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ITEM 3.KEY INFORMATION

Our Holding Company Structure and Contractual Arrangements with the Variable Interest Entity

Tarena International, Inc. is not an operating company incorporated in China, but rather a Cayman Islands holding company with no equity ownership in its variable interest entity. Our Cayman Islands holding company does not conduct business operations directly. We conduct our operations in China through (i) our PRC subsidiaries and (ii) the variable interest entity with which we have maintained contractual arrangements and its subsidiaries. PRC laws and regulations restrict and impose conditions on foreign investment in certain internet value-added businesses. Accordingly, we operate these businesses in China through the variable interest entity, and rely on contractual arrangements among our PRC subsidiaries, the variable interest entity and its shareholders to control the business operations of the variable interest entity. The variable interest entity is consolidated for accounting purposes, but is not an entity in which our Cayman Islands holding company, or our investors, own equity. Revenues contributed by the variable interest entity accounted for 1.6%, 6.7% and 5.9% of our total revenues for the years of 2019, 2020 and 2021, respectively. As used in this annual report, “we,” “us,” “our company” and “our” refers to Tarena International, Inc. and its subsidiaries, and, in the context of describing our operations and consolidated financial information, the variable interest entity in China, Beijing Tarena Jinqiao Technology Co., Ltd., or Beijing Tarena, which holds our ICP license as an internet information provider and operates our TMOOC.cn, 61it.cn, and goto211.com websites and its subsidiaries. Investors in our ADSs are not purchasing any equity interest in the variable interest entity in China, but instead are purchasing equity interest in a holding company incorporated in the Cayman Islands.

A series of contractual agreements, including exclusive business cooperation agreement, power of attorney, equity interest pledge agreements, exclusive option agreements, and loan agreements, have been entered into by and among our subsidiaries, the variable interest entity and their respective shareholders. Despite the lack of legal majority ownership, our Cayman Island holding company is considered the primary beneficiary of the variable interest entity and consolidates the variable interest entity as required by Accounting Standards Codification topic 810, Consolidation. Accordingly, we treat the variable interest entity as our consolidated entities under U.S. GAAP, and we consolidate the financial results of the variable interest entity in our consolidated financial statements in accordance with U.S. GAAP. For more details on these contractual arrangements, see “Item 4. Information on the Company—A. History and Development of the Company.”

However, the contractual arrangements may not be as effective as direct ownership in providing us with control over the variable interest entity, and we may incur substantial costs to enforce the terms of the arrangements. Uncertainties in the PRC legal system may limit our ability, as a Cayman Islands holding company, to enforce these contractual arrangements. Meanwhile, there are very few precedents as to whether contractual arrangements would be judged to form effective control over the variable interest entity through the contractual arrangements, or how contractual arrangements in the context of a variable interest entity should be interpreted or enforced by the PRC courts. Should legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability of the variable interest entity contractual arrangements. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the variable interest entity, and our ability to conduct our business may be materially adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Any failure by Beijing Tarena or its shareholders to perform their obligations under our contractual arrangements with them would have an adverse effect on our business” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—The shareholders of Beijing Tarena may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.”

If the PRC government deems that our contractual arrangements with the variable interest entity do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our holding company, our PRC subsidiaries and variable interest entity, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the variable interest entity and, consequently, significantly affect the financial performance of the variable interest entity and our company as a whole. For a detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”

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Other Risks Related to Our PRC Business Operations

There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with the variable interest entity and its shareholders. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or the variable interest entity is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the relevant PRC authorities determine that we can no longer own and operate certain of our learning centers through our PRC subsidiaries, we may need to restructure the ownership and operation of these learning centers (including possibly transferring these learning centers to the consolidated VIE), our business may be disrupted and we may be exposed to increased risks associated with the contractual arrangements relating to the consolidated VIE” and “Item 3. Key Information—Risks Related to Our Corporate Structure—Any failure by Beijing Tarena or its shareholders to perform their obligations under our contractual arrangements with them would have an adverse effect on our business.”

We face various risks and uncertainties related to doing business in China. Our business operations are primarily conducted in China, and we are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks related to doing business in China, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”

The PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations, including data security or anti-monopoly related regulations, of this nature may cause the value of such securities to significantly decline or become worthless. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Our business is subject to complex and evolving Chinese and international laws and regulations regarding data privacy and cybersecurity. Failure to protect the confidential information of our customers and our network against security breaches could damage our reputation and brand and substantially harm our business and results of operations” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.”

Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We face risks and uncertainties with respect to the licensing requirement for internet audio-video programs, radio or television programs production and operation, internet publication, human resources intermediary service and filing requirements for commercial franchise.”

Permissions Required from the PRC Authorities for Our Operations

We conduct our business primarily through our subsidiaries and the variable interest entity in China. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries and the variable interest entity have obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of our holding company and the variable interest entity in China, including, among others, ICP licenses. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We face risks and uncertainties with respect to the licensing requirement for internet audio-video programs, radio or television programs production and operation, internet publication, human resources intermediary service and filing requirements for commercial franchise.”

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Furthermore, under current PRC laws, regulations and regulatory rules, we, our PRC subsidiaries and the variable interest entity may be required to fulfill filing procedures and obtain approval from the China Securities Regulatory Commission, or the CSRC, in connection with offering and listing in an overseas market, and may be required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC. As of the date of this annual report, we have not been subject to any cybersecurity review made by the CAC. If we fail to obtain the relevant approval or complete other filing procedures for any future offshore offering or listing, we may face sanctions by the CSRC or other PRC regulatory authorities, which may include fines and penalties on our operations in China, limitations on our operating privileges in China, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in China, restrictions on or delays to our future financing transactions offshore, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Our business is subject to complex and evolving Chinese laws and regulations regarding cybersecurity, information security, privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and any failure or perceived failure to comply with these laws and regulations could result in claims, changes to our business practices, negative publicity, legal proceedings, increased cost of operations, or declines in student base, or otherwise harm our business.”

Cash and Asset Flows through Our Organization

Tarena International, Inc. is a holding company with no operations of its own. We conduct our operations in China primarily through our subsidiaries and the variable interest entity. As a result, although other means are available for us to obtain financing at the holding company level, Tarena International, Inc.’s ability to pay dividends to the shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries and service fees paid by the variable interest entity and its subsidiaries. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to Tarena International, Inc. In addition, our PRC subsidiaries are permitted to pay dividends to Tarena International, Inc. only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Further, our PRC subsidiaries and the variable interest entity are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. For more details, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.”

Under PRC law, Tarena International, Inc. may provide funding to our PRC subsidiaries only through capital contributions or loans, and to the variable interest entity only through loans or payment for inter-group transactions, subject to satisfaction of applicable government registration and approval requirements. Prior to December 31, 2018, Tarena International, Inc., through its intermediate holding companies, provided capital contribution of RMB448.0 million accumulatively to its subsidiaries in China. Subsequently, there was no additional capital contribution from Tarena International, Inc. to its subsidiaries or variable interest entity. For the years ended December 31, 2019, 2020 and 2021, Tarena International, Inc. did not extend any loans to, or receive any repayments from, its intermediate holding companies and subsidiaries or its variable interest entity.

The variable interest entity may transfer cash to Tarena International, Inc. by paying service fees according to the exclusive business cooperation agreements. For the years ended December 31, 2019, 2020 and 2021, no such service fees were paid by the variable interest entity. If there is any amount payable to Tarena International, Inc. under the exclusive business cooperation agreements, we intend to settle them accordingly, but do not intend to otherwise distribute earnings.

For the years ended December 31, 2019, 2020 and 2021, no dividends or distributions were made to Tarena International, Inc. by our subsidiaries or the variable interest entity. Under PRC laws and regulations, our PRC subsidiaries and the variable interest entity are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to examination by the banks designated by SAFE. The amounts restricted include the paid-up capital and the statutory reserve funds of our PRC subsidiaries and the net assets of the variable interest entity in which we have no legal ownership, totaling RMB1,438.5 million, RMB1,483.4 million and RMB1,523.2 million (US$239.0 million) as of December 31, 2019, 2020 and 2021, respectively. For risks related to the fund flows of our operations in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”

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For the years ended December 31, 2019, 2020 and 2021, no assets other than cash were transferred through our organization.

Tarena International, Inc. has not declared or paid any cash dividends since the beginning of 2019, nor does it have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” For the Cayman Islands, PRC and United States federal income tax considerations of an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”

For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid within mainland China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future:

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Notes:

Not Applicable. 

Not Applicable.

The table above has been prepared under the assumption that all profits of the variable interest entity will be distributed as fees to our PRC subsidiaries under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the variable interest entity exceed the service fees paid to our PRC subsidiaries (or if the current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities), the variable interest entity could make a non-deductible transfer to our PRC subsidiaries for the amounts of the stranded cash in the variable interest entity. This would result in such transfer being non-deductible expenses for the variable interest entity but still taxable income for the PRC subsidiaries. Such a transfer and the related tax burdens would increase our after-tax loss by less than 1% of the pre-tax loss. Our management believes that there is only a remote possibility that this scenario would happen.

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Financial Information Related to the Consolidated Variable Interest Entity

The separated VIE and Non-VIE financial information for the year ended December 31, 2021, was as follows:

Selected Condensed Consolidated Statements of Income, Balance Sheets, and Cash Flows Information

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Selected Consolidated Financial Data

The following selected consolidated statements of comprehensive income data (other than ADS data) for the years ended December 31, 2016, 20172019, 2020 and 20182021, and the selected consolidated balance sheet data as of December 31, 20172020 and 20182021, have been derived from our audited consolidated financial statements included elsewhere in this annual report. The following selected consolidated statements of comprehensive income data (other than ADS data) for the yearsyear ended December 31, 20142017 and 20152018, and the selected consolidated balance sheet data as of December 31, 2014, 20152017, 2018 and 20162019 have been derived from our unauditedaudited consolidated financial statements which are not included in this annual report and have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the years presented.report. Our historical results for any period are not necessarily indicative of results to be expected for any future period. The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” below. Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.

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Notes:

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The following table presents our selected consolidated balance sheet data as of the dates indicated.

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B.       Capitalization and Indebtedness​

Not Applicable.

C.       Reasons for the Offer and Use of Proceeds

Not Applicable.

Summary of Risk Factors

An investment in our ADSs involves significant risks. Below is a summary of material risks we face, organized under relevant headings. These risks are discussed more fully in Item 3. Key Information—D. Risk FactorsFactors.

Risks Related to Our Audit Committee Investigation, Restatement of Our Consolidated Financial Statements, Internal Controls and Related Matters

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We recently completed an audit committee investigation in the past, which required significant management time and attention, resulted in significant legal and other expenses, and led to the termination of a number of employees, including certain executive officers.

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Matters relating to or arising from the restatement and the Audit Committee’s investigation, including adverse publicity and potential concerns from our students, have had and could continue to have an adverse effect on our business and financial condition.

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Risks Related to Our Business

Risks Related to Our Corporate Structure

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Risks Related to Doing Business in China

Risks Related to Our ADSs

Risks Related to Our Audit Committee Investigation, Restatement of Our Consolidated Financial Statements, Internal Controls and Related Matters

We completed an audit committee investigation in the past, which required significant management time and attention, resulted in significant legal and other expenses, and led to the termination of a number of employees, including certain executive officers.

As previously disclosed, our Audit Committee undertook an independent investigation (the “Independent Investigation”) of our accounting practices and internal control over financial reporting related to revenue recognition with the assistance of independent advisors.advisors during 2019. We incurred significant costs in connection with the Audit Committee’s investigation,Independent Investigation, and our management team devoted significant time to the investigation.

We may receive inquiries from the SEC and other regulatory authorities regarding our restated financial statements or matters relating to our restatement, and we and our current and former directors and officers may be subject to future claims, investigations or proceedings. Any future inquiries from the SEC or other regulatory authorities, or future claims or proceedings as a result of the restatement or any related regulatory investigation, will, regardless of the outcome, will likely consume a significant amount of our internal resources and result in additional costs.

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We have entered into indemnification agreements with our current and former directors and certain of our officers, and our articles of association require us, to the fullest extent permitted by Cayman Islands law, to indemnify each of our directors and officers who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Company. Although we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations, our insurance coverage may not cover all claims that may be brought against us or our current and former directors and officers, and insurance coverage may not continue to be available to us at a reasonable cost. As a result, we have been and may continue to be exposed to substantial uninsured liabilities, including pursuant to our indemnification obligations, which could materially and adversely affect our business, prospects, results of operations and financial condition.

Matters relating to or arising from the restatement and the Audit Committee’s investigation, including adverse publicity and potential concerns from our students, have had and could continue to have an adverse effect on our business and financial condition.

We have been and could continue to be the subject of negative publicity focusing on the restatement and adjustment of our financial statements, and we may be adversely impacted by negative reactions from our students or others with whom we do business. Concerns include the perception of the effort required to address our accounting and control environment, and the ability for us to be a long-term provider to our students. Continued adverse publicity and potential concerns from our customers could harm our business and have an adverse effect on our financial condition.

We identified material weaknesses in our internal controls as of December 31, 2018, and if we fail to establish and maintain effective internal controls, ourOur ability to report our financial results accurately or to prevent fraud may be adversely affected, and investor confidence and the market price of the ADSs may be adversely affected.

affected, if we fail to maintain effective internal control over financial reporting in the future.

Our independent registered public accounting firm has conducted an audit of our internal control over financial reporting. In the course of auditing our internal control, we and our independent registered public accounting firm identified certain material weaknesses in our internal control over financial reporting as of December 31, 2018.2019. A material weakness is a deficiency, or combination of deficiencies, in internal controls, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses in our internal controls identified as of December 31, 20182019, related to:

As a result of the material weaknesses, management has concluded that our internal control over financial reporting was ineffective as of December 31, 2018.2019. In addition, our independent registered public accounting firm attesting to the effectiveness of our internal control and reported that our internal control over financial reporting was ineffective as of December 31, 2018. In light2019.

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During 2020, we took the restatement of our financial statements and new facts discovered by our management, including identification ofremedial steps to address the material weaknesses as above, we reassessed the appropriateness of the conclusion thatin our internal control over financial reporting was effective asreporting. Our management, with the participation of December 31, 2016. Consideringour Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the material weaknesses identified and the Restatement subsequent to the year ended December 31, 2016, and the significant impact on the Company’s original financial information and disclosure, the management concluded thateffectiveness of our company’s internal control over financial reporting was ineffective as of December 31, 2016. The management2020 and 2021. Based on this evaluation, we did not amendnote or identify any deficiencies that we believe to be material weaknesses as of December 31, 2020 and 2021.

Even though we did not note or identify any deficiencies that we believe to be material weaknesses as of December 31, 2020 and 2021,our ability to report our financial results accurately or to prevent fraud may be adversely affected, and investor confidence and the conclusion that ourmarket price of the ADSs may be adversely affected, if we fail to maintain effective internal control over financial reporting was ineffective as of December 31, 2017.

Following the identification of the material weaknesses and the control deficiencies, we have taken measures to remedy them.See “Item 15. Controls and Procedures—Management’s Annual Report on Internal Control over Financial Reporting—Management’s Plan for Remediation of Material Weaknesses.”The implementation of these remedial measures may not fully address these deficiencies in our internal controls. Our failure to correct these deficiencies or our failure to discover and address any other deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs, may be materially adversely affected.

In addition, these deficiencies could cause investors to lose confidence in our reported financial information, limiting our access to capital markets, adversely affecting our operating results and leading to declines in the trading price of the ADSs. Additionally, ineffective internal controls could expose us to increased risk of fraud or misappropriation of corporate assets and subject us to potential delisting from the stock exchange on which we list or to other regulatory investigations and civil or criminal sanctions. We could also be required to further restate our historical financial statements.

The filing of this Form 20-F may not make us “current” in our Exchange Act filing obligations, which means we retain certain potential liability and may not be eligible to use certain forms or rely on certain rules of the SEC.future.

We are filing a comprehensive annual report on Form 20-F since we have been delinquent in meeting our periodic reporting requirements with the SEC, following, by analogy, previously issued guidance from the staff of the SEC’s Division of Corporation Finance, or the Staff, with respect to U.S. domestic issuers. Our filing of this Form 20-F does not necessarily mean that the Staff will conclude that we have complied with all applicable financial statement requirements or complied with all reporting requirements of the Exchange Act, nor does it foreclose any enforcement action by the SEC with respect to our disclosure, filings or failures to file reports under the Exchange Act.

This Form 20-F for the fiscal year ended December 31, 2018 includes our audited consolidated balance sheets as of December 31, 2017 and 2018, the related consolidated statements of comprehensive income (loss), change in equity and cash flows for each of the three years in the period ended December 31, 2018. The consolidated financial statements for the fiscal years ended December 31, 2016 and 2017, as well as the selected financial data for fiscal years ended December 31, 2014 (unaudited) and 2015 (unaudited) are restated. We have not amended, and do not intend to amend, our annual reports on Form 20-F previously filed with, or our quarterly financial statements attached as exhibits to our current reports on Form 6-K previously furnished to, the SEC. Without the unamended reports, investors may not be able to review certain financial and other disclosures that would have been contained in those reports, which would have provided an additional source of information for their evaluation of their investment in us. As a result of our failure to maintain current filings with the SEC in the past, our use of this format of the Form 20-F and any potential enforcement action from the SEC or other regulatory agencies, we may not be eligible to use certain short-form registration statements or rely on certain rules of the SEC. This could increase our transaction costs and adversely impact our ability to raise capital in a timely manner. 

Risks RelatingRelated to Our Business

We incurred net losses infrom 2017 and 2018,to 2021, and we may continue to incur net losses again in the future.

While we have achieved positive net income between 2014 and 2016, we incurred net losslosses of RMB147 thousand, and RMB592.2 million, RMB1,038.9 million, RMB771.2 million and RMB475.8 million (US$86.174.7 million) in 2017, 2018, 2019, 2020 and 2018,2021, respectively. We cannot assure you that we will be able to generate positive net profitsincome again in the future. Our ability to achieve profitability will depend in large part on our ability to increase our operating margin, either by growing our revenues at a rate faster than our operating expenses increase, or by reducing our operating expenses, especially our salesselling and marketmarketing expenses, as a percentage of our net revenues. We intend to continue to invest in our branding and marketing activities to attract new students, and improve our online learning modules to enhance student experience. We cannot assure you that we will be successful in these efforts, and we may continue to incur net losses for a period of time in the future.

If we are not able to continue to attract students to enroll in our courses, our business and prospects will be materially and adversely affected.

The success of our business depends primarily on the number of students enrolled in our courses. Therefore, our ability to continue to attract students to enroll in our courses is critical to the continued success and growth of our business. This in turn will depend on several factors, including our ability to develop new courses and enhance existing courses to respond to changes in market trends and student demands, expand our learning center network and geographic footprint while keeping a high utilization rate of our facilities, manage our growth while maintaining consistent and high education quality, broaden our relationships with corporate employers and market our courses effectively to a broader base of prospective students, including young children as well as their parents. Furthermore, our ability to attract students also depends on our ability to provide educational content that is perceived as more effective than the standard curricula of universities in China in terms of practical job-oriented training and as complementary to standard curricula of primary and secondary schools in China.training. If we are unable to continue to attract students to enroll in our courses, our net revenues may decline, which may have a material adverse effect on our business, financial condition and results of operations.

We may not be able to continue to recruit, train and retain qualified instructors and teaching assistants, who are critical to the success of our business and effective delivery of our education services to students.

Our instructors and teaching assistants are critical to maintaining the quality of our educational services and our reputation. We seek to hire highly qualified instructors with rich industry experience and strong teaching skills. As our K-12childhood and adolescent quality education program continues to develop, we will need to recruit more instructors and teaching assistants. We recruit dedicated instructors and teaching assistants primarily from outstanding graduates of our courses.courses as well as experienced development engineers. There is a limited pool of instructors and teaching assistants with these attributes, and we must provide competitive compensation packages to attract and retain them. We must also provide ongoing training to our instructors and teaching assistants to ensure that they stay abreast of changes in curriculum, student demands, industry standards and other trends necessary to teach and tutor effectively. We have not experienced major difficulties in recruiting, training or retaining qualified instructors and teaching assistants in the past. However, we may not always be able to recruit, train and retain enough qualified instructors and teaching assistants in the future to keep pace with our growth and maintain consistent education quality. A shortage of qualified teaching staff, a decrease in the quality of our teaching staff’s classroom performance, whether actual or perceived, or a significant increase in compensation to retain qualified instructors and teaching assistants would have a material adverse effect on our business, financial condition and results of operations.

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If we are not able to continually tailor our curriculum to market demand and enhance our courses to adequately and promptly respond to developments in the professional job market, our courses may become less attractive to students.

New trends in the global economy and rapid developments in the professional services industries may change the type of skills required for professionals in the marketplace. This requires us to continually develop, update and enhance our course materials to adapt to the needs of the professional job market in China. We may be unable to update our courses in a timely and cost-effective manner, or at all, to keep pace with changes in market requirements. Any inability to track and respond to these changes in a cost-effective and timely manner or to tailor our courses to the professional services markets in China would render our courses less attractive to students, which may materially and adversely affect our reputation and ability to continue to attract students and cause us to lose market share.

If we fail to develop and introduce new courses in anticipation of market demand in a timely and cost-effective manner, our competitive position and ability to generate revenues may be materially and adversely affected.

Since inception, our primary focus has been on providing IT professional education services. We have since expanded our course offerings to include non-IT training courses, such as digital art, online sales and marketing and accounting. We have alsoIn December 2015, we launched IT and non-IT training courses customized for young kids since December 2015,children, which primarily include computer programming and robotics programming. We intend to continue developing new courses in anticipation of market demand. The introduction of new courses is subject to risks and uncertainties. Unexpected technical, operational, logistical, regulatory or other problems could delay or prevent the introduction of one or more new courses. Moreover, we cannot assure you that any of these new courses will match the quality or popularity of those developed by our competitors, achieve widespread market acceptance or generate the desired level of income for our students.

Offering new courses requires us to make investments in content development, recruit and train additional qualified instructors and teaching assistants, increase marketing efforts and re-allocate resources away from other uses. We may have limited experience with the content of new courses and may need to modify our systems and strategies to incorporate new courses into our existing course offerings. In offering courses in new subject areas, we may face new risks and challenges that we are not familiar with. Furthermore, we may experience difficulties in recruiting or otherwise identifying qualified instructors to develop the content for these new courses. If we are unable to offer new courses in a timely and cost-effective manner, our results of operations and financial condition could be adversely affected.

We rely on Javachildhood and adolescent robotics programming and computer programming, and adult java courses and digital art coursesarts for a major part of our total net revenues, and a decrease in the popularity and usage of Java or Adobe design technologychildhood and adolescent robotics programming and computer programming, and adult java courses and digital arts would have a material adverse effect on our business and results of operations.

A major part of our total net revenues areis generated from the Javachildhood and adolescent robotics programming and computer programming courses, and adult java courses and digital art courses.arts. In 2018, our Java course2021, childhood and adolescent robotics programming and computer programming courses, and adult java courses and digital arts contributed 18.9%to 27.9%, 19.4%, 11.8% and 11.0% of our total student enrollments, and our digital art course contributed 30.3% of our total student enrollments.net revenues, respectively. The historical rapid growth of our business has been driven by the popularity and usage of Javajava technology and Adobe design, and we expect net revenues from these courses to continue to represent a substantialmajor portion of our total net revenues in the near future. We believe our reliance on Javajava and digital art courses is mainly attributable to the wide adoption and popularity of Javajava technology and Adobe design. However, whether Javajava as a programming language or Adobe design technology as a digital art tool can maintain their popularity is beyond our control. Meanwhile, childhood and adolescent robotics programming courses are increasingly popular and contribute to an increasing percentage of our net revenues. Any factor that materially and adversely affects student enrollment in our Javadigital arts, java or digital artchildhood and adolescent computer programming courses and childhood and adolescent robotics programming, such as a decrease in the popularity and usage of JavaAdobe design, java technology or Adobe designchildhood and adolescent computer programming would have a material adverse effect on business and our results of operations.

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Our business depends on the market recognition of our brands, and if we are unable to maintain or enhance our brand recognition, our business, financial condition and results of operations may be materially and adversely affected.

We believe that the market recognition of our “Tarena” and “TongchengTongmei” brands has significantly contributed to the success of our business and believe that maintaining and enhancing the reputation of these brands is critical to sustaining our competitive advantage. Our ability to maintain and enhance our brand recognition and reputation depends primarily on the perceived effectiveness and quality of our courses as well as the success of our marketing and promotion efforts. As we continue to grow and expand into new course areas, we may not be able to maintain the quality and consistency of our educational services as we did in the past. We have devoted significant resources to promoting our courses and brands in recent years, including internet-based marketing and advertising, traditional media advertising, press conferenceconferences and product launch event.events. However, our marketing and promotion efforts may not be successful or may inadvertently negatively impact our brand recognition and reputation. For example, if any governmental authority or competitor publicly alleges that any of our advertisements are misleading, our brand reputation may be adversely impacted. If we are unable to maintain and further enhance our brand recognition and reputation and increase awareness of our courses, or if we incur excessive marketing and promotion expenses, our results of operations may be materially and adversely affected. If we are unable to sustain our brand image, we may not be able to maintain premium tuition fees over our competitors, which may further exacerbate the extent of any adverse effect on our results of operations. Furthermore, any negative publicity relating to our company or our courses and services, regardless of its veracity, could harm our brand image and in turn materially and adversely affect our business and operating results.

Our business, financial condition and results of operations have been and may continue to be adversely affected by the COVID-19 outbreak.

The recent outbreakSince the beginning of a novel strain2020, outbreaks of coronavirus, now named as COVID-19 has spread rapidly to many parts of the world. The epidemic hashave resulted in quarantines, travel restrictions, and the temporary closure of many corporate offices, retail stores, and manufacturing facilities across China. In early 2020, in Chinaresponse to intensifying efforts to contain the spread of COVID-19, the Chinese government took a number of actions, which included extending the Chinese New Year holiday, quarantining individuals infected with or suspected of having COVID-19, prohibiting certain travels, encouraging employees of enterprises to work remotely from home, and many other countries for the past few months. In March 2020, the World Health Organization declared the COVID-19 a pandemic.cancelling public activities, among others.

The current COVID-19 pandemic has already adversely affected many of our business activities, including delivering lectures at our learning centers, recruiting students and conducting our day-to-day business.business since 2020. As part of China’s nationwide efforts to contain the spread of COVID-19, our classrooms in Beijing as well as our learning centers across China have underwent temporary yet prolonged closure from February 2020 to present.May 2020. Since the second half of 2020, many of the quarantine measures within China have been relaxed, and we have resumed normal operations. While the spread of COVID-19 was substantially controlled in China in 2021 and the number of new cases in China remained relatively low, restrictions were re-imposed from time to time in certain cities to combat outbreaks. In 2021 and the first quarter of 2022, due to the occurrence of COVID-19 cases in mainland China, some of our learning centers in certain cities underwent temporary closure and suspension from operation. Despite the rapid COVID-19 vaccine rollout, uncertainties remain due to the emerging new variants, and our learning centers across China may undergo closure or class-size reduction subject to the restriction measures within China in the future. Although we have arranged online webcasts for our students to study at home, which covered most of our adult students and K-12 students, we may not be able to achieve the same effectiveness and service quality without the disciplined and focused learning environment at our learning centers. AsMany of the quarantine measures within China, especially in the Shanghai and Jilin provinces, are still in place as of the date of this annual report, and some of our learning centers remain closed dueare required to the government policies on suspendingclose or suspend classes, at school.and cancel offline activities in some areas of mainland China. More learning centers may be ordered to close or suspend classes and cancel offline activities again if China fails to fully contain COVID-19 or suffers a COVID-19 relapse.

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In addition, we have experienced difficulty in recruiting students as we are unable to host regular seminars, information sessions and preparatory training camps for prospective students at our learning centers as usual, as well as conductingto conduct other offline sales and marketing activities due to the general restrictions on travel and outdoor activities. We have arranged for online recruiting activities, such as conducting online promotional courses, but the effectiveness of such efforts is uncertain. OurDue to the repeated outbreaks in certain areas of mainland China, our ability to recruit students directly from cooperative universities and colleges is also negatively impacted as many universities and colleges experienced temporary closure from time to time. Even if most universities and colleges have been closed.

reopen after the periodic outbreaks, our ability to recruit students may not quickly or fully recover, or at all. The repeated outbreak of COVID-19 in China has also caused temporary closuresclosure of manysome of our offices, and adjustment of operation hours and flexible work-from-home arrangements in our Beijing headquarters and other offices in China. We have taken measures

The COVID-19 global pandemic has resulted in, and may intensify, global economic distress, and the duration and extent of the impact of the COVID-19 outbreak is highly uncertain at this time. The extent to facilitate our employees to work remotely, but we might still experience lower work efficiency and productivity, which it may adversely affect our results of operations.

As we derive mostoperations, financial condition and cash flows will depend on the future development of our revenuesthe outbreak, which is also highly uncertain and will depend on a number of factors, including the duration and severity of COVID-19, the possibility of new waves in China and other countries, the development and progress of distribution of COVID-19 vaccines and other medical treatment, the potential change in consumer behavior due to the prolonged impact of COVID-19, and the actions taken by government authorities to contain the outbreak and stimulate the economy to improve business conditions, all of which are beyond our control. If the situation materially deteriorates in China or globally, our business, results of operations will be adversely, and mayfinancial condition could be materially affected to the extent that COVID-19 harms the Chinese and global economy in general. While the duration of this pandemic cannot be reasonably estimated at this time, we expect that our results of operations for the first quarter and second quarter of 2020 will be adversely affected with potential continuing negative impacts on the subsequent periods.affected.

We may not be able to maintain our high job placement rate for our adult students, which could harm our ability to attract student enrollments.

We gather data on post-course job placement rates by conducting surveys of our adult graduates. Based on the survey responses, we calculate the six-month post-course job placement rates for a month by dividing (i) the number of job-seeking students enrolled in such month who (A) successfully graduated from our programs with graduation certificates awarded and (B) indicated that they had received employment offers within six months of graduation, by (ii) the total number of job-seeking students enrolled in such month who later successfully graduated from our programs with graduation certificates awarded. We calculate the annual average six-month post-course job placement rate for a year by averaging the six-month post-course job placement ratesrate of each month of such year.month. Our average six-month post-course job placement rate for each of 20172019, 2020 and 20182021 was over 90%approximately 91%. When calculating such job placement rates for 20172019, 2020 and 2018,2021, a majority of the employment reported by relevant students was full-time employment, and a majority of the employment reported by relevant students was in the fields of their studies with us. All of the students enrolled in 20172018, 2019 and 20182020 who later successfully graduated from our programs with graduation certificates awarded and who were job-seeking have filled out our surveys. Among the students enrolled in 20172018, 2019 and 2018, 86%2020, 88%, 96% and 88% of such students, respectively, graduated from our programs with graduation certificates awarded. Among the students enrolled in 20172018, 2019 and 20182020 who later successfully graduated from our programs with graduation certificates awarded, 76%75%, 65% and 75%57% of such students, respectively, were deemed to be job-seeking students. The decrease was primarily because the ratio of non-job-seeking students (e.g., those who already have a full-time or part-time job) who graduated from our programs has been steadily increasing over the recent years.

Our student job placement rate depends on a wide range of external and internal factors. External factors include the macroeconomic conditions, the performance of the professional services sector in China and the recruiting demand of corporate employers. Internal factors include our education quality, the efforts of our career services personnel, our ability to provide adequate staffing to achieve desired results and our relationships with corporate employers. A number of such external and internal factors are outside of our control. Our historical job placement rates have been high. However, we cannot assure you that we will be able to maintain our current level of job placement rate for our students in the future. Any decrease in our job placement rate could harm our ability to recruit students, which may materially and adversely affect our business, financial condition and results of operations.

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Our newly launched K-12childhood and adolescent quality education programs may not be successful due to our limited experience in providing education services to minors.

In December 2015, we launched our K-12childhood and adolescent quality education programs under the brand nameTongchengTongmei featuring IT training courses and non-IT training courses for K-12 students.students aged between three and eighteen. In March 2016, we rolled out another K-12quality education program to offer K-12childhood and adolescent robotics programming courses. In 2017, we continued to roll out a new K-12 education course in coding mathematics course to further diversify our course offerings in K-12childhood and adolescent quality education. In 2018 and 2019, our computer coding and robotics programming courses were popular among our K-12 students.students, and the revenues from childhood and adolescent computer programming courses exceeded 10% of our total revenues in 2019. In 2020 and 2021, we launched the Creative Programming Starter course and robotics programming courses including SPIKE Starter and SPIKE Advanced, which have gained popularity among our students aged between three and eighteen. Our K-12childhood and adolescent quality education programs target students aged between three and eighteen, and are the most important part of our efforts to enter into the K-12childhood and adolescent STEAM education market. As of the date of this annual report, we have discontinued all childhood and adolescent non-IT training courses, which contributed less than 1% of our net revenue generated from our childhood and adolescent quality education business in 2021. As we have been primarily engaging in adult professional education programs since our inception, we have limited experience in providing quality education programs to minors, who have distinct learning preferencepreferences and a distinct mentality as compared to adult students and require tailored courses and dedicated class management. Although the courses offered through our K-12 education programs are designed based on minors’ learning patterns and interests, we cannot guarantee you that our K-12 education programs will be able to continue to attract students or be proved to achieve satisfactory education results. If students lose interests in our K-12 education programs or find the courses offered in our K-12 education programs ineffective, our business, results of operations and financial conditions may be adversely affected.

Our student enrollment rate could be impacted by the operations of childhood and adolescent academic K-12or quality education and tutoring service providers, given that our target students have limited time and energy and they need to choose among different courses and programs. The K-12childhood and adolescent quality education and tutoring market is highly competitive and the concept of STEAM education is relatively new in China. Students and their parents may prefer academic or other quality education and tutoring programs over our STEAM programs. We cannot assure you that we will be successful in competing for students, and if we fail, our financial status and results of operation will be adversely impacted.

Furthermore, we have incurred costs in establishing new learning centers due to the fast expansion of our K-12childhood and adolescent quality education business recently,in the past few years, which we believe are essential to support our education programs in the future. If, however, we fail to utilize such new learning centers efficiently, or otherwise fully benefit from the investments we made, our financial status and resultresults of operation will be adversely impacted.

If the level of performance by the students of our K-12childhood and adolescent quality education program deteriorates or satisfaction with our services declines, our business, financial condition, results of operations and reputation could be adversely affected.

The success of our business depends on our ability to deliver a satisfactory learning experience and improved educational results. Although the courses provided under our K-12childhood and adolescent quality education programs do not directly link to the academic performance of our students, their effectiveness could be evaluated by our students and their parents in an intuitive way by referring to the improvements in programming skills or performances in robotics competitions. The performance of our students in the IT training courses, non-IT training course, K-12childhood and adolescent robotics programming and coding mathematics course will impact the acceptance of, and the student and parent satisfaction with, our courses.

Accidents or injuries suffered by our students, their parents or other people caused by us, or perceived to be caused by us, may adversely affect our reputation, subject us to liability and cause us to incur substantial costs.

We have a large number of K-12 students and their parents on our premises to attend classes and/or use our facilities, and they may suffer accidents or injuries or other harm on our premises, including those caused by or otherwise arisearising from the actions of our employees. Although we have enhanced preventive measures to avoid such incidents, we cannot assure you that there will be no any incidentincidents in the future.

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Other than the liability insurance for part of our adult students and travel insurance, accident insurance, and medical insurance for our K-12 students aged between three and eighteen participating in our camp or event-related travel,activities, we do not carry liability insurance for most of our students at our learning centers. In the event of accidents or injuries or other harm caused or perceived to be caused by us, our facilities and/or services may be perceived to be unsafe, which may discourage prospective students from attending our classes and participateparticipating in our activities. We could also face claims alleging that we should be liable for the accidents or injuries, or we were negligent, or provided inadequate supervision to our employees and therefore should be held jointly liable for harm caused by them. A material liability claim against us or any of our teachers or other employees could adversely affect our reputation, enrollment and revenues. Even if unsuccessful, such a claim could create unfavorable publicity, cause us to incur substantial expenses and divert the time and attention of our management.

Our business, financial condition and results of operations may be adversely affected by a downturn in the global or Chinese economy.

Because ourthe student enrollment of our professional education courses may depend on our students’ and potential students’ levels of disposable income, perceived job prospects and willingness to spend, as well as the level of hiring demand of professional services positions, our business and prospects may be affected by economic conditions in China or globally. In addition, for our K-12childhood and adolescent quality education programs, our student enrollment may depend on the parents’ disposable income and willingness to spendspend. The growth of the parents. TheChinese economy has slowed in recent years. Even before the COVID-19 pandemic, the global macroeconomic environment iswas facing challenges, including the end of quantitative easing by the U.S. Federal Reserve,such as the economic slowdown in the Eurozone insince 2014, uncertainties over the impact of Brexit and the expected exitongoing global trade disputes and tariffs. There is considerable uncertainty over the long-term effects of the monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United Kingdom from the European Union. It is unclear whether the Chinese economy will resume its high growth rate. The Chinese economy has slowed down in recent years. According to the National Bureau of Statistics of China, in 2019, China’s gross domestic product grew at a rate of 6.1%. ThereStates and China. In addition, there have also been concerns about the territorial disputes involving China in Asia and the economic effects, as well as the relationship between China and the U.S., including thoseUnited States resulting from the ongoingcurrent trade disputetension between the two countries. Any further escalation in trade tensions between China and the U.S. or a trade war, or the perception that such escalation or trade war could occur, may have negative impact on the economies of not only the two countries concerned, but the global economy as a whole. There have been further uncertainties related to the U.S. Federal Reserve’s monetary policies in response to market conditions under the impact of COVID-19. Recently, the Russia-Ukraine war has caused, and continues to intensify, significant geopolitical tensions in Europe and across the world. The resulting sanctions are expected to have significant impacts on the economic conditions of the targeted countries and may disrupt global markets. It is unclear whether these challenges and uncertainties will be contained or resolved and what effects they may have on the global political and economic conditions in the long term. Economic conditions in China, including the performance of the IT and other professional services industries, are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. A decline in the economic prospects of IT and other professionals could alter current or prospective students’ spending priorities and the recruiting demand from professional service industries. We cannot assure you that professional education spending in general or with respect to our course offerings in particular will increase, or not decrease, from current levels, or if the macroeconomic environment deteriorates, parents will continue to spend on STEAM education for their children. Therefore, a slowdown in China’s economy or the global economy may lead to a reduction in demand for education services, which could materially and adversely affect our financial condition and results of operations.