United States securities and exchange commission logo
September 23, 2021
Amy Tung
Chief Financial Officer
ATA Creativity Global
c/o 1/F East Gate, Building No. 2, Jian Wai Soho,
No. 39 Dong San Huan Zhong Road,
Chao Yang District, Beijing 100022, China
Re: ATA Creativity
Global
Form 20-F for the
Fiscal Year Ended December 31, 2020
Filed April 13,
2021
Form 6-K
Filed August 13,
2021
File No. 001-33910
Dear Ms. Tung:
We have limited our review of your filing to the financial
statements and related
disclosures and have the following comments. In some of our comments, we
may ask you to
provide us with information so we may better understand your disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 6-K filed August 13, 2021
Exhibit 99.1, page 2
1. We note the Form 6-K
you filed on August 13, 2021 with a statement addressing
regulatory actions
affecting education companies. Subsequent to this statement, on
August 18, 2021,
Beijing published specific measures to implement the Chinese opinion
issued in July known as
the Opinions on Further Alleviating the Burden of Homework
and After-School
Tutoring for Students in Compulsory Education. The Opinion appears
to contain various
requirements and restrictions related to after school tutoring services,
including registration
as non-profit, prohibition on foreign ownership, prohibition for
listed companies on
raising capital to invest in businesses that teach academic subjects in
compulsory education,
limitations as to when tutoring services on academic subjects may
Amy Tung
FirstName LastNameAmy Tung
ATA Creativity Global
Comapany 23,
September NameATA
2021 Creativity Global
September
Page 2 23, 2021 Page 2
FirstName LastName
be provided and new fee standards. Tell us and disclose the
applicability of this Opinion
to you and your business and how and when you expect to comply.
Form 20-F for the Fiscal Year Ended December 31, 2020
Item 3. Key Information, page 3
2. Please disclose prominently here that you are not a Chinese operating
company but a
Cayman Islands holding company with operations conducted by your
subsidiaries and
through contractual arrangements with a variable interest entity (VIE)
based in China and
that this structure involves unique risks to investors. Explain
whether the VIE structure is
used to replicate foreign investment in Chinese-based companies where
Chinese law
prohibits direct foreign investment in the operating companies, and
disclose that investors
may never directly hold equity interests in the Chinese operating
company. Your
disclosure should acknowledge that Chinese regulatory authorities
could disallow this
structure, which would likely result in a material change in your
operations and/or value
of your ADSs, including that it could cause the value of such
securities to significantly
decline or become worthless. Provide a cross-reference to your
detailed discussion of risks
facing the company and any future offering as a result of this
structure.
3. Provide prominent disclosure about the legal and operational risks
associated with being
based in or having the majority of the company s operations in
China. Your disclosure
should make clear whether these risks could result in a material
change in your operations
and/or the value of your ADSs or could significantly limit or
completely hinder your
ability to continue to offer securities to investors and cause the
value of such securities to
significantly decline or be worthless. Your disclosure should address
how recent
statements and regulatory actions by China s government, such as
those related to the use
of variable interest entities and data security or anti-monopoly
concerns, has or may
impact the company s ability to conduct its business, accept foreign
investments, or list on
an U.S. or other foreign exchange.
4. Clearly disclose how you will refer to the holding company,
subsidiaries, and VIEs when
providing the disclosure throughout the document so that it is clear
to investors which
entity the disclosure is referencing and which subsidiaries or
entities are conducting the
business operations. Refrain from using terms such as we or
our when describing
activities or functions of a VIE. Disclose clearly the entity
(including the domicile) in
which investors can or have purchased their interest in.
5. Disclose clearly here that the company uses a structure that involves
a VIE based in China
and what that entails and provide a diagram of the company s
corporate structure,
including what the equity ownership interests are of each entity.
Describe all contracts
and arrangements through which you purport to obtain economic rights
and exercise
control that results in consolidation of the VIE s operations and
financial results into your
financial statements. Identify clearly the entity in which investors
have or can purchase
their interest in and the entity(ies) in which the company s
operations are conducted.
Amy Tung
ATA Creativity Global
September 23, 2021
Page 3
Describe the relevant contractual agreements between the entities and
how this type of
corporate structure may affect investors and the value of their
investment, including how
and why the contractual arrangements may be less effective than direct
ownership and that
the company may incur substantial costs to enforce the terms of the
arrangements.
Disclose the uncertainties regarding the status of the rights of the
Cayman Islands holding
company with respect to its contractual arrangements with the VIE, its
founders and
owners, and the challenges the company may face enforcing these
contractual agreements
due to uncertainties under Chinese law and jurisdictional limits.
6. In your summary of risk factors, disclose the risks that your
corporate structure and being
based in or having the majority of the company s operations in China
poses to investors.
In particular, describe the significant regulatory, liquidity, and
enforcement risksFor
example, specifically discuss risks arising from the legal system in
China, including risks
and uncertainties regarding the enforcement of laws and that rules and
regulations in
China can change quickly with little advance notice; and the risk that
the Chinese
government may intervene or influence your operations at any time, or
may exert more
control over offerings conducted overseas and/or foreign investment in
China-based
issuers, which could result in a material change in your operations
and/or the value of
your ADSs. Acknowledge any risks that any actions by the Chinese
government to exert
more oversight and control over offerings that are conducted overseas
and/or foreign
investment in China-based issuers could significantly limit or
completely hinder your
ability to continue to offer securities to investors and cause the
value of such securities to
significantly decline or be worthless.
7. Disclose each permission that you, your subsidiaries or your VIEs are
required to obtain
from Chinese authorities to operate and issue securities to foreign
investors. State
whether you, your subsidiaries, or VIEs are covered by permissions
requirements from the
CSRC, CAC or any other entity that is required to approve of the VIE
s operations, and
state affirmatively whether you have received all requisite
permissions and whether any
permissions have been denied.
8. Provide a clear description of how cash is transferred through your
organization. Disclose
you intentions to distribute earnings or settle amounts owed under the
VIE agreements.
Quantify any cash flows and transfers of other assets by type that have
occurred between
the holding company, its subsidiaries, and consolidated VIEs, and
direction of the
transfer. Quantify any dividends or distributions that a subsidiary or
consolidated VIE
have made to the holding company and which entity made such transfer,
and their tax
consequences. Similarly quantify dividends or distributions made to U.S.
investors, the
source, and their tax consequences. Describe any restrictions on foreign
exchange and
your ability to transfer cash between entities, across borders, and to
U.S. investors.
FirstName LastNameAmy Tung
Describe any restrictions and limitations on your ability to distribute
earnings from your
Comapany NameATA
businesses, Creativity
including Global and/or consolidated VIEs, to the
parent company and
subsidiaries
U.S.23,
September investors as well
2021 Page 3 as the ability to settle amounts owed under the
VIE agreements.
FirstName LastName
Amy Tung
FirstName LastNameAmy Tung
ATA Creativity Global
Comapany 23,
September NameATA
2021 Creativity Global
September
Page 4 23, 2021 Page 4
FirstName LastName
9. We note that the consolidated VIEs constitute a material part of your
consolidated
financial statements. Please provide in tabular form condensed
consolidating schedules -
depicting the financial position, cash flows and results of operations
for the parent, the
consolidated variable interest entities, and any eliminating
adjustments separately - as of
the same dates and for the same periods for which audited consolidated
financial
statements are required. Highlight the financial statement information
related to the
variable interest entity and parent, so an investor may evaluate the
nature of assets held
by, and the operations of, entities apart from the variable interest
entity, which includes
the cash held and transferred among entities.
10. Disclose that trading in your securities may be prohibited under the
Holding Foreign
Companies Accountable Act if the PCAOB determines that it cannot
inspect or fully
investigate your auditor, and that as a result an exchange may
determine to delist your
securities. If the PCAOB has been or is currently unable to inspect
your auditor, revise
your disclosure to so state.
D. Risk Factors, page 6
11. Revise your risk factors to acknowledge that if the PRC government
determines that the
contractual arrangements constituting part of your VIE structure do
not comply with PRC
regulations, or if these regulations change or are interpreted
differently in the future, your
ADSs may decline in value or become worthless if you are unable to
assert your
contractual control rights over the assets of your PRC subsidiaries
that conduct all or
substantially all of your operations.
12. Given the Chinese government s significant oversight and discretion
over the conduct of
your business, please revise to separately highlight the risk that the
Chinese government
may intervene or influence your operations at any time, which could
result in a material
change in your operations and/or the value of your ADSs. Also, given
recent statements
by the Chinese government indicating an intent to exert more oversight
and control over
offerings that are conducted overseas and/or foreign investment in
China-based issuers,
acknowledge the risk that any such action could significantly limit or
completely hinder
your ability to continue to offer securities to investors and cause
the value of such
securities to significantly decline or be worthless.
13. In light of recent events indicating greater oversight by the
Cyberspace Administration of
China over data security, particularly for companies seeking to list
on a foreign exchange,
please revise your disclosure to explain how this oversight impacts
your business and any
offerings and to what extent you believe that you are compliant with
the regulations or
policies that have been issued by the CAC to date.
Amy Tung
FirstName LastNameAmy Tung
ATA Creativity Global
Comapany 23,
September NameATA
2021 Creativity Global
September
Page 5 23, 2021 Page 5
FirstName LastName
Index to Consolidated Financial Statements
Consolidated Balance Sheets, page F-4
14. We note that for accrued expenses and other payable and for payables
for business
acquisitions you state that these amount include amounts of VIE
without recourse to the
Company . Please clarify for us in further detail what this means.
Note 1. Description of Business, Organization and Significant Concentrations
and Risks
VIE Agreements, page F-13
15. Please clarify for us in further detail why there are no net revenues
from VIEs presented
with the table.
In closing, we remind you that the company and its management are
responsible for the
accuracy and adequacy of their disclosures, notwithstanding any review,
comments, action or
absence of action by the staff.
You may contact Aamira Chaudhry at 202-551-3389 or Lyn Shenk at
202-551-3380 with
any questions.
Sincerely,
Division of
Corporation Finance
Office of Trade &
Services