holdings Limited, Magnificent
Trio Company Limited, Wealth Trust, Art Kind Technology Limited, New Knight Holdings Limited,
Sunrise Trust, Art Grace Development Limited, Unique Icon Limited and Value Trust on February
17, 2009. Includes 1,645,000 common shares held by Mutual Step Holdings Limited, 1,600,000
common shares held by Art Kind Technology Limited and 1,600,000 common shares held by Art
Grace Development Limited. Each of Mutual Step Holdings Limited, Art Kind Technology Limited
and Art Grace Development Limited is a British Virgin Islands company ultimately wholly owned
by HSBC International Trustee Limited as trustee of an irrevocable trust constituted under the
laws of Cayman Islands with Lijun Mai or certain family members of Lijun Mai as the settler
and beneficiaries. Lijun Mai is the sole director of Mutual Step Holdings Limited. The
business address of each of Mutual Step Holdings Limited, Art Kind Technology Limited and Art
Grace Development Limited is Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola,
British Virgin Islands. |
68
|
|
|
(8) |
|
Based on a Schedule 13G filed by the Government of Singapore Investment Corporation Pte Ltd
on February 10, 2011. According to the Schedule 13G, the Government of Singapore Investment
Corporation Pte Ltd shares power to vote and power to dispose of 1,004,090 common shares, the
Government of Singapore shares the power to vote and power to dispose of 1,004,090 common
shares and the Monetary Authority of Singapore shares the power to vote and the power to
dispose of 429,051 common shares. |
None of our shareholders have different voting rights from other shareholders. To our
knowledge, we are not owned or controlled, directly or indirectly, by another corporation, by any
foreign government or by any other natural or legal persons, severally or jointly. None of our
shareholders has different voting rights from other shareholders. We are not aware of any
arrangement that may, at a subsequent date, result in a change of control of our company. See Item
6.B. Compensation Share Incentives for information on options granted to our current directors
and executive officers. To our knowledge, as of June 15, 2011, none of our common shares were
held by holders of record in the United States. However, 22,953,396 common shares were registered
in the name of a nominee of Citibank, N.A., the depositary of our ADSs. It is likely that a large
number of beneficial owners of our ADSs reside in the United Sates.
|
|
|
ITEM 7. |
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. Major Shareholders
Please refer to Item 6.E, Directors, Senior Management and Employees Share Ownership
B. Related Party Transactions
Agreements among ATA BVI, ATA Learning and ATA Online
Due to PRC regulatory restrictions on foreign ownership of Internet content businesses in
China, we operate the online portion of our test preparation and training solutions business
through ATA Online (Beijing) Education Technology Limited, or ATA Online, which is a domestic
Chinese company incorporated in the PRC in September 2006 and owned by Kevin Xiaofeng Ma, our
co-founder, chairman and chief executive officer and Walter Lin Wang, our co-founder, director and
president, both of whom are PRC citizens. ATA BVI and ATA Learning (Beijing) Inc., or ATA Learning,
one of our wholly owned subsidiaries, have entered into a series of contractual arrangements with
ATA Online, including an exclusive technical support agreement, a strategic consulting service
agreement and a call option and cooperation agreement. These contractual arrangements also include
an equity pledge agreement entered into with each of the shareholders of ATA Online. As a result of
these contractual arrangements, under U.S. GAAP, we are considered the primary beneficiary of ATA
Online. Accordingly, we consolidate ATA Onlines results in our consolidated financial statements.
See Item 4.C. Information on the Company Organizational Structure Corporate Structure and
Arrangements with Our Affiliated PRC Entity.
The following is a summary of the material provisions of these agreements. For more complete
information you should read these agreements in their entirety. Directions on how to obtain copies
of these agreements are provided in this annual report under Item 10.H. Additional Information
Documents on Display.
Technical support agreement, dated October 27, 2006. Under this agreement, ATA Learning
provides ATA Online with exclusive technical support services for the maintenance of ATA Onlines
servers, networks and other equipment, software and systems. In return, ATA Online pays a quarterly
service fee to ATA Learning. The service fee is mutually agreed by both parties, and is determined
based on certain objective criteria such as the actual services required by ATA Online and the
actual labor costs, as determined by the number of days and personnel involved, incurred by ATA
Learning for providing the services during the relevant period. In addition, ATA Online reimburses
ATA Learning for out of pocket costs ATA Learning incurs in connection with providing the services.
The term of this agreement is ten years, automatically renewable for successive one year terms
unless ATA Learning notifies ATA Online of its intention not to renew 30 days before the relevant
term expires. ATA Online may not terminate this agreement during its term.
Strategic consulting service agreement, dated October 27, 2006. Under this agreement, ATA
Learning provides ATA Online with strategic consulting and related services for ATA Onlines
business, including (1) valuation of new products; (2) industry investigation and survey; (3)
marketing and promotion strategies; and (4) other services related to ATA Onlines online test
preparation services business. The fees for these services must be confirmed by ATA Learning and
will be calculated monthly but paid quarterly based on actual time spent providing the services. In
addition, ATA Learning has the right to adjust the fees payable by ATA Online in
69
accordance with
its performance. The term of this agreement is 20 years, automatically renewable for successive one
year terms unless ATA Learning notifies ATA Online of its intention not to renew 30 days before the
relevant term expires. If either party fails to comply with this agreement, it shall indemnify all
losses incurred by the other party.
Each party may terminate this agreement if the other party fails to perform its obligations
under this agreement or the representations, warranties or covenants of the other party are
materially inaccurate or misleading.
Equity pledge agreement, dated October 27, 2006, as amended and restated on February 12, 2007,
and as amended on July 7, 2009. To secure the payment obligations of ATA Online under the exclusive
technical support agreement and the strategic consulting service agreement described above, ATA
Onlines shareholders have pledged to ATA Learning their entire equity ownership interests in ATA
Online. Upon the occurrence of certain events of default specified in this agreement, the pledgee
may exercise its rights and foreclose on the pledged equity interest. Under this agreement, the
pledgor may not transfer the pledged equity interest without the pledgees prior written consent.
This agreement will also be binding upon successors of the pledgor and transferees of the pledged
equity interest. The term of the pledge is the same as the term of the strategic consulting service
agreement. This agreement may be terminated upon the completion of ATA Onlines contractual
liabilities under the exclusive technical support agreement and the strategic consulting service
agreement as described above. In February 2007, Jianguo Wang transferred all of his equity interest
in ATA Online to Walter Lin Wang, and the October 2006 agreement was amended and restated to take
this transfer into account. In July 2009, the agreement was further amended to incorporate the new
investments in the registered capital of ATA Online made by the shareholders of ATA Online as
subject to the pledge.
Loans to the Shareholders of ATA Online, dated October 27, 2006, as amended on February 12,
2007 and on July 7, 2009. ATA BVI entered into loan agreements with each of Kevin Xiaofeng Ma,
Walter Lin Wang and Jianguo Wang, the shareholders of ATA Online to extend each of Kevin Xiaofeng
Ma, Walter Lin Wang and Jianguo Wang a interest free loan in the amount of RMB0.9 million,
RMB50,000 and RMB50,000, respectively, for the sole purpose of investing in ATA Online as ATA
Onlines registered capital. The initial term of these loans in each case is ten years, which may
be extended upon the parties agreement. Kevin Xiaofeng Ma, Walter Lin Wang and Jianguo Wang can
only repay the loans by transferring all of their interest in ATA Online to ATA BVI or to a third
party designated by ATA BVI. When Kevin Xiaofeng Ma, Walter Lin Wang and Jianguo Wang transfer
their interest in ATA Online to ATA BVI or its designee, if the actual transfer price is higher than the principal amount of
the loans, the amount exceeding the principal amount of the loans will be deemed as interest
accrued on such loans and repaid by Kevin Xiaofeng Ma, Walter Lin Wang and Jianguo Wang to ATA BVI.
ATA BVI also has the right to, but has no obligation to, purchase, or designate a third party to
purchase, all or part of their interest in ATA Online at a price equal to the amount of the loans.
In February 2007, Jianguo Wang repaid the loan by transferring all of his interest in ATA Online to
Walter Lin Wang. As a result, ATA BVI terminated the loan agreement with Jianguo Wang and amended
the agreement with Walter Lin Wang to increase the principal of the loan to RMB0.1 million. In July
2009, each of the loan agreements with Kevin Xiaofeng Ma and Walter Lin Wang was further amended by
an addendum that ATA BVI would extend an additional loan to each of Kevin Xiaofeng Ma and Walter
Lin Wang in the amount of RMB8.1 million ($1.2 million) and RMB0.9 million ($131,853),
respectively, for the sole purpose of increasing the registered capital of ATA Online.
Call option and cooperation agreement, dated October 27, 2006, as amended and restated on
February 12, 2007, and as amended on July 7, 2009. Through the call option and cooperation
agreement entered into between ATA BVI and ATA Online and its shareholders, ATA BVI or any third
party designated by ATA BVI has the right to acquire, in whole or in part, the respective equity
interests in ATA Online of its shareholders or ATA Onlines assets when permitted by applicable
Chinese laws and regulations. The proceeds from the exercise of the call option will be applied to
repay the loans under the loan agreement described above. This agreement can only be terminated
with the unanimous consent of all parties, except that ATA BVI may terminate this agreement with 30
days prior notice to the other parties. In February 2007, Jianguo Wang transferred all of his
equity interest in ATA Online to Walter Lin Wang, and the October 2006 agreement was amended and
restated to take this transfer into account. In July 2009, the agreement was further amended to
incorporate the new investments in the registered capital of ATA Online made by the shareholders of
ATA Online as subject to the call option.
Shareholders Agreement
In connection with the Shareholders Agreement that we entered into with the shareholders of
our Cayman Islands holding company in November 2006, our preferred shareholders are entitled
to certain registration rights, including demand registration rights, piggyback registration
rights, and Form F-3 or Form S-3 registration rights. These registration rights will terminate
on March 31, 2013.
C. |
|
Interests of Experts and Counsel |
Not applicable.
70
|
|
|
ITEM 8. |
|
FINANCIAL INFORMATION |
A. Consolidated statements and other financial information.
Our consolidated financial statements are included at the end of this annual report.
Legal Proceedings
We are not currently involved in any litigation, arbitration or administrative proceedings
that could have a material adverse effect on our financial condition or results of operations. From
time to time, we may be subject to various claims and legal actions arising in the ordinary course
of business.
Dividend Policy
On June 1, 2011, the Company announced that its Board of Directors has declared a special cash
dividend of $0.215 per common share, or $0.43 per ADS. The total amount of cash distributed in the
dividend is expected to be approximately $10 million, which will be paid from the cash held by ATA
Inc. As of March 31, 2011, ATA Inc. had $17.8 million cash. The dividend will be paid on or around
August 1, 2011 to all shareholders of record as of the close of business on June 30, 2011. Any
future determination to pay dividends will be made at the discretion of our board of directors and
will be based upon our future operations and earnings, capital requirements and surplus, general
financial condition, shareholders interests, contractual restrictions and other factors our board
of directors may deem relevant.
Holders of our ADSs will be entitled to receive dividends, if any, subject to the terms of the
deposit agreement, to the same extent as the holders of our common shares. Cash dividends will be
paid to the depositary in U.S. dollars, which will distribute them to the holders of ADSs according
to the terms of the deposit agreement. Other distributions, if any, will be paid by the depositary
to the holders of ADSs in any means it deems legal, fair and practical.
Under Chinas new Enterprise Income Tax Law and its implementation rules, both of which became
effective on January 1, 2008, dividends from our PRC subsidiaries to us may be subject to a 10%
withholding tax if such dividends are derived from profits generated after January 1, 2008. If we
are deemed to be a PRC resident enterprise, the withholding tax may be exempted, but we will be
subject to a 25% tax on our worldwide income, and our non-PRC enterprise investors may be subject
to PRC income tax withholding at a rate of 10%. See Item 3. Key Information D. Risk Factors
Risks Relating to Regulation of Our Business Under the New EIT Law, we may be classified as a
resident enterprise of China. Such classification will likely result in unfavorable tax
consequences to us and U.S. holders of our ADSs or ordinary shares, and Item 10. Additional
Information E. Taxation Peoples Republic of China Taxation.
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant
changes since the date of our audited financial statements included in this report.
71
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ITEM 9. |
|
THE OFFER AND LISTING |
A. Offering and Listing Details.
Price Range of Our ADSs
Our ADSs are listed for trading on the Nasdaq Global Market under the symbol ATAI. The
following table sets forth the monthly high and low trading prices of our ADSs on the Nasdaq Global
Market for the periods indicated:
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High |
|
Low |
Yearly Highs and Lows: |
|
|
|
|
|
|
|
|
Fiscal year ended March 31, 2008 (from January 29, 2008)
|
|
$ |
12.92 |
|
|
$ |
8.02 |
|
Fiscal year ended March 31, 2009
|
|
$ |
17.45 |
|
|
$ |
2.75 |
|
Fiscal year ended March 31, 2010
|
|
$ |
12.2 |
|
|
$ |
2.92 |
|
Fiscal year ended March 31, 2011
|
|
$ |
8.10 |
|
|
$ |
2.80 |
|
Quarterly Highs and Lows: |
|
|
|
|
|
|
|
|
Quarter ended June 30, 2009
|
|
$ |
12.2 |
|
|
$ |
3.94 |
|
Quarter ended September 30, 2009
|
|
$ |
9.65 |
|
|
$ |
5.61 |
|
Quarter ended December 31, 2009
|
|
$ |
6.19 |
|
|
$ |
4.12 |
|
Quarter ended March 31, 2010
|
|
$ |
4.75 |
|
|
$ |
2.92 |
|
Quarter ended June 30, 2010
|
|
$ |
4.06 |
|
|
$ |
3.00 |
|
Quarter ended September 30, 2010
|
|
$ |
3.10 |
|
|
$ |
2.80 |
|
Quarter ended December 31, 2010
|
|
$ |
4.01 |
|
|
$ |
2.96 |
|
Quarter ended March 31, 2011
|
|
$ |
8.10 |
|
|
$ |
3.70 |
|
Monthly Highs and Lows: |
|
|
|
|
|
|
|
|
December 2010
|
|
$ |
4.01 |
|
|
$ |
3.65 |
|
January 2011
|
|
$ |
4.23 |
|
|
$ |
3.70 |
|
February 2011
|
|
$ |
8.00 |
|
|
$ |
4.05 |
|
March 2011
|
|
$ |
8.10 |
|
|
$ |
7.61 |
|
April 2011
|
|
$ |
8.18 |
|
|
$ |
7.00 |
|
May 2011
|
|
$ |
13.36 |
|
|
$ |
8.00 |
|
June 2011 (through June 10, 2011)
|
|
$ |
12.62 |
|
|
$ |
10.63 |
|
On
June 10, 2011, the closing sale price of our ADSs as reported on the Nasdaq Global Market was
US$10.63 per ADS.
B. Plan of Distribution
Not applicable.
C. Markets
See Item 9.A above.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
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ITEM 10. |
|
ADDITIONAL INFORMATION |
A. Share capital
Not applicable.
B. Memorandum and Articles of Association
We incorporate by reference into this annual report the description of our third amended and
restated memorandum and articles of association contained in Description of Share Capital of our
F-1 registration statement (File No. 333-148512) originally filed with the Securities and Exchange
Commission on January 8, 2008, as amended.
72
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business
and other than those described in Item 4, Information on the Company , Item 5, Operating and
Financial Review and Prospects Item 7, Major Shareholders and Related Party Transactions or
elsewhere in this annual report on Form 20-F.
D. Exchange Controls
Regulation of Foreign Exchange
Chinas government imposes restrictions on the convertibility of the Renminbi and on the
collection and use of foreign currency by Chinese entities. Under current regulations, the Renminbi
is convertible for current account transactions, which include dividend distributions, interest
payments, and the import and export of goods and services. Conversion of Renminbi into foreign
currency and foreign currency into Renminbi for capital account transactions, such as direct
investment, portfolio investment and loans, however, is still generally subject to the prior
approval of the PRC State Administration of Foreign Exchange, or SAFE.
Under current Chinese regulations, Foreign-Invested Enterprises such as our Chinese
subsidiaries are required to apply to SAFE for a Foreign Exchange Registration Certificate for
Foreign-Invested Enterprise. With such a foreign exchange registration certificate (which is
subject to review and renewal by SAFE on an annual basis), a foreign-invested enterprise may open
foreign exchange bank accounts at banks authorized to conduct foreign exchange business by SAFE and
may buy, sell and remit foreign exchange through such banks, subject to documentation and approval
requirements. Foreign-invested enterprises are required to open and maintain separate foreign
exchange accounts for capital account transactions and current account transactions. In addition,
there are restrictions on the amount of foreign currency that foreign-invested enterprises may
retain in such accounts.
The value of the Renminbi against the U.S. dollar and other currencies is affected by, among
other things, changes in Chinas political and economic conditions and Chinas foreign exchange
policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value
of the Renminbi to the U.S. dollar. However, the Peoples Bank of China regularly intervenes in the
foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals.
Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the
U.S. dollar over the following three years. Since reaching a high against the U.S. dollar in July
2008, however, the Renminbi has traded within a narrow range against the U.S. dollar. On June 19,
2010, the Peoples Bank of China announced the removal of the de facto peg. Following this
announcement, the Renminbi appreciated from 6.7968 Renminbi per U.S.
dollar on June 21, 2010 to 6.4801
Renminbi per U.S. dollar on June 10, 2011.
Dividend Distributions
We have adopted a holding company structure, and our holding companies may rely on dividends
and other distributions on equity paid by our current and future Chinese subsidiaries for their
cash requirements, including the funds necessary to service any debt we may incur or financing we
may need for operations other than through our Chinese subsidiaries. Chinese legal restrictions
permit payments of dividends by our Chinese subsidiaries only out of their accumulated after-tax
profits, if any, determined in accordance with Chinese accounting standards and regulations. Our
Chinese subsidiaries are also required under Chinese laws and regulations to allocate at least 10%
of their after-tax profits determined in accordance with PRC GAAP to statutory reserves until such
reserves reach 50% of the companys registered capital. Allocations to these statutory reserves and
funds can only be used for specific purposes and are not transferable to us in the form of loans,
advances or cash dividends. As of March 31, 2011, our Chinese subsidiaries allocated RMB7.2 million
($1.1 million) to the general reserve fund, which is restricted for distribution to the Company.
Any limitations on the ability of our Chinese subsidiaries to transfer funds to us could materially
and adversely limit our ability to grow, make investments or acquisitions that could be beneficial
to our business, pay dividends and otherwise fund and conduct our business.
E. Taxation
The following is a general summary of the material Cayman Islands, U.S. federal and Peoples
Republic of China income tax consequences relevant to an investment in our ADSs and common shares.
The discussion is not intended to be, nor should it be construed as, legal or tax advice to any
particular prospective purchaser or current holders of our ADSs. The discussion is based on laws
and relevant interpretations thereof in effect as of the date of this annual report, all of which
are subject to change or different interpretations, possibly with retroactive effect. The
discussion does not address United States state or local tax laws, or tax laws of jurisdictions
other than the Cayman Islands and the United States. You should consult your own tax advisors with
respect to the consequences of acquisition, ownership and disposition of our ADSs and common
shares.
73
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon
profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax
or estate duty or withholding tax applicable to us or to any holder of ADSs or common shares. There
are no other taxes likely to be material to us levied by the Government of the Cayman Islands
except for stamp duties which may be applicable on instruments executed in, or after execution
brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman
Islands on transfers of shares of Cayman Islands companies except those which hold interests in
land in the Cayman Islands. The Cayman Islands is not party to any double tax treaties. There are
no exchange control regulations or currency restrictions in the Cayman Islands.
Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we
have obtained an undertaking from the Governor-in-Cabinet:
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that no law which is enacted in the Cayman Islands imposing any tax to be levied on
profits or income or gains or appreciations shall apply to the Company or its operations;
and |
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that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall
not be payable on the shares, debentures or other obligations of the Company. |
The undertaking for us is for a period of twenty years from October 3, 2006.
Peoples Republic of China Taxation
In 2007 China passed a new Enterprise Income Tax Law, or the New EIT Law, and its implementing
rules, both of which became effective on January 1, 2008. The New EIT Law created a new resident
enterprise classification, which, if applied to us, would impose a 10% withholding tax on our
non-PRC enterprise shareholders and potentially 20% to our non-PRC individual shareholders on
dividends we pay to them if such dividends are derived from profits generated after January 1, 2008
and with respect to gains derived by our non-PRC shareholders from disposition of our shares or
ADSs, if such dividends or gains are determined to have been derived from sources within China. The
New EIT Law and its implementing rules as well as other PRC tax regulations are unclear as to how
to determine the sources of such dividends or gains. See Item 3. Key Information D. Risk
Factors Risks Relating to Regulation of Our Business Under the New EIT Law, we may be
classified as a resident enterprise of China. Such classification will likely result in
unfavorable tax consequences to us and U.S. holders of our ADSs or ordinary shares.
If we are not deemed as a resident enterprise, then dividends payable to our non-PRC
shareholders and gains from disposition of our shares of ADSs by our non-PRC shareholders will not
be subject to PRC withholding income tax.
United States Federal Income Taxation
This discussion describes the material U.S. federal income tax consequences to U.S. Holders
(as defined below) of the purchase, ownership and disposition of our ADSs or ordinary shares. This
discussion does not address any aspect of U.S. federal gift or estate tax, or the state, local or
non-U.S. tax consequences of an investment in our ADSs and ordinary shares. This discussion applies
to you only if you beneficially own our ADSs or ordinary shares as capital assets for U.S. federal
income tax purposes. This discussion does not apply to U.S. Holders who are members of a class of
holders subject to special rules, such as:
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dealers in securities or currencies; |
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traders in securities that elect to use a mark-to-market method of accounting for
securities holdings; |
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banks or certain financial institutions; |
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insurance companies; |
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tax-exempt organizations; |
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partnerships or other entities treated as partnerships or other pass-through entities
for U.S. federal income tax purposes or persons holding ADSs or ordinary shares through any
such entities; |
74
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regulated investments companies or real estate investment trusts; |
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persons that hold ADSs or ordinary shares as part of a hedge, straddle, constructive
sale, conversion transaction or other integrated investment; |
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persons whose functional currency for tax purposes is not the U.S. dollar; |
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persons liable for alternative minimum tax; or |
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persons who actually or constructively own 10% or more of the total combined voting
power of all classes of our shares (including ADSs and ordinary shares) entitled to vote. |
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, which we refer
to in this discussion as the Code, its legislative history, existing and proposed regulations
promulgated thereunder, published rulings and court decisions, all as of the date hereof. These
laws are subject to change, possibly on a retroactive basis. In addition, this discussion relies on
our assumptions regarding the value of our ADSs and ordinary shares and the nature of our business
over time. Finally, this discussion is based in part upon the representation of the depositary and
the assumption that each obligation in the deposit agreement and any related agreement will be
performed in accordance with its terms.
Prospective purchasers are urged to consult their own tax advisor concerning the particular
U.S. federal income tax consequences to them of the purchase, ownership and disposition of our ADSs
and ordinary shares, as well as the consequences to them arising under the laws of any other taxing
jurisdiction.
For purposes of the U.S. federal income tax discussion below, you are a U.S. Holder if you
beneficially own ADSs or ordinary shares as capital assets within the meaning of Section 1221 of
the Code and are:
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a citizen or resident of the United States for U.S. federal income tax purposes; |
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a corporation, or other entity taxable as a corporation, that was created or organized
in or under the laws of the United States or any state thereof or the District of Columbia; |
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an estate the income of which is subject to U.S. federal income tax regardless of its
source; or |
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a trust if (a) a court within the United States is able to exercise primary supervision
over its administration and one or more U.S. persons have the authority to control all
substantial decisions of the trust, or (b) the trust has a valid election in effect to be
treated as a U.S. person. |
For U.S. federal income tax purposes, income earned through a U.S. or non-U.S. partnership or
other flow-through entity is attributed to its owners. Accordingly, if a partnership or other
flow-through entity holds ADSs or ordinary shares, the tax treatment of the holder will depend on
the status of the partner or other owner and the activities of the partnership or other
flow-through entity.
The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between
the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that
are inconsistent with the claiming of foreign tax credits for U.S. holders of ADSs. Such actions
would also be inconsistent with the claiming of the reduced rate of tax, as described below,
applicable to dividends received by certain non-corporate holders. Accordingly, the availability of
the reduced tax rate for dividends received by certain non-corporate holders could be affected by
actions taken by intermediaries in the chain of ownership between the holder of an ADS and our
company.
Dividends on ADSs or Ordinary Shares
Subject to the Passive Foreign Investment Company discussion below, if we make distributions
and you are a U.S. Holder, the gross amount of any distributions with respect to your ADSs or
ordinary shares (including the amount of any taxes withheld therefrom) will be includible in your
gross income on the day you actually or constructively receive such income as dividend income if
the distributions are made from our current or accumulated earnings and profits, calculated
according to U.S. federal income tax principles. With respect to non-corporate U.S. Holders,
certain dividends received in taxable years beginning before January 1, 2011 from a qualified foreign corporation may be subject to a reduced rate of taxation. A non-U.S.
corporation is treated as a qualified
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foreign corporation with respect to dividends from that
corporation on shares (or ADSs backed by such shares) that are readily tradable on an established
securities market in the United States. U.S. Treasury Department guidance indicates that our ADSs,
which are listed on the Nasdaq Global Market, but not our ordinary shares, will be readily tradable
on an established securities market in the United States. You should consult your own tax advisor
as to the rate of tax that will apply to you with respect to dividend distributions, if any, that
you receive from us.
Subject to the Passive Foreign Investment Company discussion below, to the extent, if any,
that the amount of any distribution by us on ADSs or ordinary shares exceeds our current and
accumulated earnings and profits as determined under U.S. federal income tax principles, it will be
treated first as a tax-free return of the U.S. Holders adjusted tax basis in the ADSs or ordinary
shares and thereafter as capital gain. However, we do not intend to calculate our earnings and
profits according to U.S. federal income tax principles. Accordingly, distributions on our ADSs or
ordinary shares, if any, will generally be reported to you as dividend distributions for U.S. tax
purposes. Corporations will not be entitled to claim a dividends-received deduction with respect to
distributions made by us. Dividends may constitute foreign source passive income for purposes of
the U.S. foreign tax credit rules. You should consult your own tax advisors as to your ability, and
the various limitations on your ability, to claim foreign tax credits in connection with the
receipt of dividends.
Sales and Other Dispositions of ADSs or Ordinary Shares
Subject to the Passive Foreign Investment Company discussion below, when you sell or
otherwise dispose of ADSs or ordinary shares, you will recognize capital gain or loss in an amount
equal to the difference between the amount realized on the sale or other disposition and your
adjusted tax basis in the ADSs or ordinary shares. Any such gain or losses that you recognize will
be treated as U.S. source income for foreign tax credit purposes. Your adjusted tax basis will
equal the amount you paid for the ADSs or ordinary shares. Any gain or loss you recognize will be
long-term capital gain or loss if your holding period in our ADSs or ordinary shares is more than
one year at the time of disposition. If you are a non-corporate U.S. Holder, including an
individual, any such long-term capital gain will be taxed at preferential rates (generally 15% for
capital gain recognized before January 1, 2011 and 20% thereafter). Your ability to deduct capital
losses will be subject to various limitations.
Passive Foreign Investment Company
We believe that we were not a passive foreign investment company, or PFIC, for U.S. federal
income tax purposes for our taxable year ended March 31, 2011, and we do not expect to be a PFIC in
any future taxable year. However, PFIC status is tested each year and depends on the composition of
our assets and income and the value of our assets from time to time. Since we currently hold, and
expect to continue to hold, a substantial amount of cash and other passive assets and, since the
value of our assets is to be determined in large part by reference to the market prices of our ADSs
and ordinary shares, which is likely to fluctuate over time, there can be no assurance that we will
not be a PFIC for any taxable year.
We will be classified as a PFIC in any taxable year if either: (a) the average quarterly value
of our gross assets that produce passive income or are held for the production of passive income is
at least 50% of the average quarterly value of our total gross assets or (b) 75% or more of our
gross income for the taxable year is passive income (such as certain dividends, interest or
royalties). For purposes of the first test: (a) any cash and cash invested in short-term, interest
bearing, debt instruments, or bank deposits that are readily convertible into cash will count as
producing passive income or held for the production of passive income, and (b) the total value of
our assets is calculated based on our market capitalization.
We will be treated as owning our proportionate share of the assets and earning our
proportionate share of the income of any other corporation in which we own, directly or indirectly,
at least 25% (by value) of the stock.
If we were a PFIC for any taxable year during which you held ADSs or ordinary shares, certain
adverse U.S. federal income tax rules would apply. You would be subject to additional taxes and
interest charges on certain excess distributions we make and on any gain realized on the
disposition or deemed disposition of your ADSs or ordinary shares, regardless of whether we
continue to be a PFIC in the year in which you receive an excess distribution or dispose of or
are deemed to dispose of your ADSs or ordinary shares. Distributions in respect of your ADSs or
ordinary shares during a taxable year would constitute excess distributions if, in the aggregate,
they exceed 125% of the average amount of distributions with respect to your ADSs or ordinary
shares over the three preceding taxable years or, if shorter, the portion of your holding period
before such taxable year.
To compute the tax on excess distributions or any gain, (a) the excess distribution or the
gain would be allocated ratably to each day in your holding period, (b) the amount allocated to the
current year and any tax year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income in the current year, (c) the amount allocated
to other taxable years would be
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taxable at the highest applicable marginal rate in effect for that
year, and (d) an interest charge at the rate for underpayment of taxes for any period described
under (c) above would be imposed with respect to any portion of the excess distribution or gain
that is allocated to such period. In addition, if we were a PFIC, no distribution that you receive
from us would qualify for taxation at the preferential rate discussed in the Dividends on ADSs
or Ordinary Shares section above.
Under certain attribution rules, if we are a PFIC, you will be deemed to own your
proportionate share of lower-tier PFICs, and will be subject to U.S. federal income tax on (a) a
distribution on the shares of a lower-tier PFIC and (b) a disposition of shares of a lower-tier
PFIC, both as if you directly held the shares of such lower-tier PFIC.
If we were a PFIC in any year, as a U.S. Holder, you would be required to make an annual
return on IRS Form 8621 regarding your ADSs and ordinary shares. You should consult with your own
tax advisor regarding reporting requirements with regard to your ADSs and ordinary shares.
If we were a PFIC in any year, you would generally be able to avoid the excess distribution
rules described above by making a timely so-called mark-to-market election with respect to your
ADSs provided our ADSs are marketable. Our ADSs will be marketable as long as they remain
regularly traded on a national securities exchange, such as the Nasdaq Global Market. If you made
this election in a timely fashion, you would recognize as ordinary income or ordinary loss the
difference between the fair market value of your ADSs on the first day of any taxable year and
their value on the last day of that taxable year. Any ordinary income resulting from this election
would be taxed at ordinary income rates and would not be eligible for the reduced rate of tax
applicable to qualified dividend income. Any ordinary losses would be limited to the extent of the
net amount of previously included income as a result of the mark-to-market election, if any. Your
basis in the ADSs would be adjusted to reflect any such income or loss. You should consult your own
tax advisor regarding potential advantages and disadvantages to you of making a mark-to-market
election with respect to your ADSs. The mark-to-market election will not be available for any lower
tier PFIC that is deemed owned pursuant to the attribution rules discussed above. We do not intend
to provide you with the information you would need to make or maintain a Qualified Electing Fund
election and therefore, you will not be able to make or maintain such an election with respect to
your ADSs or ordinary shares.
U.S. Information Reporting and Backup Withholding Rules
Dividend payments with respect to the ADSs or ordinary shares and the proceeds received on the
sale or other disposition of ADSs or ordinary shares may be subject to information reporting to the
IRS and to backup withholding (currently imposed at a rate of 28%). Backup withholding will not
apply, however, if you (a) are a corporation or come within certain other exempt categories and,
when required, can demonstrate that fact or (b) provide a taxpayer identification number, certify
as to no loss of exemption from backup withholding and otherwise comply with the applicable backup
withholding rules. To establish your status as an exempt person, you will be required to provide
certification on IRS Form W-9. Backup withholding is not an additional tax. The amount of any
backup withholding will generally be allowed as a refund or a credit against your U.S. federal
income tax liability, provided that you furnish the required information to the IRS.
PROSPECTIVE PURCHASERS OF OUR ADSS AND ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX ADVISOR
REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS
WELL AS ANY TAX CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF OUR ADSS AND
ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR
NON-US JURISDICTION AND INCLUDING ESTATE, GIFT AND INHERITANCE LAWS.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts.
Not applicable.
H. Documents on Display
We previously filed with the Securities and Exchange Commission our registration statement on
Form F-1 as amended.
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We have filed this annual report on Form 20-F with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended. Statements made in this annual report as to
the contents of any document referred to are not necessarily complete. With respect to each such
document filed as an exhibit to this annual report, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be deemed qualified in
its entirety by such reference.
We are subject to the informational requirements of the Exchange Act and file reports and
other information with the Securities and Exchange Commission. Reports and other information which
the Company filed with the Securities and Exchange Commission, including this annual report on Form
20-F, may be inspected and copied at the public reference room of the Securities and Exchange
Commission at 100 F Street, N.E. Washington D.C. 20549.
You can also obtain copies of this annual report on Form 20-F by mail from the Public
Reference Section of the Securities and Exchange Commission, 100 F Street, N.E., Washington D.C.
20549, at prescribed rates. Additionally, copies of this material may be obtained from the
Securities and Exchange Commissions Internet site at http://www.sec.gov. The Commissions
telephone number is 1-800-SEC-0330.
I. Subsidiaries Information
Not applicable.
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ITEM 11. |
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to interest rate risk primarily relates to interest income generated by excess
cash, which is mostly held in interest-bearing bank deposits. We have not used derivative financial
instruments in our investment portfolio. Interest-earning instruments carry a degree of interest
rate risk. We have not been exposed, nor do we anticipate being exposed, to material risks due to
changes in market interest rates. However, our future interest income may fall short of
expectations due to changes in market interest rates.
Foreign Currency Risk
Because substantially all of our revenues and expenditures are denominated in Renminbi,
fluctuations in the exchange rate between the U.S. dollar and Renminbi will affect our balance
sheet and earnings per share in U.S. dollars. In addition, appreciation or depreciation in the
value of the Renminbi relative to the U.S. dollar would affect our financial results reported in
U.S. dollar terms without giving effect to any underlying change in our business or results of
operations. Fluctuations in the exchange rate will also affect the relative value of any dividend
we issue that will be exchanged into U.S. dollars and earnings from and the value of any U.S.
dollar-denominated investments we make in the future.
The value of the Renminbi against the U.S. dollar and other currencies is affected by, among
other things, changes in Chinas political and economic conditions and Chinas foreign exchange
policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value
of the Renminbi to the U.S. dollar. However, the Peoples Bank of China regularly intervenes in the
foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals.
Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the
U.S. dollar over the following three years. Since reaching a high against the U.S. dollar in July
2008, however, the Renminbi has traded within a narrow range against the U.S. dollar. On June 19,
2010, the Peoples Bank of China announced the removal of the de facto peg. Following this
announcement, the Renminbi has appreciated modestly, from 6.7968 Renminbi per U.S. dollar on June
21, 2010 to 6.4801 Renminbi per U.S. dollar on June 10, 2011.
Very limited hedging transactions are available in China to reduce our exposure to exchange
rate fluctuations. To date, we have not entered into any hedging transactions in an effort to
reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging
transactions in the future, the availability and effectiveness of these hedging transactions may be
limited and we may not be able to successfully hedge our exposure at all. In addition, our currency
exchange losses may be magnified by Chinese exchange control regulations that restrict our ability
to convert Renminbi into foreign currency.
ATA Inc. and ATA BVIs functional currency is the U.S. dollar, which resulted in our exposure
to foreign currency exchange risk. Primarily as a result of the appreciation of the Renminbi
against the U.S. dollar, the translation of the net assets of ATA Inc. and ATA BVI to Renminbi
during consolidation resulted in translation loss of RMB5.8 million
($0.9 million) which we recognized
as a
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component of comprehensive loss as of March 31, 2011. If the Renminbi against U.S. dollar as
of March 31, 2011 had further appreciated by 10% from
6.5564 to 5.9604 as of March 31, 2011, the
translation loss would have increased by RMB 12.7 million
($1.9 million). Further, we recognized a
net foreign currency exchange gain of RMB1.1 million ($0.2
million ) as a result of the remeasurement of
the foreign currency denominated monetary assets and liabilities. If the Renminbi against U.S.
dollar as of March 31, 2011 had further appreciated by 10% from
6.5564 to 5.9604 as of March 31,
2011, the foreign currency exchange gain would have increased by RMB
12.0 million ($1.8 million).
Inflation
China has generally not experienced significant inflation in recent years. According to
Chinas National Bureau of Statistics, the change in Chinas consumer price index was 5.9%, -0.7%
and 3.3 % in the years 2008, 2009 and 2010, respectively. In April 2011, Chinas consumer price
index was 5.3%. Neither inflation nor deflation has
had a material impact on our results of operations to date, and we do not currently expect the
recent inflation in China to have a significant effect on our operations.
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ITEM 12. |
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DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Fees Payable by ADS Holders
Citibank, N.A., the depositary of our ADR program, collects its fees for issuance and
cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose
of withdrawal or from intermediaries acting for them. Such fees are typically paid to the
depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the
depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary
for cancellation. The brokers in turn charge these transaction fees to their clients. Depositary
fees payable in connection with distributions of cash or securities to ADS holders and the
depositary service fee are charged by the depositary to the holders of record of ADSs as of the
applicable ADS record date. In the case of cash distributions, the depositary fees are generally
deducted from the cash being distributed. In the case of distributions other than cash (e.g., stock
dividends, rights, etc.), the depositary charges the applicable fee to the ADS record date holders
concurrent with the distribution. In the case of ADSs registered in the name of the investor
(whether certificated or in DRS), the depositary sends invoices to the applicable record date ADS
holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary
generally collects its fees through the settlement systems provided by DTC (whose nominee is the
registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their
DTC accounts. The brokers and custodians who hold their clients ADSs in DTC accounts in turn
charge their clients accounts the amount of the fees paid to the depositary.
In the event of refusal to pay the depositary fees the depositary may, under the terms of the
deposit agreement, refuse the requested service until payment is received or may set off the amount
of the depositary fees from any distribution to be made to the ADS holder.
An ADS holder is required to pay the following service fees to the depositary:
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Service |
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Fees |
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Issuance of ADSs
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US$5.00 (or less)
per 100 ADSs (or
portion of 100 |
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Service |
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Fees |
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ADSs) issued |
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Cancellation of ADSs
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US$5.00 (or less)
per 100 ADSs (or
portion of 100
ADSs) issued |
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Distribution of cash dividends or other cash distributions
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US$2.00 (or less)
per 100 ADSs (or
portion of 100
ADSs) issued |
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Distribution of ADSs pursuant to stock dividends, free
stock distributions or exercise of rights
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US$5.00 (or less)
per 100 ADSs (or
portion of 100
ADSs) issued |
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Distribution of securities other than ADSs or rights to
purchase additional ADSs
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US$5.00 (or less)
per 100 ADSs (or
portion of 100
ADSs) issued |
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Depositary services
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US$2.00 (or less)
per 100 ADSs (or
portion of 100
ADSs) issued |
An ADS holder will also be responsible to pay certain fees and expenses incurred by the
depositary bank and certain taxes and governmental charges such as:
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taxes (including applicable interest and penalties) and other governmental charges; |
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such registration fees as may from time to time be in effect for the
registration of shares or other deposited securities on the share
register and applicable to transfers of shares or other deposited
securities to or from the name of the custodian, the depositary or any
nominees upon the making of deposits and withdrawals, respectively; |
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such cable, telex and facsimile transmission and delivery expenses as
are expressly provided in the deposit agreement to be at the expense
of the person depositing or withdrawing shares or holders and
beneficial owners of ADSs; |
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the expenses and charges incurred by the depositary in the conversion of foreign currency; |
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such fees and expenses as are incurred by the depositary in connection
with compliance with exchange control regulations and other regulatory
requirements applicable to shares, deposited Securities, ADSs and
ADRs; and |
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the fees and expenses incurred by the depositary, the custodian, or any nominee
in connection with the servicing or delivery of deposited securities. The fees and
charges an ADS holder may be required to pay may vary over time and may be changed by us
and by the depositary bank. ADS holders will receive prior notice of such changes. |
Fees and Other Payments Made by the Depositary to Us
As of
March 31, 2011, we received from our depositary a
reimbursement of US$817,308 for professional expenses incurred in connection with the advancement of our ADR and investor
relations programs.
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PART II.
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ITEM 13. |
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DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
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ITEM 14. |
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MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
The rights of securities holders have not been materially modified.
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ITEM 15. |
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CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, an evaluation has been carried out
under the supervision and with the participation of our management, including our chief executive
officer and our chief financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our
chief executive officer and chief financial officer have concluded that our disclosure controls and
procedures are effective in ensuring that material information required to be disclosed in this
annual report is recorded, processed, summarized and reported to them for assessment, and required
disclosure is made within the time period specified in the rules and forms of the Securities and
Exchange Commission.
Managements Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of
1934, as amended, for our company. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements in accordance with generally accepted accounting
principles and includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of a companys assets, (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of consolidated financial statements in accordance with generally accepted
accounting principles, and that a companys receipts and expenditures are being made only in
accordance with authorizations of a companys management and directors, and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of a companys assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can
provide only reasonable assurance with respect to consolidated financial statement preparation and
presentation and may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated
by the Securities and Exchange Commission, management assessed the effectiveness of our internal
control over financial reporting as of March 31, 2011 using criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Based on this assessment, management concluded that the internal control over financial
reporting was effective as of March 31, 2011 based on the criteria established in this Internal
Control-Integrated Framework .
KPMG, an independent registered public accounting firm, has audited the effectiveness of our
internal control over financial reporting as of March 31, 2011, as stated in their report which is
included below.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
ATA Inc.:
We have audited ATA Inc.s internal control over financial reporting as of March 31, 2011, based on
criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). ATA Inc.s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying
Managements Annual Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on ATA Inc.s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness
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of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A companys 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
companys 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 companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, ATA Inc. maintained, in all material respects, effective internal control over
financial reporting as of March 31, 2011, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of ATA Inc. and subsidiaries as of March 31,
2011 and 2010, and the related consolidated statements of operations, shareholders equity and
comprehensive income (loss), and cash flows for each of the years in the three-year period ended
March 31, 2011, and our report dated June 15, 2011 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG
Hong Kong, China
June 15, 2011
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during
the period covered by this annual report that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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ITEM 16A. |
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AUDIT COMMITTEE FINANCIAL EXPERT |
Our audit committee consists of Hope Ni and Alec Tsui. Hope Ni is the chairman of our audit
committee. Our board of directors has determined that Hope Ni and Alec Tsui are independent
directors within the meaning of Nasdaq Stock Market Rule 5605(a)(2) and meet the criteria for
independence set forth in Rule 10A-3(b) of the Exchange Act. Hope Ni meets the criteria of an audit
committee financial expert as set forth under the applicable rules of the SEC.
Our board of directors has adopted a code of ethics that is applicable to our senior executive
and financial officers. In addition, our board of directors adopted a code of conduct that is
applicable to all of our directors, officers and employees. Our code of ethics and our code of
conduct are publicly available on our web site, http://www.ata.net.cn.
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ITEM 16C. |
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PRINCIPAL ACCOUNTANT FEE AND SERVICES |
The following table sets forth the aggregate fees by categories specified below in connection
with certain professional services rendered by KPMG, our principal accountant, for the periods
indicated.
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|
|
|
Fiscal Year Ended March 31, |
|
|
2010 |
|
2011 |
|
2011 |
|
|
RMB |
|
RMB |
|
US$ |
Audit fees (1) |
|
|
5,012,215 |
|
|
|
4,376,850 |
|
|
|
668,395 |
|
Audit-related fees (2) |
|
|
1,691,580 |
|
|
|
1,275,452 |
|
|
|
194,776 |
|
Tax fees (3) |
|
|
60,000 |
|
|
|
324,211 |
|
|
|
49,511 |
|
|
|
|
(1) |
|
Audit fees means the aggregate fees billed or payable for professional services rendered by
our principal accountant for the audit of our consolidated financial statements. |
|
(2) |
|
Audit-related fees means the aggregate fees billed or payable for assurance and related
services by our principal accountant that are reasonably related to the performance of the
audit or review of our consolidated financial statements and are not reported under Audit
fees. Services comprising the fees disclosed under the category of Audit-related fees in
fiscal years 2010 and 2011 involve principally the agreed-upon procedures in connection with
our quarterly financial information. |
|
(3) |
|
Tax fees means the aggregate fees billed or payable for services rendered by our principal
accountant for tax compliance and tax advice. |
The audit committee or our board of directors is to pre-approve all auditing services and
permitted non-audit services to be performed for us by our independent registered public accounting
firm, including the fees and terms thereof (subject to the de minimums exceptions for non-audit
services described in Section 10A(i)(l)(B) of the Exchange Act which are approved by the audit
committee or our board of directors prior to the completion of the audit).
|
|
|
ITEM 16D. |
|
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
None.
|
|
|
ITEM 16E. |
|
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
On February 12, 2010, we announced a share repurchase plan. Under the plan, we are approved to
repurchase up to US$5.0 million worth of our outstanding ADSs from time to time through March
31, 2011. However, there were no repurchases during the fiscal year ended March 31, 2011.
|
|
|
ITEM 16F. |
|
CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT |
Not applicable.
|
|
|
ITEM 16G. |
|
CORPORATE GOVERNANCE |
As a foreign private issuer with shares listed on the Nasdaq Global Market we are subject to
corporate governance requirements imposed by Nasdaq. Under Nasdaq Stock Market Rule 5615(a)(3), a
foreign private issuer such as us may follow its home-country corporate governance practices in
lieu of certain of the Nasdaq Stock Market Rules corporate governance requirements. We are
committed to a high standard of corporate governance. As such, we strive to comply with most of the
Nasdaq corporate governance practices. However, our current corporate governance practices differ
from Nasdaq corporate governance requirements for U.S. companies in certain respects, as summarized
below:
|
|
|
Nasdaq Stock Market Rule 5605(c)(2) requires a Nasdaq listed company to have an audit
committee composed of at least three independent members. In this regard we have elected to
adopt the practices of our home country, the Cayman Islands, which does not require us to
have a three member audit committee or to fill all three seats on the audit committee at
this time. |
|
|
|
|
Nasdaq Stock Market Rule 5605(e)(1) requires a Nasdaq listed company to have a
nominations committee composed solely of independent directors to select or recommend for
selection director nominees. In this regard we have elected to adopt the practices of our
home country, the Cayman Islands, which does not require that any of the members of a
companys nominations committee be independent directors. |
|
|
|
|
Nasdaq Stock Market Rule 5635(c) requires a Nasdaq-listed company to obtain shareholder
approval for the establishment of or material amendments to equity compensation plans. As
a foreign private issuer, however, we may adopt the practices of our home country, the
Cayman Island, which do not require shareholder approval for establishment or material
amendments to equity compensation plans. Neither the 2005 Plan nor the 2008 Plan require
shareholder approval for material amendments to the plan or awards granted under the plan,
including without limitation increasing the number of share awards that may be issued under
the plan or the repricing of outstanding options. |
83
PART III.
|
|
|
ITEM 17. |
|
FINANCIAL STATEMENTS |
Not Applicable.
|
|
|
ITEM 18. |
|
FINANCIAL STATEMENTS |
Our consolidated financial statements are included at the end of this annual report.
Index to Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
1.1
|
|
Third Amended and Restated Memorandum and Articles of Association of the Registrant.* |
|
|
|
2.1
|
|
Form of Common Share Certificate.* |
|
|
|
2.2
|
|
Form of Deposit Agreement between the Registrant and Citibank, N.A., as depositary. (1) |
|
|
|
2.3
|
|
Form of American depositary receipt evidencing American depositary shares (included in Exhibit 2.2).* |
|
|
|
2.4
|
|
Shareholders Agreement, dated November 10, 2006, among the Registrant and its shareholders party
thereto.* |
|
|
|
4.1
|
|
2005 Share Incentive Plan of ATA Testing Authority (Holdings) Limited.* |
|
|
|
4.2
|
|
2008 Employee Share Incentive Plan of the Registrant and form of ISO Option Agreement and NQSO
Option Agreement.* |
|
|
|
4.3
|
|
Form of Indemnification Agreement between the Registrant and its directors.* |
|
|
|
4.4
|
|
Technical Support Agreement between ATA Online (Beijing) Education Technology Limited and ATA
Learning (Beijing) Inc., dated October 27, 2006.* |
|
|
|
4.5
|
|
Strategic Consulting Service Agreement between ATA Online (Beijing) Education Technology Limited and
ATA Learning (Beijing) Inc., dated October 27, 2006.* |
|
|
|
4.6
|
|
Loan Agreement between ATA Testing Authority (Holdings) Limited and Xiaofeng Ma, dated October 27,
2006, which was amended on February 12, 2007.* |
|
|
|
4.6.1
|
|
Amendment to Loan Agreement between ATA Testing Authority (Holdings) Limited and Xiaofeng Ma, dated
July 7, 2009** |
|
|
|
4.7
|
|
Loan Agreement between ATA Testing Authority (Holdings) Limited and Lin Wang, dated October 27,
2006, which was amended on February 12, 2007.* |
|
|
|
4.7.1
|
|
Amendment to Loan Agreement between ATA Testing Authority (Holdings) Limited and Lin Wang, dated |
84
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
July 7, 2009** |
|
|
|
4.8
|
|
Call Option and Cooperation Agreement among ATA Testing Authority (Holdings) Limited, Xiaofeng Ma,
Lin Wang, Jianguo Wang and ATA Online (Beijing) Education Technology Limited, dated October 27,
2006.* |
|
|
|
4.9
|
|
Framework Agreement for Option Right Exercise among ATA Testing Authority (Holdings) Limited, Lin
Wang, Jianguo Wang, ATA Online (Beijing) Education Technology Limited and ATA Learning (Beijing)
Inc., dated February 12, 2007.* |
|
|
|
4.10
|
|
Option Exercise Notice between ATA Testing Authority (Holdings) Limited and Jianguo Wang, dated
February 12, 2007.* |
|
|
|
4.11
|
|
Call Option and Cooperation Agreement among ATA Testing Authority (Holdings) Limited, Xiaofeng Ma,
Lin Wang and ATA Online (Beijing) Education Technology Limited, dated February 12, 2007.* |
|
|
|
4.12
|
|
Equity Pledge Agreement among Xiaofeng Ma, Lin Wang and ATA Learning (Beijing) Inc., dated February
12, 2007.* |
|
|
|
4.13
|
|
Extended Control Agreement among Xiaofeng Ma, Lin Wang, ATA Online (Beijing) Education Technology
Limited, ATA Learning (Beijing) Inc., and ATA Testing Authority (Holdings) Limited, amending the
Technical Support Agreement (Exhibit 4.5), the Strategic Consulting Service Agreement (Exhibit 4.6),
the Call Option and Cooperation Agreement (Exhibit 4.12), and the Equity Pledge Agreement (4.13),
dated July 7, 2009. ** |
|
|
|
4.14
|
|
Testing Service Agreement between ATA Testing Authority (Beijing) Limited and Securities Association
of China, dated September 27, 2006.*** |
|
|
|
4.15
|
|
Service Agreement for 2011 Securities Practitioner Qualification Exams between ATA Testing Authority
(Beijing) Limited and Securities Association of China, date June 8, 2011. |
|
|
|
8.1
|
|
List of Subsidiaries.*** |
|
|
|
11.1
|
|
Code of Conduct.* |
|
|
|
12.1
|
|
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
12.2
|
|
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. |
|
|
|
23.1
|
|
Consent of KPMG. |
|
|
|
23.2
|
|
Consent of Jones Lang LaSalle Sallmanns Limited |
|
|
|
23.3
|
|
Consent of Jincheng Tongda & Neal Law Firm |
|
|
|
* |
|
Previously filed with the Registrants registration statement on Form F-1 (File No. 333-148512),
as amended. |
|
** |
|
Previously filed with the Registrants annual report on Form 20-F, filed with the SEC on
September 15, 2009. |
|
*** |
|
Previously filed with the Registrants annual report on
Form 20-F, filed with the SEC on July 7, 2010. |
|
|
|
Confidential treatment has been requested for portions of this exhibit. |
|
(1) |
|
Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-148641)
filed with the Securities and Exchange Commission with respect to American depositary shares
representing our common shares. |
85
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.
|
|
|
|
|
|
ATA INC.
|
|
|
/s/ Benson Tsang
|
|
|
Name: |
Benson Tsang |
|
|
Title: |
Chief Financial Officer |
|
|
Date: June 15, 2011
S-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
ATA Inc.:
We have audited the accompanying consolidated balance sheets of ATA Inc. and subsidiaries as of
March 31, 2011 and 2010, and the related consolidated statements of operations, shareholders
equity and comprehensive income (loss), and cash flows for each of the years in the three-year
period ended March 31, 2011. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the auditing standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of ATA Inc. and subsidiaries as of March 31, 2011 and
2010, and the results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 2011, in conformity with U.S. generally accepted accounting
principles.
The accompanying consolidated financial statements as of and for the year ended March 31, 2011 have
been translated into United States dollars solely for the convenience of the reader. We have
audited the translation and, in our opinion, such financial statements expressed in Renminbi have
been translated into United States dollars on the basis set forth in Note 2(d) to the consolidated
financial statements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), ATA Inc.s internal control over financial reporting as of March 31, 2011,
based on criteria established in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 15, 2011
expressed an unqualified opinion on the effectiveness of the Companys internal control over
financial reporting.
/s/ KPMG
Hong Kong, China
June 15, 2011
F-1
ATA INC.
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
Note |
|
|
2010 |
|
|
2011 |
|
|
2011 |
|
|
|
|
|
|
|
RMB |
|
|
RMB |
|
|
USD |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
213,874,252 |
|
|
|
268,058,194 |
|
|
|
40,935,540 |
|
Accounts receivable, net |
|
|
(4 |
) |
|
|
82,900,060 |
|
|
|
47,051,596 |
|
|
|
7,185,315 |
|
Inventories |
|
|
|
|
|
|
2,115,220 |
|
|
|
344,909 |
|
|
|
52,671 |
|
Prepaid expenses and other current assets |
|
|
(5 |
) |
|
|
10,184,165 |
|
|
|
10,036,345 |
|
|
|
1,532,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
309,073,697 |
|
|
|
325,491,044 |
|
|
|
49,706,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
(6 |
) |
|
|
70,328,064 |
|
|
|
63,040,178 |
|
|
|
9,626,953 |
|
Goodwill |
|
|
|
|
|
|
23,422,850 |
|
|
|
23,422,850 |
|
|
|
3,576,936 |
|
Intangible assets, net |
|
|
(7 |
) |
|
|
23,206,591 |
|
|
|
20,356,104 |
|
|
|
3,108,609 |
|
Other assets |
|
|
|
|
|
|
2,471,898 |
|
|
|
3,136,860 |
|
|
|
479,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
428,503,100 |
|
|
|
435,447,036 |
|
|
|
66,497,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other payables |
|
|
(8 |
) |
|
|
52,385,674 |
|
|
|
48,346,969 |
|
|
|
7,383,133 |
|
Deferred revenues |
|
|
(9 |
) |
|
|
25,837,229 |
|
|
|
19,100,619 |
|
|
|
2,916,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
78,222,903 |
|
|
|
67,447,588 |
|
|
|
10,300,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenues |
|
|
(9 |
) |
|
|
4,673,805 |
|
|
|
3,823,601 |
|
|
|
583,907 |
|
Deferred income tax liabilities |
|
|
(11 |
) |
|
|
131,524 |
|
|
|
112,847 |
|
|
|
17,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
83,028,232 |
|
|
|
71,384,036 |
|
|
|
10,901,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par value: USD0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized: 500,000,000 shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding: 44,441,762 and
44,596,416 shares as of March 31, 2010 and
2011, respectively |
|
|
(13 |
) |
|
|
3,418,709 |
|
|
|
3,428,840 |
|
|
|
523,623 |
|
Receivable from shareholders |
|
|
(12 |
) |
|
|
|
|
|
|
(1,035,796 |
) |
|
|
(158,178 |
) |
Additional paid-in capital |
|
|
(13 |
) |
|
|
485,907,507 |
|
|
|
491,585,143 |
|
|
|
75,070,651 |
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
(16,399,334 |
) |
|
|
(22,217,189 |
) |
|
|
(3,392,818 |
) |
Accumulated deficit |
|
|
|
|
|
|
(127,452,014 |
) |
|
|
(107,697,998 |
) |
|
|
(16,446,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
|
|
|
|
345,474,868 |
|
|
|
364,063,000 |
|
|
|
55,596,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
|
|
|
|
|
428,503,100 |
|
|
|
435,447,036 |
|
|
|
66,497,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 2
ATA INC.
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
Note |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2011 |
|
|
|
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
USD |
|
Net revenues |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
16,070,049 |
|
|
|
2,811,626 |
|
|
|
478,468 |
|
|
|
73,068 |
|
Service |
|
|
|
|
|
|
201,475,254 |
|
|
|
242,219,917 |
|
|
|
303,425,343 |
|
|
|
46,336,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
|
|
|
|
|
217,545,303 |
|
|
|
245,031,543 |
|
|
|
303,903,811 |
|
|
|
46,409,574 |
|
Cost of revenues |
|
|
|
|
|
|
92,608,631 |
|
|
|
129,535,003 |
|
|
|
149,216,172 |
|
|
|
22,787,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
124,936,672 |
|
|
|
115,496,540 |
|
|
|
154,687,639 |
|
|
|
23,622,565 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
16,240,618 |
|
|
|
22,708,310 |
|
|
|
22,756,340 |
|
|
|
3,475,152 |
|
Sales and marketing |
|
|
|
|
|
|
24,921,910 |
|
|
|
38,951,021 |
|
|
|
54,382,019 |
|
|
|
8,304,754 |
|
General and administrative |
|
|
|
|
|
|
47,554,682 |
|
|
|
56,839,498 |
|
|
|
54,421,441 |
|
|
|
8,310,774 |
|
Provision for doubtful accounts |
|
|
|
|
|
|
9,831,940 |
|
|
|
27,052,862 |
|
|
|
2,235,627 |
|
|
|
341,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
98,549,150 |
|
|
|
145,551,691 |
|
|
|
133,795,427 |
|
|
|
20,432,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
|
|
|
|
26,387,522 |
|
|
|
(30,055,151
|
) |
|
|
20,892,212 |
|
|
|
3,190,479 |
|
Interest income |
|
|
|
|
|
|
395,108 |
|
|
|
731,181 |
|
|
|
1,035,607 |
|
|
|
158,149 |
|
Subsidy income |
|
|
|
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange gains (losses), net |
|
|
|
|
|
|
665,558 |
|
|
|
(283,875 |
) |
|
|
1,138,484 |
|
|
|
173,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
|
|
|
|
|
29,448,188 |
|
|
|
(29,607,845
|
) |
|
|
23,066,303 |
|
|
|
3,522,487 |
|
Income tax expense |
|
|
(11 |
) |
|
|
6,637,973 |
|
|
|
5,742,146 |
|
|
|
3,312,287 |
|
|
|
505,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
22,810,215 |
|
|
|
(35,349,991
|
) |
|
|
19,754,016 |
|
|
|
3,016,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
|
(16 |
) |
|
|
0.50 |
|
|
|
(0.79 |
) |
|
|
0.44 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share |
|
|
(16 |
) |
|
|
0.49 |
|
|
|
(0.79 |
) |
|
|
0.44 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 3
ATA INC.
Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares |
|
|
|
|
|
|
Receivable |
|
|
Additional |
|
|
other |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
Treasury |
|
|
from |
|
|
paid-in |
|
|
comprehensive |
|
|
Accumulated |
|
|
shareholders |
|
|
Comprehensive |
|
|
Comprehensive |
|
|
|
of |
|
|
Amount |
|
|
shares |
|
|
shareholders |
|
|
capital |
|
|
loss |
|
|
deficit |
|
|
equity |
|
|
income (loss) |
|
|
income (loss) |
|
|
|
shares |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
USD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2008 |
|
|
47,210,232 |
|
|
|
3,656,210 |
|
|
|
(16,106,940 |
) |
|
|
|
|
|
|
498,374,024 |
|
|
|
(7,933,512 |
) |
|
|
(114,912,238 |
) |
|
|
363,077,544 |
|
|
|
|
|
|
|
|
|
Retirement of treasury shares (Note 13) |
|
|
(3,579,327 |
) |
|
|
(295,799 |
) |
|
|
16,106,940 |
|
|
|
|
|
|
|
(15,811,141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,242,549 |
|
|
|
|
|
|
|
|
|
|
|
5,242,549 |
|
|
|
|
|
|
|
|
|
Share-based compensation for share
options modified (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
354,980 |
|
|
|
|
|
|
|
|
|
|
|
354,980 |
|
|
|
|
|
|
|
|
|
Repurchase of common shares (Note 13) |
|
|
|
|
|
|
|
|
|
|
(10,126,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,126,861 |
) |
|
|
|
|
|
|
|
|
Exercise of common share option and
warrant and issuance of common shares
(Note 13) |
|
|
2,044,609 |
|
|
|
143,208 |
|
|
|
|
|
|
|
(5,226,173 |
) |
|
|
11,836,255 |
|
|
|
|
|
|
|
|
|
|
|
6,753,290 |
|
|
|
|
|
|
|
|
|
Modification of warrant grant to JDX
sellers (Note 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353,401 |
|
|
|
|
|
|
|
|
|
|
|
353,401 |
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,810,215 |
|
|
|
22,810,215 |
|
|
|
22,810,215 |
|
|
|
|
|
Foreign currency translation
adjustment, net of nil tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,224,334 |
) |
|
|
|
|
|
|
(8,224,334 |
) |
|
|
(8,224,334 |
) |
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,585,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2009 |
|
|
45,675,514 |
|
|
|
3,503,619 |
|
|
|
(10,126,861 |
) |
|
|
(5,226,173 |
) |
|
|
500,350,068 |
|
|
|
(16,157,846 |
) |
|
|
(92,102,023 |
) |
|
|
380,240,784 |
|
|
|
|
|
|
|
|
|
Share-based compensation (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,424,538 |
|
|
|
|
|
|
|
|
|
|
|
4,424,538 |
|
|
|
|
|
|
|
|
|
Share-based compensation for share
options modified (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
869,859 |
|
|
|
|
|
|
|
|
|
|
|
869,859 |
|
|
|
|
|
|
|
|
|
Share-based compensation for shares
transferred from a principal
shareholder to an officer (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,201,321 |
|
|
|
|
|
|
|
|
|
|
|
2,201,321 |
|
|
|
|
|
|
|
|
|
Repurchase of common shares (Note 13) |
|
|
|
|
|
|
|
|
|
|
(11,896,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,896,328 |
) |
|
|
|
|
|
|
|
|
Repayment from shareholders (Note 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,226,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,226,173 |
|
|
|
|
|
|
|
|
|
Retirement of treasury shares (Note 13) |
|
|
(1,233,752 |
) |
|
|
(84,910 |
) |
|
|
22,023,189 |
|
|
|
|
|
|
|
(21,938,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,349,991 |
) |
|
|
(35,349,991 |
) |
|
|
(35,349,991 |
) |
|
|
|
|
Foreign currency translation
adjustment, net of nil tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(241,488 |
) |
|
|
|
|
|
|
(241,488 |
) |
|
|
(241,488 |
) |
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,591,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2010 |
|
|
44,441,762 |
|
|
|
3,418,709 |
|
|
|
|
|
|
|
|
|
|
|
485,907,507 |
|
|
|
(16,399,334 |
) |
|
|
(127,452,014 |
) |
|
|
345,474,868 |
|
|
|
|
|
|
|
|
|
Share-based compensation (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,651,971 |
|
|
|
|
|
|
|
|
|
|
|
4,651,971 |
|
|
|
|
|
|
|
|
|
Exercise of common share option and
issuance of common shares (Note 13) |
|
|
154,654 |
|
|
|
10,131 |
|
|
|
|
|
|
|
(1,035,796 |
) |
|
|
1,025,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,754,016 |
|
|
|
19,754,016 |
|
|
|
19,754,016 |
|
|
|
|
|
Foreign currency translation
adjustment, net of nil tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,817,855 |
) |
|
|
|
|
|
|
(5,817,855 |
) |
|
|
(5,817,855 |
) |
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,936,161 |
|
|
|
2,128,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2011 |
|
|
44,596,416 |
|
|
|
3,428,840 |
|
|
|
|
|
|
|
(1,035,796 |
) |
|
|
491,585,143 |
|
|
|
(22,217,189 |
) |
|
|
(107,697,998 |
) |
|
|
364,063,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2011-USD |
|
|
|
|
|
|
523,623 |
|
|
|
|
|
|
|
(158,178 |
) |
|
|
75,070,651 |
|
|
|
(3,392,818 |
) |
|
|
(16,446,711 |
) |
|
|
55,596,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 4
ATA INC.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
USD |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
22,810,215 |
|
|
|
(35,349,991 |
) |
|
|
19,754,016 |
|
|
|
3,016,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized foreign currency exchange loss (gain) |
|
|
(685,420 |
) |
|
|
89,294 |
|
|
|
(1,778,813 |
) |
|
|
(271,645 |
) |
Provision for doubtful accounts |
|
|
9,831,940 |
|
|
|
27,052,862 |
|
|
|
2,235,626 |
|
|
|
341,406 |
|
Write-off of prepayments |
|
|
|
|
|
|
5,478,250 |
|
|
|
|
|
|
|
|
|
Write-down of inventories |
|
|
253,820 |
|
|
|
85,897 |
|
|
|
2,033,211 |
|
|
|
310,494 |
|
Depreciation and amortization |
|
|
5,206,412 |
|
|
|
12,750,481 |
|
|
|
13,635,561 |
|
|
|
2,082,305 |
|
Loss from disposal of property and equipment |
|
|
36,752 |
|
|
|
|
|
|
|
125,893 |
|
|
|
19,226 |
|
Share-based compensation |
|
|
5,597,529 |
|
|
|
7,495,718 |
|
|
|
4,651,971 |
|
|
|
710,409 |
|
Deferred income tax benefit |
|
|
(2,248,715 |
) |
|
|
(287,906 |
) |
|
|
(3,891,524 |
) |
|
|
(594,280 |
) |
Changes in operating assets and liabilities net of
effect of an acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(13,408,126 |
) |
|
|
(38,876,128 |
) |
|
|
33,330,718 |
|
|
|
5,089,980 |
|
Income tax payable (receivable) |
|
|
32,769 |
|
|
|
(3,789,803 |
) |
|
|
2,276,045 |
|
|
|
347,578 |
|
Inventories |
|
|
410,886 |
|
|
|
86,143 |
|
|
|
(262,900 |
) |
|
|
(40,148 |
) |
Prepaid expenses and other current assets |
|
|
(1,179,349 |
) |
|
|
1,200,882 |
|
|
|
1,149,849 |
|
|
|
175,595 |
|
Other assets |
|
|
|
|
|
|
(326,147 |
) |
|
|
|
|
|
|
|
|
Accrued expenses and other payables |
|
|
5,223,517 |
|
|
|
11,778,603 |
|
|
|
(3,856,480 |
) |
|
|
(588,928 |
) |
Deferred revenues |
|
|
(344,078 |
) |
|
|
(15,353,375 |
) |
|
|
(7,304,694 |
) |
|
|
(1,115,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
31,538,152 |
|
|
|
(27,965,220
|
) |
|
|
62,098,479 |
|
|
|
9,483,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for property and equipment |
|
|
(34,687,939 |
) |
|
|
(59,357,111 |
) |
|
|
(3,875,495 |
) |
|
|
(591,832 |
) |
Payment for JDX acquisition |
|
|
(365,434 |
) |
|
|
(2,305,553 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(35,053,373 |
) |
|
|
(61,662,664 |
) |
|
|
(3,875,495 |
) |
|
|
(591,832 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares |
|
|
1,031,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for initial public offering costs |
|
|
(1,544,180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for repurchase of common shares |
|
|
(10,126,861 |
) |
|
|
(11,896,328 |
) |
|
|
|
|
|
|
|
|
Collection of receivable from shareholders |
|
|
|
|
|
|
5,226,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(10,639,466 |
) |
|
|
(6,670,155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 5
ATA INC.
Consolidated Statements of Cash Flows (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
USD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes
on cash |
|
|
(7,538,914 |
) |
|
|
(330,780 |
) |
|
|
(4,039,042 |
) |
|
|
(616,807 |
) |
Net increase(decrease) in cash |
|
|
(21,693,601 |
) |
|
|
(96,628,819 |
) |
|
|
54,183,942 |
|
|
|
8,274,506 |
|
Cash at beginning of year |
|
|
332,196,672 |
|
|
|
310,503,071 |
|
|
|
213,874,252 |
|
|
|
32,661,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year |
|
|
310,503,071 |
|
|
|
213,874,252 |
|
|
|
268,058,194 |
|
|
|
40,935,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow
information : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for income tax |
|
|
8,853,919 |
|
|
|
9,819,855 |
|
|
|
4,927,766 |
|
|
|
752,526 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition purchase price payable |
|
|
2,305,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment included
in accounts payable |
|
|
1,028,600 |
|
|
|
574,892 |
|
|
|
322,477 |
|
|
|
49,246 |
|
Deposit included in other assets applied to
the acquisition of property and equipment |
|
|
|
|
|
|
400,000 |
|
|
|
|
|
|
|
|
|
Exercise of warrants in exchange for the
purchase price consideration |
|
|
4,660,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of share options paid by employee loan |
|
|
5,226,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant issued for acquisition |
|
|
353,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable from shareholders for exercise of
common share options |
|
|
|
|
|
|
|
|
|
|
1,035,796 |
|
|
|
158,178 |
|
See accompanying notes to consolidated financial statements.
F - 6
ATA INC.
Notes to the Consolidated Financial Statements
|
|
|
(1) |
|
DESCRIPTION OF BUSINESS, ORGANIZATION AND SIGNIFICANT CONCENTRATIONS AND
RISKS |
|
|
Description of Business and Organization |
|
|
|
ATA Inc. (the Company), through its wholly-owned subsidiaries, ATA
Testing Authority (Holdings) Limited (ATA BVI), ATA Testing Authority
(Beijing) Limited (ATA Testing), Beijing JinDiXin Software Technology
Limited (Beijing JDX), ATA Learning (Beijing) Inc. (ATA Learning),
ATA Learning (Wuxi) Inc. (ATA Wuxi) and its consolidated variable
interest entity (VIE), ATA Online (Beijing) Education Technology
Limited (ATA Online) (collectively, referred to as the Group),
provides computer-based testing services, test-based educational
services, test preparation and training solutions and other related
services in the Peoples Republic of China (the PRC). |
|
|
Significant Concentrations and Risks |
|
|
|
The Group is subject to the following significant concentration and risks: |
|
|
|
Country risk |
|
|
|
The Group is subject to special considerations and risks associated with
the PRC. These include risks associated with, among others, the
political, economic, legal and social environment in the PRC, including
the relative difficulty of protecting and enforcing intellectual property
rights in the PRC. The interpretation and application of current or
proposed requirements and regulations may have an adverse effect on the
Groups business, financial condition and results of operations. In
addition, the ability to negotiate and implement specific business
development projects in a timely and favorable manner may be impacted by
political considerations unrelated to or beyond the control of the Group.
Although the PRC government has been pursuing economic reform policies
for almost three decades, no assurance can be given that the PRC
government will continue to pursue such policies or that such policies
may not be significantly altered. Any change in PRC government policies
and regulations affecting the education and testing service industry may
have a negative impact on the Groups operating results and financial
condition. |
F - 7
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
Revenue concentration |
|
|
|
For the years ended March 31, 2009, 2010 and 2011,
RMB157.3 million, RMB157.0 million and RMB209.3 million,
representing 72.3%, 64.1% and 68.9% of the Groups net
revenues, respectively, were generated from service fees
from Chinese government controlled entities including
governmental agencies, educational institutions and
industry associations controlled by the PRC government.
The demand for the Groups products and services by these
agencies, institutions and associations are affected by
government budgetary cycles, funding availability and
government policies. Funding reductions, reallocations or
delays could adversely impact demand for the Groups
products and services or reduce the fees these customers
are willing to pay for the Groups products and services. |
|
|
|
Net revenues from customers that individually exceeded
10% of the Groups net revenues are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
2009 |
|
2010 |
|
2011 |
|
|
RMB |
|
|
% |
|
|
RMB |
|
|
% |
|
|
RMB |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Association of China
|
|
|
56,948,972 |
|
|
|
26.2 |
% |
|
|
82,242,555 |
|
|
|
33.6 |
% |
|
|
115,742,065 |
|
|
|
38.1 |
% |
China Banking Association
|
|
|
53,889,864 |
|
|
|
24.8 |
% |
|
|
49,453,256 |
|
|
|
20.2 |
% |
|
|
51,681,348 |
|
|
|
17.0 |
% |
|
|
Accounts receivable from customers, net, that individually exceeded 10% of the
Groups accounts receivable are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
2010 |
|
2011 |
|
|
RMB |
|
|
% |
|
|
RMB |
|
|
% |
|
Securities Association of China
|
|
|
53,598,003 |
|
|
|
64.7 |
% |
|
|
27,068,913 |
|
|
|
57.5 |
% |
|
|
Concentration of cash balances held at financial institutions |
|
|
|
Cash balances include deposits in: |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
Financial institutions in the mainland of the PRC |
|
|
|
|
|
|
|
|
Denominated in Renminbi (RMB)
|
|
|
52,674,929 |
|
|
|
151,227,768 |
|
Denominated in United Stated Dollars (USD)
|
|
|
32,207,082 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cash balances held at mainland PRC financial institutions
|
|
|
84,882,011 |
|
|
|
151,227,768 |
|
|
|
|
|
|
|
|
|
|
Financial institutions in HKSAR of the PRC |
|
|
|
|
|
|
|
|
Denominated in RMB
|
|
|
|
|
|
|
112,427,149 |
|
Denominated in Hong Kong Dollar
|
|
|
812,940 |
|
|
|
13,799 |
|
Denominated in USD
|
|
|
128,172,711 |
|
|
|
4,377,746 |
|
|
|
|
|
|
|
|
Total cash balances held at HKSAR financial institutions
|
|
|
128,985,651 |
|
|
|
116,818,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash balances held at financial institutions
|
|
|
213,867,662 |
|
|
|
268,046,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management believes these financial institutions have high credit ratings.
Cash denominated in currencies other than functional currency is
subject to foreign currency risk due to the appreciation or depreciation of
the RMB under the current exchange rate regime in the PRC and Hong Kong
Special Administrative Region (HKSAR). |
F - 8
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
|
(2) |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
(a) |
|
Principles of consolidation |
|
|
The consolidated financial statements include the
financial statements of the Company, its subsidiaries and
VIE which the Group is the primary beneficiary. All
significant intercompany balances and transactions have
been eliminated upon consolidation. |
|
|
|
(b) |
|
Basis of presentation |
|
|
The accompanying consolidated financial
statements have been prepared in
accordance with accounting principles
generally accepted in the United States
of America (U.S. GAAP). |
|
|
The preparation of financial statements
in conformity with U.S. GAAP requires
management of the Group to make estimates
and assumptions that affect the reported
amounts of assets and liabilities and the
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the
reporting period. Such estimates include
the fair values of share-based payments,
the fair values of the net assets and
liabilities acquired in a business
combination, the collectibility of
accounts receivable, the realizability of
deferred income tax assets, the useful
lives and residual values of long-lived
assets, the recoverability of the
carrying values of long-lived assets and
goodwill, realizable value of inventories
and with respect to revenue recognition,
the expected service period for course
programs and the expected licensing
period for perpetual license. Actual
results could differ from those
estimates. |
F - 9
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
|
(d) |
|
Foreign currency translation and risks |
|
|
The accompanying consolidated
financial statements have been
expressed in RMB, the Companys
reporting currency. |
|
|
|
The Company and ATA BVIs functional
currency is the USD. The functional
currency of the Companys PRC
subsidiaries is the RMB. |
|
|
|
Transactions denominated in
currencies other than the functional
currency are translated into the
functional currency at the exchange
rates prevailing at the dates of the
transaction. Monetary assets and
liabilities denominated in foreign
currencies are translated into the
functional currency using the
applicable exchange rates at the
balance sheet dates. The resulting
foreign exchange gains and losses are
included in the consolidated
statements of operations in the line
item Foreign currency exchange gains
(losses), net. |
|
|
|
Assets and liabilities of the Company
and ATA BVI are translated into RMB
using the applicable exchange rate at
each balance sheet date. Revenues and
expenses are translated into RMB at
average rates prevailing during the
year. The resulting foreign currency
translation adjustments are
recognized as a separate component of
accumulated other comprehensive
income (loss) within shareholders
equity. |
|
|
|
For the convenience of the readers,
the 2011 RMB amounts included in the
accompanying consolidated financial
statements have been translated into
USD at the rate of USD1.00 =
RMB6.5483, the noon buying rate in
New York cable transfers of RMB per
USD as set forth in the H.10 weekly
statistical release of Federal
Reserve Board, as of March 31, 2011.
No representation is made that the
RMB amounts could have been, or could
be, converted into USD at that rate
or at any other rate on March 31,
2011. |
|
|
|
(e) |
|
Commitments and contingencies |
|
|
In the normal course of business, the
Group is subject to contingencies,
such as legal proceedings and claims
that cover a wide range of matters.
Liabilities for such contingencies
are recorded when it is probable that
a liability has been incurred and the
amount of the assessment can be
reasonably estimated. |
|
|
|
(f) |
|
Fair value measurements |
|
|
The Group utilizes valuation techniques that maximize
the use of observable inputs and minimize
the use of unobservable inputs to the extent
possible. The Group determines fair value based on
assumptions that market participants would use in
pricing an asset or liability in the principal or
most advantageous market. When considering market
participant assumptions in fair value measurements,
the following fair value hierarchy distinguishes
between observable and unobservable inputs, which are
categorized in one of the following levels: |
|
|
|
Level 1 Inputs: Unadjusted quoted prices in active
markets for identical assets or liabilities
accessible to the reporting entity at the measurement
date. |
|
|
|
|
Level 2 Inputs: Other than quoted prices included
in Level 1 inputs that are observable for the asset
or liability, either directly or indirectly, for
substantially the full term of the asset or
liability. |
|
|
|
|
Level 3 Inputs: Unobservable inputs for the asset
or liability used to measure fair value to the
extent that observable inputs are not available,
thereby allowing for situations in which there is
little, if any, market activity for the asset or
liability at measurement date. |
|
|
The Group did not have any nonfinancial assets and
liabilities that are measured at fair value on a
nonrecurring basis as of March 31, 2010 and 2011. |
|
|
|
The Companys financial instruments consist of cash,
accounts receivable, advances to third parties,
employees and suppliers, which are included in the
prepaid expenses and other current assets, other
assets excluding deferred income tax assets, and
accrued expenses and other payables, all of which
have a carrying amount that approximate fair value
because of the short maturity of these instruments. |
F - 10
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
The Groups revenues are principally derived from the
provision of testing services, test-based educational
services and test preparation solutions. The Group
recognizes revenues when all of the following have
occurred: |
|
|
|
persuasive evidence of an agreement with the customer exists; |
|
|
|
|
services have been performed and/or delivery of goods has occurred; |
|
|
|
|
the fees for services performed and/or price of goods sold are fixed
or determinable; and |
|
|
|
|
collectibility of the fees and/or sales proceeds is reasonably assured. |
|
|
The application of the above criteria for revenue recognition for each type of
service or product is as follows: |
|
i) |
|
Testing services |
|
|
|
|
Fees for testing services are recognized upon the
completion of the exam by the test taker since the Group
has no significant future involvement after the
completion of the examination. Fees received in advance
of test delivery are recorded as deferred revenue. |
|
|
ii) |
|
Test-based educational services |
|
|
|
|
Fees from educational institutions for degree major
course programs are recognized, when collectibility is
reasonably assured, on a straight-line basis over the
contractual period , which typically starts in the month
of September and ends in the month of June or August of
the following year, or 10 to 12 months. |
|
|
|
|
Fees from educational institutions for single course
programs are recognized on a straight-line basis over the
expected service period or the contractual period,
whichever is longer. At the end of each reporting period
upon the closing of the Groups financial records, the
Group compares the revenue recognized at the onset of the
contracts to the actual completion status of each
contract, on a contract by contract basis, and makes any
revenue adjustments to reflect the actual completion
status. |
F - 11
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
|
Fees are not refundable if the student fails to complete
one or more of the courses or the entire degree major
course programs or fails any of the exams. |
|
|
iii) |
|
Test preparation and training solutions |
|
|
|
|
The Group derives test preparation and training solutions
revenues from online test preparation and training and
the sale of training software products. |
|
a) |
|
Online test preparation and training service fees |
|
|
|
|
The Group sells online training to end users directly or
through distributors on a consignment basis. The online
training entitles end users to access online test
preparation and training services during a specified
service period, which normally ranges between 90 to 180
days from activation. |
|
|
|
|
Online training revenue is recognized on a straight-line
basis over the service period commencing at the point of
time the online training is activated. If the online
training sold to end users is not activated before the
expiration date, related online service revenue is
recognized on the expiration date. For online training
granted with fixed online hours, the Group compares the
revenue recognized to the actual completion status, and
makes any revenue adjustments to reflect the actual
completion status. |
|
|
|
|
The Group is not contractually obligated to accept, nor
has the Group historically accepted, returns from end
users. |
|
|
b) |
|
Training software products |
|
|
|
|
Training software product sales are recognized upon
delivery and when collectibility is reasonably assured. |
|
|
|
|
Pursuant to the laws and regulations of the PRC, ATA
Testing is entitled to a refund of VAT on certain
software sales. The refund relates directly to sales,
accordingly the Company recognizes the VAT refund at the
time the corresponding product is sold. VAT refunds
included in revenue for the years ended March 31, 2009,
2010 and 2011 were RMB2,195,116, RMB 10,769, and RMB nil
respectively. |
|
a) |
|
Licensing fees from authorized test centers |
|
|
|
|
The Group receives a fixed fee for a perpetual license or
an initial fee plus continuing annual fees for renewable
annual licenses that provide authorized test centers the
right to use the Groups brand name and E-testing platform. |
|
|
|
|
The Group is obligated to provide ongoing technical support
and unspecific system upgrades; and to provide training to
authorized test centers staff. Initial fees for renewable
annual license and fixed fees for perpetual licenses are
recognized on a straight-line basis over the expected
licensing period of 10 years, which is the period the Group
is expected to have continuing involvement with the
authorized test centers. Management estimates the expected
licensing period based on its historical retention
experience, factoring in the expected level of future
competition, the risk of technological obsolescence,
technological innovation, and the expected changes in the
education training environment. |
F - 12
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
b) |
|
Test development services |
|
|
|
|
Test development service fees are recognized upon the
acceptance of the developed tests by the customer. The
period to develop the tests is short, generally within
two to six months from commencement of development. |
|
|
c) |
|
Test administration software products |
|
|
|
|
Test administration software products sales are
recognized upon delivery and when collectibility is
reasonably assured. |
|
v) |
|
Business tax |
|
|
|
|
Revenue is recorded, net of
business tax. Business tax
is levied on the Groups
service-related revenues
generated in the PRC at 5%. |
|
|
Cost of revenues consists primarily of cost of test
monitoring, royalty fees for IT vendors and test
sponsor licensing arrangements, cost of inventories,
payroll compensation, technical support, and other
related costs, which are directly attributable to the
rendering of services and delivery of goods. |
|
|
|
The test monitoring costs are recognized upon
completion of examinations primarily based on actual
number of test takers. Royalty fees are recognized as
cost of revenues based on actual usage according to
contract provisions. During the years ended March 31,
2009, 2010 and 2011, test monitoring costs of
RMB45,164,785, RMB 63,919,228 and RMB 85,375,463
respectively, and royalty fees for IT vendors and test
sponsor licensing arrangements of RMB13,530,229, RMB
21,882,555 and RMB 17,561,272 respectively, were
charged to the consolidated statements of operations as
cost of revenues. |
|
|
|
(i) |
|
Research and development costs |
|
|
Research and development costs primarily consist of
software developed for internal use and software
developed for sale. |
|
i) |
|
Software developed for internal use |
|
|
|
|
The Group expenses all costs that are incurred in
connection with the planning and implementation phases of
the development of software. Costs incurred in the
development phase are capitalized and amortized over the
estimated product life. No costs were capitalized for any
of the periods presented. |
F - 13
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
ii) |
|
Software developed for sale |
|
|
|
|
Costs incurred internally in
researching and developing a
computer software product are
charged to expense as research
and development costs prior to
technological feasibility being
established for the product.
Once technological feasibility
is established, all computer
software costs are capitalized
until the product is available
for general release to
customers. Technological
feasibility is established upon
completion of all the activities
that are necessary to
substantiate that the computer
software product can be produced
in accordance with its design
specifications, including
functions, features, and
technical performance
requirements. No costs were
capitalized for any of periods
presented. |
|
|
Income taxes are accounted for under the asset
and liability method. Under this method,
deferred income tax assets and liabilities are
recognized for the future tax consequences
attributable to differences between the
financial statement carrying amounts of existing
assets and liabilities and their respective tax
bases and tax loss carryforwards. Deferred
income tax assets and liabilities are measured
using enacted tax rates expected to apply to
taxable income in the years in which those
temporary differences are expected to be
recovered or settled. The effect on deferred
income tax assets and liabilities of a change in
tax rates or tax status is recognized in income
in the period that includes the enactment date
or the date of change in tax status. A valuation
allowance is provided to reduce the amount of
deferred income tax assets if it is considered
more likely than not that some portion or all of
the deferred income tax assets will not be
realized. |
|
|
|
The Group recognizes in the consolidated
financial statements the impact of a tax
position, if that position is more likely than
not of being sustained upon examination, based
on the technical merits of the position.
Recognized income tax positions are measured at
the largest amount that is greater than 50%
likely of being realized. Changes in recognition
or measurement are reflected in the period in
which the change in judgment occurs. |
|
|
|
The Groups accounting policy is to accrue
interest and penalties related to unrecognized
tax benefits, if and when required, as interest
expense and a component of general and
administrative expenses, respectively in the
consolidated statements of operations. |
|
|
The Group measures the cost of employee share
options or similar equity instruments based on
the grant date fair value of the award and
recognizes that cost over the period during
which an employee is required to provide
services in exchange for the award, which
generally is the vesting period. When no future
services are required to be performed by the
employee in exchange for an award of equity
instruments, and if such award does not contain
a performance or market condition, the cost of
the award is expensed on the grant date. When
there is a modification of the terms and
conditions of an award of equity instruments,
the Company measures the pre-modification and
post-modification fair value of the equity
instruments as of the modification date and
recognizes the incremental value as compensation
cost over the remaining service period. |
F - 14
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
Cash consists of cash on hand and cash in banks. None
of the Groups cash is restricted from withdrawal. |
|
|
Accounts receivable include amounts billed at the
invoiced amount and unbilled amounts. Unbilled
receivables relate to revenues earned and recognized
but have not yet been billed in accordance with the
terms of the contract. |
|
|
|
The allowance for doubtful accounts is the managements
best estimate of the amount of probable credit losses
resulting from the inability of the Groups customers
to make required payments. The allowance for doubtful
accounts is based on a review of specifically
identified accounts, aging data and historical
collection pattern. Account balances are charged off
against the allowance after all means of collection
have been exhausted and the potential for recovery is
considered remote. The Group does not have any
off-balance-sheet credit exposure related to its
customers. |
|
|
Inventories include textbooks, exam papers and low
value consumables. Inventories are stated at the lower
of cost or market value. Cost is determined using the
first-in, first-out method. Adjustments are recorded to
write down the carrying amount of any obsolete and
excess inventory to its estimated net realizable value
based on historical and forecasted demand Provisions to
write-down the carrying amount of obsolete inventory to
its estimated net realizable value amounted to of
RMB253,820, RMB85,897 and RMB 2,033,211 for the years
ended March 31, 2009, 2010 and 2011, respectively, and
were recorded as cost of revenues in the consolidated
statements of operations. |
|
|
|
(o) |
|
Property and equipment, net |
|
|
Property and equipment is stated at historical cost. |
|
|
|
Depreciation and amortization is recognized over the
following useful lives on the straight-line method,
taking into consideration the assets estimated salvage
value: |
|
|
|
Building
|
|
30 years |
Computer equipment
|
|
5 years |
Furniture, fixtures and office equipment
|
|
5 years |
Software
|
|
3 to 5 years |
Motor vehicles
|
|
5 years |
Leasehold improvements
|
|
the shorter of the lease terms or
5 years |
F - 15
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
Intangible assets acquired are initially
recognized and measured at fair value and are
amortized on a straight-line basis over their
respective estimated useful lives, which range
from 3 to 12 years. The Company has no intangible
assets with indefinite useful lives. |
|
|
|
(q) |
|
Impairment of long-lived assets, excluding goodwill |
|
|
Long-lived assets, such as property and equipment,
and purchased intangible assets subject
to amortization, are reviewed for impairment
whenever events or changes in circumstances
indicate that the carrying amount of an asset may
not be recoverable. If circumstances require a
long-lived asset or asset group be tested for
possible impairment, the Company first compares
undiscounted cash flows expected to be generated
by that asset or asset group to its carrying
value. If the carrying value of the long-lived
asset or asset group is not recoverable on an
undiscounted cash flow basis, an impairment is
recognized to the extent that the carrying value
exceeds its fair value. Fair value is determined
through various valuation techniques including
discounted cash flow models, quoted market values
and third-party independent appraisals, as
considered necessary. No impairment of long-lived
assets was recognized for any of the periods
presented. |
|
|
Goodwill is an asset representing the future economic benefits
arising from other assets acquired in a business combination that
are not individually identified and separately recognized.
Goodwill is reviewed for impairment at least annually. The
goodwill impairment test is a two step test. Under the first step,
the fair value of the reporting unit is compared with its carrying
value (including goodwill). If the fair value of the reporting
unit is less than its carrying value, an indication of goodwill
impairment exists for the reporting unit and the entity must
perform step two of the impairment test (measurement). Under step
two, an impairment loss is recognized for any excess of the
carrying amount of the reporting units goodwill over the implied
fair value of that goodwill. The implied fair value of goodwill is
determined by allocating the fair value of the reporting unit in a
manner similar to a purchase price allocation and the residual
fair value after this allocation is the implied fair value of the
reporting unit goodwill. Fair value of the reporting unit is
determined using a discounted cash flow analysis. If the fair
value of the reporting unit exceeds its carrying value, step two
does not need to be performed. |
|
|
|
The Company performs its annual impairment review of goodwill at
March 31, and when a triggering event occurs between annual
impairment tests. No impairment loss was recorded for any of the
periods presented. |
|
|
|
(s) |
|
Employee benefit plans |
|
|
As stipulated by the regulations of the PRC, the
Companys PRC subsidiaries are required to
contribute to various defined contribution plans,
organized by municipal and provincial governments
on behalf of their employees. The contributions to
these plans are based on certain percentages of
the employees standard salary base as determined
by the local Social Security Bureau. The Group has
no other obligation for the payment of employee
benefits associated with these plans beyond the
annual contributions described above. During the
years ended March 31, 2009, 2010 and 2011, the
Group contributed RMB 6,934,683, RMB 11,268,891
and RMB 12,773,440, respectively, to these plans. |
|
|
|
(t) |
|
Earnings (loss) per share |
|
|
Basic earnings (loss) per share is computed by
dividing net earnings (loss) by the weighted
average number of common shares outstanding during
the year using the two-class method. Under the
two-class method, net income is allocated between
common shares and other participating securities
based on their participating rights in
undistributed earnings. The Companys nonvested shares relating to the share-based awards under
the share incentive plan were considered
participating securities since the holders of
these securities have non-forfeitable rights to
cash dividends. |
|
|
|
Diluted earnings (loss) per share is calculated by
dividing net earnings (loss) adjusted for the
effect of dilutive common equivalent shares, if
any, by the weighted average number of common and
dilutive common equivalent shares outstanding
during the year. Common equivalent shares consist
of common shares issuable upon the exercise of
outstanding share options and warrants (using the
treasury stock method). Common equivalent shares
in the diluted earnings (loss) per share
computation are excluded to the effect that they
would be anti-dilutive. In calculating the diluted
earnings (loss) per share, the undistributed
earnings are not reallocated to the participating
securities and the common and dilutive common
equivalent shares. |
F - 16
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
The Group has one operating
segment, testing and training
services. Substantially all of the
Groups operations and customers
are located in the PRC.
Consequently, no geographic
information is presented. |
|
|
|
(v) |
|
Variable Interest Entity |
|
|
PRC regulations prohibit direct
foreign ownership of business
entities that engage in internet
content provision (ICP) services
in the PRC. The Company and its
subsidiaries are foreign owned
business entities under the PRC law
and accordingly are prohibited from
providing ICP services in the PRC,
including having direct foreign
ownership of entities engaged in
providing such services. ATA Online
provides ICP online test
preparation services in the PRC.
Although the Company has no legal
ownership interest in ATA Online,
through a series of contractual
agreements, including loan
agreements, a call option and
cooperation agreement and an equity
pledge agreement among ATA BVI, ATA
Online and ATA Onlines equity
owners, ATA BVI is able to (i)
direct the activities of ATA Online
that most significantly impact its
economic performance; and (ii)
absorb losses and receive benefits
from ATA Online that could
potentially be significant to it.
As a result, ATA BVI is considered
to be the primary beneficiary of
ATA Online and the financial
statements of ATA Online are
consolidated in the Companys
consolidated financial statements. |
|
|
|
The Companys consolidated assets
do not include any collateral for
the obligations of ATA Online. The
carrying amount of the total assets
of ATA Online as of March 31, 2011
was RMB 19,585,654, none of which
has been pledged or collateralized.
The amount of the net assets of ATA
Online as of March 31, 2011 was RMB
5,618,934. Creditors of ATA Online
have no recourse of the general
credit of the Company. |
|
|
|
(w) |
|
Recently issued accounting standards |
|
|
In October 2009, the FASB issued Accounting Standards
Update (ASU) 2009-13, Revenue Recognition (Topic
605): Multiple-Deliverable Revenue Arrangements (EITF
Issue No. 08-1, Revenue Arrangements with Multiple
Deliverables). ASU 2009-13 amends FASB ASC Subtopic
605-25, Revenue Recognition Multiple-Element
Arrangements, to eliminate the requirement that all
undelivered elements have vendor specific objective
evidence of selling price (VSOE) or third party
evidence of selling price (TPE) before an entity can
recognize the portion of an overall arrangement fee
that is attributable to items that already have been
delivered. In the absence of VSOE and TPE for one or
more delivered or undelivered elements in a
multiple-element arrangement, entities will be
required to estimate the selling prices of those
elements. The overall arrangement fee will be
allocated to each element (both delivered and
undelivered items) based on their relative selling
prices, regardless of whether those selling prices
are evidenced by VSOE or TPE or are based on the
entitys estimated selling price. Application of the
residual method of allocating an overall
arrangement fee between delivered and undelivered
elements will no longer be permitted upon adoption of
ASU 2009-13. Additionally, the new guidance will
require entities to disclose more information about
their multiple-element revenue arrangements. ASU
2009-13 is effective prospectively for revenue
arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. The Company does not
expect the adoption of ASU 2009-13 in the year ended
March 31, 2012 to have a material impact on its
consolidated financial statements. |
|
|
Certain items in the prior years consolidated
statements of cash flows have been reclassified to conform to this
year's presentation. These reclassifications had no effect on net
cash provided by (used in) operating activities, net cash used in investing activities or net cash used in financing activities.
|
F - 17
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
On October 15, 2007, the
Company entered into
acquisition agreements to
purchase the entire equity
interests of Beijing JDX and
JDX Holdings Limited (the
acquiree) for RMB10 million.
Beijing JDX is a PRC
incorporated entity primarily
engaged in the development and
marketing of software for
computer-based tests. JDX
Holdings Limited is a British
Virgin Islands incorporated
entity established by the
equity holders of Beijing JDX
(selling shareholders) to
hold exclusive licensing rights
for the use of technology owned
by Beijing JDX (JDX Holdings
Limited was dissolved in
October 2009). This acquisition
was made to expand the
Companys customer base and
allow the Company to provide
test delivery services to the
test sponsors that are using
the products developed by
Beijing JDX. |
|
|
|
The purchase consideration of RMB10 million was settled by (i) cash payments of RMB2,300,000,
RMB733,770 and RMB2,305,553 during the year ended March 31, 2008, 2009 and 2010, respectively, and
(ii) reduction of a RMB4,660,677 receivable due from the selling shareholders related to the
exercise of the warrant described below. |
|
|
|
In conjunction with the acquisition agreements,
the Company also issued warrants to purchase
126,803 of the Companys common shares to
certain selling shareholders. The exercise
price of the warrants was USD5.25 per share or
USD 665,716 (RMB4,660,677) in aggregate. The
warrants were exercisable upon the closing of
the transaction and expired on January 13,
2008. On October 15, 2007, the issuance date,
the fair value of the warrants was
RMB838,707, based on an independent valuation
by Jones Lang LaSalle Sallmanns Limited using
the Binomial option pricing model. The fair
value of the warrants was recorded as a deposit
for the acquisition with a corresponding credit
to additional paid-in capital in the
consolidated balance sheets. |
|
|
|
On January 5,
2008, the expiration date of the warrants was
extended to April 30, 2008 and on April 24, 2008, the
expiration date was further extended to June 30, 2008.
The extention of the expiration dates were modifications to the
original terms of the warrants.
On May 10, 2008, the warrants were
exercised prior to the consummation of the
acquisition that resulted in a further
modification to the original term of the
warrants. The common shares were delivered in
February 2009 when the acquisition was
consummated as described below. As a result of
these changes to the original terms of the
warrants, the fair value of the warrants was
re-measured, based on an independent valuation
by Jones Lang LaSalle Sallmanns Limited, to RMB
278,744 and RMB632,145 in 2008 and 2009,
respectively. |
F - 18
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
On February 28, 2009, the Company obtained approval from the State Administration of Foreign
Exchange (SAFE) to wire the foreign-currency-denominated purchase price to the selling
shareholders in the PRC. On this date, the Company signed an agreement, and obtained controlling
financial interest in the acquiree. Therefore, the results of Beijing JDX and JDX Holdings Limited
have been included in the consolidated results of the Company since February 28, 2009. |
|
|
The aggregate purchase price was RMB10,726,227, which includes the above-mentioned fair value of
the warrants of RMB 632,145 and legal fees of RMB94,082. |
|
|
The following table summarizes the fair value of the assets acquired and liabilities assumed at the
date of acquisition. |
|
|
|
|
|
|
|
RMB |
|
Current assets |
|
|
1,750,372 |
|
Property and equipment |
|
|
677,552 |
|
Intangible assets |
|
|
2,100,000 |
|
Goodwill |
|
|
16,542,727 |
|
|
|
|
|
Total assets acquired |
|
|
21,070,651 |
|
|
|
|
|
Current liabilities assumed |
|
|
(10,344,424 |
) |
|
|
|
|
Net assets acquired |
|
|
10,726,227 |
|
|
|
|
|
|
|
The acquired intangible assets consisted of RMB800,000 assigned to
testing service technology with a three-year useful life and
RMB1,300,000 assigned to customer relationships with a twelve-year
useful life. The excess of the purchase price over the net tangible
assets and identifiable intangible assets acquired was recorded as
goodwill. Goodwill represents the benefits that the acquired
business are expected to bring to the Company in the future by
securing technology in computer-based testing and expanding the
Companys customer base. Goodwill is allocated to the enterprise
level. Goodwill is not tax deductible under the local tax law. |
|
|
|
No pro forma results of operations information has been provided because the
total consideration paid for the acquisition of the acquiree and the total
assets of the acquiree are immaterial to the total assets of the Company. |
|
|
|
(4) |
|
ACCOUNTS RECEIVABLE, NET |
|
|
Accounts receivable, net is summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
Accounts receivable |
|
|
112,834,572 |
|
|
|
74,989,794 |
|
Less: Allowance for doubtful accounts |
|
|
(29,934,512 |
) |
|
|
(27,938,198 |
) |
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
82,900,060 |
|
|
|
47,051,596 |
|
|
|
|
|
|
|
|
F - 19
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
Management performs ongoing credit evaluations of its
customers financial condition and generally does not
require collateral on accounts receivable. |
|
|
|
The Groups accounts receivable includes amounts earned
and recognized under contractual terms but not yet billed
(unbilled receivables). Management expects that
substantially all unbilled receivables will be billed and
collected within twelve months at each balance sheet date.
Historically, the Group has been able to collect
substantially all unbilled accounts receivable due under
the contract terms without making material concessions on
payments. |
|
|
|
As of March 31, 2010 and 2011, accounts receivable
included amounts of RMB 1,473,402 and RMB nil respectively
that the Group has the right to bill according to the
contract terms but related revenue was not recognized. |
|
|
|
The activity in the allowance for doubtful accounts for
accounts receivable for the years ended March 31, 2009,
2010 and 2011 is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Beginning allowance for doubtful accounts |
|
|
623,993 |
|
|
|
3,198,960 |
|
|
|
29,934,512 |
|
Additions charged to bad debt expense |
|
|
6,531,940 |
|
|
|
27,052,862 |
|
|
|
2,235,627 |
|
Write-off of accounts receivable |
|
|
(3,956,973 |
) |
|
|
(317,310 |
) |
|
|
(4,231,941 |
) |
|
|
|
|
|
|
|
|
|
|
Ending allowance for doubtful accounts |
|
|
3,198,960 |
|
|
|
29,934,512 |
|
|
|
27,938,198 |
|
|
|
|
|
|
|
|
|
|
|
F - 20
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
|
(5) |
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS |
|
|
Prepaid expenses and other current assets consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
Prepaid business tax |
|
|
721,188 |
|
|
|
481,688 |
|
Income tax receivable |
|
|
2,205,855 |
|
|
|
|
|
Deferred income tax assets |
|
|
2,286,438 |
|
|
|
5,494,322 |
|
Advances to employees |
|
|
992,387 |
|
|
|
1,417,299 |
|
Other current assets |
|
|
3,978,297 |
|
|
|
2,643,036 |
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets |
|
|
10,184,165 |
|
|
|
10,036,345 |
|
|
|
|
|
|
|
|
|
|
For the year ended March 31, 2010, the Company wrote off a prepaid royalty fee for
licensing certain test content from a vendor of RMB 5,478,250 as a result of the Companys
assessment of the historical and future usage and the market demand of the test content, as well as
the possibility to cross-utilize the prepayment to the royalty fee payable for other test contents
from the vendor. The amount was included in the consolidated statements of operations in the line
item cost of revenues. |
|
|
|
In connection with the licensing agreement with this vendor, in the fiscal year ended March 31,
2011 the Company has also recognized a write-down of inventory of RMB2.0 million (see note 2(n))
and accrued an estimated liability of RMB2.0 million in connection with a compliance audit; see
note (15).
|
|
|
|
(6) |
|
PROPERTY AND EQUIPMENT, NET |
|
|
Property and equipment, net consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
|
|
|
|
|
|
|
|
|
Building |
|
|
53,049,213 |
|
|
|
53,049,213 |
|
Computer equipment |
|
|
18,625,039 |
|
|
|
20,252,736 |
|
Furniture, fixtures and office equipment |
|
|
493,142 |
|
|
|
532,624 |
|
Software |
|
|
11,235,019 |
|
|
|
11,976,549 |
|
Motor vehicles |
|
|
1,926,368 |
|
|
|
1,935,402 |
|
Leasehold improvements |
|
|
7,342,114 |
|
|
|
8,062,114 |
|
|
|
|
|
|
|
|
|
|
|
92,670,895 |
|
|
|
95,808,638 |
|
Less: accumulated depreciation and amortization |
|
|
(22,342,831 |
) |
|
|
(32,768,460 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
|
70,328,064 |
|
|
|
63,040,178 |
|
|
|
|
|
|
|
|
|
|
Total depreciation expenses for the year ended March 31, 2009, 2010 and 2011 were, RMB
4,973,967, RMB 9,962,811, and RMB 10,785,073, respectively. |
F - 21
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
|
(7) |
|
INTANGIBLE ASSETS, NET |
|
|
The following table summarizes the Companys intangible assets, all of which were acquired during the year ended March 31, 2009, as of March
31, 2010 and 2011. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Average |
|
|
|
carrying |
|
|
Accumulated |
|
|
carrying |
|
|
Amortization |
|
|
|
amount |
|
|
amortization |
|
|
amount |
|
|
Period |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
Years |
|
ETS TOEIC license |
|
|
24,126,706 |
|
|
|
(5,089,214 |
) |
|
|
19,037,492 |
|
|
|
10 |
|
Testing service technology |
|
|
800,000 |
|
|
|
(555,556 |
) |
|
|
244,444 |
|
|
|
3 |
|
Customer relationships |
|
|
1,300,000 |
|
|
|
(225,832 |
) |
|
|
1,074,168 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
26,226,706 |
|
|
|
(5,870,602 |
) |
|
|
20,356,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Average |
|
|
|
carrying |
|
|
Accumulated |
|
|
carrying |
|
|
Amortization |
|
|
|
amount |
|
|
amortization |
|
|
amount |
|
|
Period |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
Years |
|
ETS TOEIC license |
|
|
24,126,706 |
|
|
|
(2,613,726 |
) |
|
|
21,512,980 |
|
|
|
10 |
|
Testing service technology |
|
|
800,000 |
|
|
|
(288,890 |
) |
|
|
511,110 |
|
|
|
3 |
|
Customer relationships |
|
|
1,300,000 |
|
|
|
(117,499 |
) |
|
|
1,182,501 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
26,226,706 |
|
|
|
(3,020,115 |
) |
|
|
23,206,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ETS TOEIC license represents the amounts paid to Educational Testing Service (ETS) under a
master distributor agreement for the exclusive right to market, distribute administer and sell the
Test of English for International Communication (TOEIC) in mainland PRC for ten years commencing
from March 2009. |
|
|
Amortization expenses for intangible assets were RMB 232,445, RMB 2,787,670 and RMB 2,850,487 for
the year ended March 31, 2009, 2010 and 2011, respectively. Estimated amortization expense for the
next five years is: RMB 2,765,448, RMB 2,521,004, RMB 2,521,004, RMB 2,521,004 and RMB 2,521,004
in the year ended March 31, 2012, 2013, 2014, 2015 and 2016, respectively. |
F - 22
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
|
(8) |
|
ACCRUED EXPENSES AND OTHER PAYABLES |
|
|
Accrued expenses and other payables consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
Business and other taxes payable |
|
|
9,202,613 |
|
|
|
5,294,775 |
|
Accrued payroll and welfare |
|
|
8,930,120 |
|
|
|
8,518,040 |
|
Accrued test monitoring fees |
|
|
7,582,243 |
|
|
|
7,420,546 |
|
Accrued discounts to customers |
|
|
3,376,050 |
|
|
|
2,077,500 |
|
Accrued certificates costs |
|
|
1,385,000 |
|
|
|
3,992,682 |
|
Payable for test center commission |
|
|
1,955,400 |
|
|
|
1,955,400 |
|
Royalty fees payable |
|
|
7,237,781 |
|
|
|
5,998,771 |
|
Income taxes payable |
|
|
|
|
|
|
70,190 |
|
Accrued professional service expenses |
|
|
993,536 |
|
|
|
3,904,802 |
|
Accrued marketing fees |
|
|
976,853 |
|
|
|
776,859 |
|
Payable for purchase of property and equipment |
|
|
574,892 |
|
|
|
322,477 |
|
Other current liabilities |
|
|
10,171,186 |
|
|
|
8,014,927 |
|
|
|
|
|
|
|
|
Total accrued expenses and other payables |
|
|
52,385,674 |
|
|
|
48,346,969 |
|
|
|
|
|
|
|
|
|
|
Other current liabilities as of March 31, 2010 and 2011 mainly
include accrued traveling expenses, rental expenses, meeting expense
and other operating expenses. |
|
|
Deferred revenues consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
Testing services |
|
|
4,001,763 |
|
|
|
4,743,451 |
|
Test-based education services |
|
|
18,487,739 |
|
|
|
10,289,540 |
|
Test preparation and training solutions |
|
|
1,016,990 |
|
|
|
2,108,561 |
|
Other revenue licensing fees from
authorized test centers centers |
|
|
6,664,178 |
|
|
|
5,255,089 |
|
Other revenue others |
|
|
340,364 |
|
|
|
527,579 |
|
|
|
|
|
|
|
|
Total deferred revenues |
|
|
30,511,034 |
|
|
|
22,924,220 |
|
|
|
|
|
|
|
|
Representing: |
|
|
|
|
|
|
|
|
Current deferred revenues |
|
|
25,837,229 |
|
|
|
19,100,619 |
|
Non-current deferred revenues |
|
|
4,673,805 |
|
|
|
3,823,601 |
|
|
|
|
|
|
|
|
Total deferred revenues |
|
|
30,511,034 |
|
|
|
22,924,220 |
|
|
|
|
|
|
|
|
F - 23
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
The components of net revenues for the years ended March 31, 2009, 2010 and 2011 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Testing services |
|
|
137,046,628 |
|
|
|
187,158,128 |
|
|
|
243,103,305 |
|
Test-based educational services |
|
|
42,545,536 |
|
|
|
31,786,398 |
|
|
|
25,727,038 |
|
Test preparation and training solutions |
|
|
25,071,400 |
|
|
|
11,149,124 |
|
|
|
15,426,587 |
|
Other revenue |
|
|
12,881,739 |
|
|
|
14,937,893 |
|
|
|
19,646,881 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues, net |
|
|
217,545,303 |
|
|
|
245,031,543 |
|
|
|
303,903,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales are included in test preparation and training solutions revenue and
other revenue. Other revenue primarily includes licensing fees from authorized test centers, test
development services, test certificate services, and test administration software product sales. |
|
|
Cayman Islands and British Virgin Islands |
|
|
|
Under the current laws of the Cayman Islands and the British Virgin Islands, the Group
is not subject to any income tax in these jurisdictions. |
|
|
|
Peoples Republic of China |
|
|
|
The Companys consolidated PRC entities file separate income tax returns. |
|
|
|
On March 16, 2007, the National Peoples Congress passed the new Enterprise Income Tax
Law (new EIT Law) which statutory income tax rate is 25% effective from January 1,
2008. According to the new EIT Law, entities that qualify as high-and-new technology
enterprises eligible for key support from the State (HNTE) are entitled to a
preferential income tax rate of 15%. |
|
|
|
The Companys PRC entities are subject to income tax at 25%, unless otherwise specified. |
F - 24
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
In December 2008, ATA Testing received approval from the tax authority that it
qualified as an HNTE. The certificate entitled ATA Testing to the preferential income
tax rate of 15% for calendar years from 2008 to 2010. The income tax rate from
January 1, 2011 is 25%. |
|
|
|
In December 2009, ATA Learning, ATA Online and Beijing JDX received approvals from
the tax authorities that they qualified as HNTE. The certificates entitled ATA
Learning, ATA Online and Beijing JDX to the preferential income tax rate of 15% for
calendar years from 2009 to 2011. ATA Learning, ATA Online and Beijing JDX are
subject to income tax at 25% from calendar year 2012 onwards unless they can
requalify as HNTE. |
|
|
|
The new EIT Law and its relevant regulations impose a withholding tax at 10%, unless
reduced by a tax treaty or agreement, for dividends distributed by a PRC-resident
enterprise to its immediate holding company outside the PRC for earnings generated
beginning on January 1, 2008. Undistributed earnings generated prior to January 1,
2008 are exempt from withholding tax. As of March 31, 2011, the Company has not
provided for income taxes on earnings of RMB 46,070,972 generated by its PRC
consolidated entities since January 1, 2008 as the Company plans to reinvest these
earnings indefinitely in the PRC. As of March 31, 2011, the unrecognized deferred
income tax liability related to these earnings was RMB 4,607,097. |
|
|
|
The earnings (loss) before income taxes were generated in the following jurisdictions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Cayman Islands and British Virgin Islands |
|
|
(16,104,769 |
) |
|
|
(20,124,920 |
) |
|
|
(11,433,911 |
) |
PRC |
|
|
45,552,957 |
|
|
|
(9,482,925 |
) |
|
|
34,500,214 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
|
29,448,188 |
|
|
|
(29,607,845 |
) |
|
|
23,066,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) recognized in the consolidated statements of operations consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
PRC |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
8,886,688 |
|
|
|
6,030,052 |
|
|
|
7,203,811 |
|
Deferred |
|
|
(2,248,715 |
) |
|
|
(287,906 |
) |
|
|
(3,891,524 |
) |
|
|
|
|
|
|
|
|
|
|
Total income tax expense |
|
|
6,637,973 |
|
|
|
5,742,146 |
|
|
|
3,312,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The actual income tax expense reported in the consolidated
statements of operations differs from the respective amount computed
by applying the PRC statutory income tax rate of 25% for each of the
years ended March 31, 2009, 2010 and 2011 to earnings (loss) before
income taxes due to the following: |
F - 25
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Computed expected income tax expense (benefit) |
|
|
7,362,047 |
|
|
|
(7,401,961 |
) |
|
|
5,766,576 |
|
Increase (decrease) in valuation allowance |
|
|
66,008 |
|
|
|
3,717,333 |
|
|
|
(1,379,408 |
) |
Preferential income tax rate |
|
|
(4,610,609 |
) |
|
|
(4,171,783 |
) |
|
|
(4,486,178 |
) |
Entities not subject to income tax |
|
|
1,995,160 |
|
|
|
2,907,301 |
|
|
|
1,695,485 |
|
Non-deductible expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
350,774 |
|
|
|
675,360 |
|
|
|
1,308,601 |
|
Share-based compensation |
|
|
1,399,382 |
|
|
|
1,873,929 |
|
|
|
1,162,993 |
|
Advertising |
|
|
|
|
|
|
397,341 |
|
|
|
|
|
Bad debt loss |
|
|
1,754,545 |
|
|
|
6,478,275 |
|
|
|
|
|
Tax exempt income |
|
|
(538,466 |
) |
|
|
(1,790 |
) |
|
|
|
|
Changes in tax rates |
|
|
457,095 |
|
|
|
1,227,604 |
|
|
|
|
|
Tax rate differential |
|
|
|
|
|
|
|
|
|
|
(1,503,124 |
) |
Research and development super deduction |
|
|
(1,519,273 |
) |
|
|
|
|
|
|
|
|
Prior year tax return true up |
|
|
|
|
|
|
|
|
|
|
450,139 |
|
Other |
|
|
(78,690 |
) |
|
|
40,537 |
|
|
|
297,203 |
|
|
|
|
|
|
|
|
|
|
|
Actual income tax expense |
|
|
6,637,973 |
|
|
|
5,742,146 |
|
|
|
3,312,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The applicable PRC statutory tax rate is used since the Groups taxable income is generated in the PRC. |
|
|
|
The tax effects of the Groups temporary differences that give rise to
significant portions of the deferred income tax assets and liabilities are as
follows. |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Tax loss carryforwards |
|
|
4,315,688 |
|
|
|
3,753,133 |
|
Property and equipment, net |
|
|
1,067,456 |
|
|
|
1,745,019 |
|
Allowance for doubtful accounts |
|
|
603,212 |
|
|
|
802,700 |
|
Write-down of inventories |
|
|
|
|
|
|
599,145 |
|
Accrued expenses and other payables |
|
|
2,652,397 |
|
|
|
4,197,747 |
|
|
|
|
|
|
|
|
Total gross deferred income tax assets |
|
|
8,638,753 |
|
|
|
11,097,744 |
|
Less: valuation allowance |
|
|
(5,072,720 |
) |
|
|
(3,693,312 |
) |
|
|
|
|
|
|
|
Net deferred income tax assets |
|
|
3,566,033 |
|
|
|
7,404,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Intangible assets acquired in JDX acquisition: |
|
|
|
|
|
|
|
|
Testing service technology |
|
|
78,889 |
|
|
|
41,111 |
|
Customer relationships |
|
|
275,799 |
|
|
|
260,452 |
|
|
|
|
|
|
|
|
Total gross deferred income tax liabilities |
|
|
354,688 |
|
|
|
301,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets |
|
|
3,211,345 |
|
|
|
7,102,869 |
|
|
|
|
|
|
|
|
F - 26
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2010 |
|
|
2011 |
|
|
|
RMB |
|
|
RMB |
|
Current deferred income tax assets, included in prepaid expenses and other current assets |
|
|
2,286,438 |
|
|
|
5,494,322 |
|
Non-current deferred income tax assets, included in other assets |
|
|
1,056,431 |
|
|
|
1,721,394 |
|
Non-current deferred income tax liabilities |
|
|
(131,524 |
) |
|
|
(112,847 |
) |
|
|
|
|
|
|
|
Net deferred income tax assets |
|
|
3,211,345 |
|
|
|
7,102,869 |
|
|
|
|
|
|
|
|
|
|
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 tax loss carryforwards are utilized.
Management considers the scheduled reversal of deferred income tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. |
|
|
|
As of March 31, 2010 and 2011, Beijing JDX, ATA Learning and ATA Online
were in cumulative losses and, full valuation allowances were provided
against their deferred income tax assets, after consideration of the
reversal of existing deferred income tax liabilities. |
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As of March 31, 2011, management believes it is more likely than not that
the Group will realize the deferred income tax assets, net of the valuation
allowance of RMB 3,693,312. The amount of the deferred income tax assets,
however, considered realizable as of March 31, 2011 could be reduced in the
near term if estimates of future taxable income are reduced. |
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As of March 31, 2011, the Group has net tax loss carry forwards for PRC
income tax purpose of RMB 15,012,531, of which RMB 764,879, RMB 2,333,475,
RMB 1,588,715, RMB 2,857,457, and RMB 7,468,005, if unused, will be expired
by calendar years 2012, 2013, 2014, 2015 and 2016. |
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For the years ended March 31, 2009, 2010 and 2011, the Group had no
unrecognized tax benefits, and thus no related interest and penalties were
recorded. Also, the Group does not expect that the amount of unrecognized
tax benefits will significantly increase within the next twelve months. |
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According to the PRC Tax Administration and Collection Law, the statute of
limitation is three years if the underpayment of taxes is due to
computational errors made by the taxpayer or the withholding agent. The
statute of limitation is extended to five years under special circumstances
where the underpayment of taxes is more than RMB 100,000. In the case of
transfer pricing issues, the statute of limitation is ten years. There is
no statute of limitation in the case of tax evasion. The income tax return
of each of the Companys PRC consolidated entities is subject to
examination by the relevant tax authorities for the calendar tax years beginning in 2006. |
F - 27
ATA INC.
Notes to the Consolidated Financial Statements (Continued)
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(12) |
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SHARE BASED COMPENSATION |
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Options granted to officers |
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In May 2003, the Company granted share options to two officer employees as a reward for their services. The options provided the
officer employees to purchase 1,369,863 common shares of the Company at an exercise price of USD0.545 (RMB3.72) per share. |
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In April 2008, the employees exercised the options at a price of RMB 5,226,173, which was paid by a
one-year non-interest bearing notes payable of RMB 5,226,173 to the Company, The payment of the
exercise price through a loan resulted in a modification to the original terms of the options.
Additional |