Byron Brown , et al. v. Ambow Education Holding Ltd., et al. 12-CV...

Case 2:12-cv-05062-PSG-AJW Document 21 Filed 02/19/13 of 70 Page ID #:2 IN %,0

THE ROSEN LAW FIRM, P.A. Laurence M. Rosen, Esq. (CSB# 219683) 355 South Grand Avenue, Suite 2450 Los Angeles, CA 90071 Telephone: (213) 785-2610 \ Facsimile: (213) 226-4684 ; Email: lrosenrosenlegaLcom

\ Lead Counsel for Plaintiffs ' and the Class

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

BYRON BROWN, TIANQING ZHANG, CASE No.: 12-cv-5062 / (A3* AND ROBERTO SALAZAR, INDIVIDUALLY AND ON BEHALF OF CLASS ACTION ALL OTHERS SIMILARLY SITUATED,

CONSOLIDATED AMENDED Plaintiffs, COMPLAINT FOR VIOLATIONS

OF THE FEDERAL SECURITIES vs. LAWS

AMBOW EDUCATION HOLDING LTD., JIM HUANG, PAUL CHOW, XUEJUN

JURY TRIAL DEMANDED

XIE, MARK ROBERT HARRIS, LISA LO, DANIEL PHILLIPS, TAO SUN AND SASHA CHANG

Defendants.

Lead Plaintiff Tianqing Zhang, and named plaintiffs, Byron Brown and

Roberto Salazar ("Plaintiffs), by and through their attorneys, alleges the following

upon information and belief, except as to those allegations concerning Plaintiffs,

which are alleged upon personal knowledge. Plaintiffs' information and belief is

based upon, among other things, their counsel's investigation, which includes

1 Class Action Complaint for Violation of the Federal Securities Laws

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:12-cv-05062-PSG-AJW Document 21 Filed 02/19/13 of 70 Page ID #:201

1 without limitation: (a) review and analysis of regulatory filings made by Ambow

2 Education Holding Ltd. ("Ambow" or the "Company"), with the United States 3 Securities and Exchange Commission ("SEC"); (b) review and analysis of press 4 releases and media reports issued by and disseminated by Ambow; (c) review of 5 other publicly available information concerning Ambow, (d) interviews of former

6 Ambow employees and other persons with personal knowledge of the facts alleged

7 1 herein.

8

NATURE OF THE ACTION AND OVERVIEW

9 1. This is a class action on behalf of purchasers of Ambow's American

10 Depositary Shares ("ADS") from the date of its initial public offering on August 5,

11 2010 through July 5, 2012, inclusive (the "Class Period"), seeking to pursue

12 remedies under Sections 11 and 15 of the Securities Act of 1933 (“Securities Act”)

13 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the

14 "Exchange Act").

15 2. Ambow provides educational and career enhancement services in the

16 People's Republic of China. Ambow has two business divisions: "Better Schools,"

17 which includes tutoring centers and K-12 schools; and "Better Jobs," which

includes career enhancement centers and colleges. 18

3. On August 5, 2012, Ambow sold 10,677,207 American Depositary shares at 19

$10.00 per share raising $106,772,070 in an initial public offering to investors 20 (“IPO” or “Offering”) and its shares began trading on the New York Stock 21 Exchange (“NYSE”). 1 22 4. Ambow filed the Prospectus for the offering on August 5, 2010. 23 5. The ADS’s sold in the IPO were registered pursuant to an amended

24 registration statement filed with the SEC on July 20, 2010 and declared effective

25 August 5, 2010 (the “Registration Statement”)

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1 The underwriters sold another 1,601,582 additional ADSs as part of their overallotmen option, raising another

28 $16,015,820 from investors for Ambow.

2 Consolidated Amended Class Action Complaint for Violation of the Federal Securities Laws

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1 6. Ambow’s Registration Statement contained misrepresentations and

2 omissions of material fact.

3 7. The Registration Statement misrepresented the nature of its acquisition of the 4 Changsha Study School (“Changsha Tutoring”), an entity engaged in providing 5 after-school tutoring services for junior high and high school students in Changsha,

6 which was purportedly acquired on November 15, 2008.

7 8. It recorded the purchase price for the acquisition as RMB52,282,000.

8 (Prospectus at F-62-63). It represented that the purchase price consisted of RMB

9 25,000,000 in cash and RMB 27,282,000 in equity exchanged through the issuance

10 of 1,400,560 ordinary shares.

11 9. In reality, this was a fake acquisition. Ambow paid its shares to the school’s

12 owner to borrow this school’s name and revenue for the IPO. Ownership and

13 control of the school and its revenue and income did not pass to Ambow in the

14 purported acquisition. This was reported by Changsha Tutoring’s owner to

15 Ambow’s auditor on July 2, 2012 and was followed by a Company announcement

16 on July 5, 2012 that it would conduct an internal investigation.

17 10. In truth, Ambow never acquired Changsha tutoring. Instead, the cash for the

purchase was secretly returned back to Ambow in the form of fake software sales in 18

the following three years. This is confirmed by Plaintiffs’ counsel’s interview of a 19

close family member of Changsha Tutoring’s owner and by two articles in 20 reputable Chinese media. Based on two news articles in reputable Chinese media, 21 described more fully below, Ambow structured other fake acquisitions in the IPO to 22 inflate its reported revenue. 23 11. In the Registration Statement, and following the IPO, Ambow touted its fast

24 growing, high profit margin software business in an effort to increase its stock price

25 relative to its earnings. Ambow inflated its software sales by transferring tuition

26 revenue from its slower growing and less appealing bricks and mortar education

27 business in its career education subgroup into the revenue of software sales by

28 creating fake software sales contracts. These facts were confirmed by a former


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1 Ambow manager. By doing so, Ambow was able to falsely report outstanding (but

2 false) annual growth of software sales of over 300% in 2009, 74% in 2010, and 3 63% in 2011. 4 12. During fiscal 2011, as part of its scheme to inflate its software sales, Ambow 5 improperly reported its “sale” of software to distributors on credit even though the

6 distributors had no demonstrated ability to pay for the product. Ambow did not

7 increase its allowance for doubtful accounts by a dollar or percentage amount

8 during 2011 even though its accounts receivable (credit sales) skyrocketed –

9 doubling in the third quarter of 2011 and increasing 450% for the fiscal year 2011.

10 This failure is particularly deceitful that during this period Ambow changed its

11 practice of not permitting credit sales, the increase in credit sales was to new and

12 unproven customers with no payment history and given that any credit sales

13 required special approval from Ambow management .

14 13. In its IPO registration statement Ambow stated that it didn’t make sales on

15 credit, except in unusual circumstances to its two key distributors, and that any such

16 extensions of credit required special approval of management. Ambow stated that

17 its credit sales to the two key distributors were insignificant. Its allowance for

doubtful accounts for fiscal 2009 was 351,000 RMB for total accounts receivable of 18

21,879,000 RMB or 1.6%. For the three months ended March 31, 2010, its 19

allowance for doubtful accounts was 351,000 RMB for total accounts receivable of 20 38,146,000 RMB or 0.9%. 21 14. In its fiscal year 2010 annual report, as of December 31, 2010, Ambow 22 reported an allowance for doubtful accounts of 458,000 RMB and total accounts 23 receivable of 48,745,000 RMB or 0.9%.

24 15. Thus, Ambow had recorded a relatively low allowance for doubtful accounts

25 of 0.9% for its accounts receivable to reflect its policy of only granting credit to its

26 two key customers, in special circumstances, when approved by management.

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1 16. Beginning in 2011, Ambow began to expand credit terms in violation of its

2 stated credit policies in an effort to recognize as much revenue as possible and 3 inflate its reported revenue figures. 4 17. Beginning in the third quarter of 2011, Ambow increased by 128% the 5 amount of sales on credit. Ambow made credit sales to customers that had no

6 proven payment history in violation of its stated credit policies and GAAP.

7 However, Ambow did not simultaneously increase its allowance for doubtful

8 accounts in absolute terms or as a percentage of total accounts receivable, even

9 though credit sales increased more than 450% from December 31, 2010 to

10 December 31, 2011. In fact, in each quarter during 2011, Ambow kept its

11 allowance for doubtful accounts at ($73,000) even though total accounts receivable

12 ballooned by 451%.

13 18. During fiscal 2011, in the quarterly periods and for the full year, Ambow

14 overstated materially its revenue, gross profit, operating profit, net income and

15 accounts receivable by material amounts.

16 19. On April 30, 2012, Ambow unexpectedly announced that it would be unable

17 to timely file its Annual Report on Form 20-F with the SEC for the 2011 fiscal

year. 18

20. On this news, the Company's shares declined $0.59 per share, or 7.71%, to 19

close on April 30, 2012, at $7.06 per share, on unusually heavy volume. 20 21. On May 16, 2012, Ambow disclosed that the Company was further delaying 21 the filing of its 2011 Annual Report with the SEC because the Company required 22 additional time to complete the audit of its 2011 financial statements and because 23 the Company had identified certain preliminary adjustments to its previously issued

24 2011 unaudited financial statements. Ambow stated it planned to make the

25 following adjustments, and possibly others, to correct its financial statements:

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(a) to change its revenue recognition method with respect to sales to

27 certain distributors, leading to the reversal of between $13.5 million (RMB85

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1 million) and $15.1 million (RMB95 million) of revenue previously

2 recognized in 2011;

3 (b) to make a bad debt provision of between $2.1 million (RMB13

4 million) and $2.4 million (RMB15 million); and

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(c) to increase its depreciation and other expenses by between $0.5 million

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(RMB3 million) and $0.6 million (RMB3.5 million).

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8 22. Additionally, on May 16, 2012, Ambow further disclosed that the Company

9 was evaluating whether to take a one-time non-cash charge of between $1.6 million

10 (RMB 10 million) and $3.2 million (RMB20 million) associated with a 2011

11 acquisition, as well as the need to make an additional tax provision of between $3.2

12 million (RMB20 million) and $4.8 million (RMB30 million) for one of its

13 subsidiaries.

14 23. On this news, the Company's shares declined $0.99 per share, or 17.55%, to

15 close on May 16, 2012 at $4.65 per share on unusually heavy volume, and further

16 declined $0.30 per share, or 6.45%, to close on May 17, 2012 at $4.35 per share,

17 also on unusually heavy volume.

24. On July 5, 2012 the company announced that, a former Ambow employee 18

made allegations of financial impropriety and wrongful conduct in connection with 19

the Company’s acquisition of a training school in 2008.

20 25. The Company also announced on July 5, 2012, that the Audit Committee of 21 the Board of Directors of the Company determined that it would conduct an internal 22 investigation to thoroughly review these allegations. The Company said it would 23 refrain from commenting further until the independent investigation is concluded.

24 The Company has never disclosed the results of its investigation.

25 26. Immediately following this announcement, Ambow’s share price plunged

26 $0.91/share on July 5, $0.52/share on July 6 and $0.43/share

27 27. On July 9, 2012, Jeffries reduced its ratings on Ambow stock as a result of

28 the adverse news.


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1 28. On July 10, 2012, one of the investment banks for the IPO, Macquarie

2 Group, reduced its rating for Ambow as a result of the recent adverse news and its 3 share price dropped another 8.2% or $0.18/share. 4 29. To date, Ambow has not revealed the results of its special investigation. 5 30. In the registration statement and throughout the Class Period, Defendants

6 made false and/or misleading statements, as well as failed to disclose material

7 adverse facts about the Company's business, operations, and prospects. Specifically,

8 Defendants made false and/or misleading statements and/or failed to disclose:

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(1) that certain of its acquisitions did not truly transfer control of the

10 school’s operations or its revenue and income to Ambow, (2) that the

11 cash purchase price for certain schools was secretly being returned to

12 Ambow in form of fake software sales that inflated its revenue and

13 income, (3) that certain of the Company's distributors did not have an

14 adequate history of timely payment; (4) that, as such, the collection of

15 receivables from these distributors was not reasonably assured; (5)

16 that, as a result, the Company was improperly recognizing revenue on

17 sales to these distributors; (6) that, as a result of the foregoing, the

Company's financial results were misstated during the Class Period; (7) 18

that the Company lacked adequate internal and financial controls; and 19

(9) that, as a result of the above, the Company's financial results were 20 materially false and misleading at all relevant times. 21 31. As a result of Defendants' violations of the federal securities laws, and the 22 precipitous decline in the market value of Ambow's securities, Plaintiffs and other 23 Class members have suffered significant damages.

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JURISDICTION AND VENUE

25 32. The claims asserted herein arise under Sections 10(b) and 20(a) of the

26 Exchange Act (15 U.S.C.§§78j(b) and 78t(a)) and Rule 10b-5 promulgated

27 thereunder by the SEC (17 C.F.R. § 240.10b-5), and pursuant to Sections 11 and 15

28 of the Securities Act (15 U.S.C. §§ 77k, 77l and 77(o)).


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1 33. This Court has jurisdiction over the subject matter of this action pursuant to

2 28 U.S.C. §1331 and Section 27 of the Exchange Act (15 U.S.C.§78aa), and 3 pursuant to Section 22(a) of the Securities Act. 4 34. Venue is proper in this Judicial District pursuant to 28 U.S.C. §1391(b) and

Section 27 of the Exchange Act (15 U.S.C. §78aa(c)); Substantial acts in

furtherance of the alleged fraud or the effects of the fraud have occurred in this

Judicial District. Many of the acts charged herein, including the dissemination of

materially false and/or misleading information, occurred in substantial part in this

Judicial District.

35. In connection with the acts, transactions, and conduct alleged herein,

Defendants directly and indirectly used the means and instrumentalities of interstate

commerce, including the· United States mail, interstate telephone communications,

and the facilities of a national securities exchange.

PARTIES

36. Plaintiff Tianqing Zhang, purchased Ambow ADS during the Class Period

that were issued and sold in Ambow’s IPO pursuant to the Registration Statement,

and suffered damages as a result of the federal securities law violations alleged

herein. His PSLRA certification has been previously filed with the Court and is

incorporated by reference herein.

37. Plaintiff Byron Brown purchased Ambow ADS during the Class Period that

were issued and sold in Ambow’s IPO pursuant to the Registration Statement and

suffered damages as a result of the federal securities law violations alleged herein.

His PSLRA certification has been previously filed with the Court and is

incorporated by reference herein

38. Plaintiff Roberto Salazar purchased Ambow ADS during the Class Period.

Mr. Salazar purchased shares that were issued and sold in Ambow’s IPO pursuant

to the Registration Statement and suffered damages as a result of the federal

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1 securities law violations alleged herein. His PSLRA certification is attached to the

2 complaint as Exhibit 1. 3 39. Defendant Ambow is a Cayman Islands corporation with its principal 4 executive offices located in Beijing, China. Ambow describes itself as offering 5 high-quality, individualized services and products through its combined online and

6 offline delivery model powered by its proprietary technologies and infrastructure.

7 It offers a variety of educational and career enhancement services and products to

8 students, recent graduates and corporate employees and management in China. As

9 of December 31, 2011 Ambow had a total of 183 centers and schools, 150 tutoring

10 centers, five K-12 schools, 25 career enhancement centers, two career enhancement

11 campuses and one college, which are located in 19 provinces and autonomous

12 regions within China. It also has software and corporate training companies. In

13 addition, Ambow has partnerships with schools, through its distributors and

14 corporations, allowing it to provide its products and services to students in 30 out of

15 the 31 autonomous regions within China.

16 40. Defendant Jin Huang ("Huang") was, Ambow’s President and Chief

17 Executive Officer ("CEO") and a director from 200 until the present and signed the

Company’s Registration Statement in connection with the Offering. 18

41. Following 180 days after the IPO, Huang was permitted to sell her Ambow 19

shares on the NYSE. Prior to the IPO Huang owned 14.5 million Ambow class B 20 ordinary shares. The Registration Statement represented that no one could sell any 21 Ambow shares publicly for 180 days following the IPO. 22 42. Defendant Paul Chow ("Chow") was Chief Financial Officer ("CFO") of 23 Ambow from February 2010 until December 2011, and signed the Company’s

24 Registration Statement in connection with the Offering. He also signed the interim

25 quarterly reports during the Class Period.

26 43. Defendant Xuejun Xie (“Xie”) was, at all relevant times, a director of

27 Ambow, and signed the Company’s Registration Statement in connection with the

28 Offering.


Case 2:12-cv-05062-PSG-AJW Document 21 Filed 02/19/13 of 70 Page ID #:209

1 44. Defendant Mark Robert Harris (“Harris”) was, at all relevant times, a director

2 of Ambow, and signed the Company’s Registration Statement in connection with 3 the Offering. 4 45. Defendant Lisa Lo (“Lo”) was, at all relevant times, a director of Ambow, 5 and signed the Company’s Registration Statement in connection with the Offering.

6 46. Defendant Daniel Phillips (“Phillips”) was, at all relevant times, a director of


8 Offering.

9 47. Defendant Tao Sun (“Sun”) was, at all relevant times, a director of Ambow,

10 and singed the Company’s Registration Statement in connection with the Offering.

11 48. Defendant Shasha Chang (“Chang”) was, at all relevant times, a director of


13 Offering.

14 49. Each of Huang, Chow, Xie, Harris, Lo, Phillips, Sun and Chang signed the

15 Registration Statement and was either a director or officer of the Company at the

16 time it filed the Registration Statement with the SEC.

17 50. Defendants Huang, Chow, Xie, Harris, Lo, Phillips, Sun and Chang are

collectively referred to as the “Individual Defendants.” 18

AMBOW’S REGISRATION STATEMENT CONTAINED FALSE 19

STATEMENTS AND OMISSIONS OF MATERIAL FACT 20 51. Prior to the IPO, Ambow purportedly made a string of acquisitions of 21 tutoring and education businesses in China. 22 52. Acquiring other tutoring and career education businesses was one of 23 Ambow’s main growth strategies it touted to investors in the IPO.

24 53. Ambow also touted its fast growing, high profit margin software business in

25 an effort to attract and increase its share price in the IPO.

26 54. In order to go public at a higher valuation Ambow improperly recognized

27 revenue in a manner designed to make Ambow appealing to investors in the form of

28 large revenue growth.



1 55. On August 5, 2010 Ambow filed its prospectus for an initial public offering

2 of 10,677,207 American Depositary shares at $10.00 per share raising 3 $106,772,070. 4 56. The Registration Statement contained false and misleading statements and 5 omitted to state material facts in connection the Company’s purported acquisition of

6 Changsha Tutoring.

7 57. The Registration Statement represented that Ambow acquired Changsha

8 Tutoring on November 15, 2008.

9 58. A source familiar with the details of this fake acquisition, who is a close

10 family member of the seller and former owner of Changsha Tutoring Mr. Minxu

11 Huang, confirmed to Plaintiffs’ counsel that the allegations of fraud on July 2, 2012

12 made by a former Ambow employee involved Changsha Tutoring in Changsha city,

13 Hunan Province.

14 59. When Ambow acquired this school in 2008, Ambow agreed to acquire 100%

15 equity of the school from Mr. Minxu Huang, for RMB 25,000,000 in cash plus the

16 equivalent value of Ambow Cayman Island company’s shares (rather than ADSs),

17 meaning half in cash half in shares. According to Mr. Minxu Huang’s close family

member, in reality, this was a fake acquisition. Ambow was just borrowing this 18

school’s name and consolidating its revenue and income for the IPO. 19

60. The close family member confirmed that Minxu Huang returned the RMB 20 25,000,000 cash back to AMBO in what is known in accounting fraud parlance as 21 “round-trip” transactions. The seller returned the funds to Ambow, through another 22 business entity he owned, in the form of fake software sales by Ambow to 23 Changsha Tutoring over a period of three years. AMBO never delivered the

24 software for these sales. The phony acquisition allowed Ambow to inflate its

25 consolidated revenue for 2008, and then subsequently AMBO overstated at least

26 RMB25,000,000 in software sales from 2008 through 2010 – which inflated sales

27 were included in Ambow’s financial statements contained in the Registration

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1 61. Thus Ambow simply paid for the right to say that it owned the school and its

2 revenues, without actually owning it, in order to enhance its attractiveness to 3 investors in the IPO. Indeed, while it was supposedly “acquired” in 2008, as of 4 February 29, 2012 the official legal representative was Minxhu Huang according to 5 the website of the Tianxin District Education Bureau in Hunan Province.

6 62. Furthermore, while Ambow pretended to pay cash for the acquisition, it in

7 fact entered into a secret side agreement whereby the seller would instead of

8 keeping the cash paid, return it to Ambow in the form of fake purchases of

9 Ambow’s educational software.

10 63. Two recent articles corroborated the details of Ambow’s fake acquisitions

11 which were designed to allow Ambow to overstate revenue in the IPO.

12 64. A January 17, 2013 article in Chinese Times Weekly, a well-known and

13 reputable financial journal in China, entitled (roughly translated): "Investigation on

14 messy Ambow: Acquisition of famous Hunan School for half price and 'creation of

15 revenue' crazily”, (available at

16 http://business.sohu.com/20130117/n363709631.shtml) 2 reported that in 2009

17 Ambow acquired Changsha Tutoring and Changsha Bull’s Ear Education

18 Consulting Co., Ltd. ("Changsha Career Enhancement") for 52.28 million and

19 86.77 million RMB respectively- half in cash and half in shares of Ambow

common stock. 20

21 65. According to the article, a key person familiar with the matter disclosed that

22 the seller signed a side agreement with Ambow stating that the acquisition was

23 fake, designed to enhance Ambow’s financial statements, and that Ambow

24 essentially “borrowed” the purported companies rather than actually acquiring

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2 Last time checked on February 18, 2013.



1 66. Another January 29, 2013 article in Zhicheng Finance Website, 3 a popular

2 financial portal website in China, entitled “Exclusive disclosure of Ambow’s listing

3 in the U.S. stock market by using fake acquisitions and fake financial

4 performance”, confirmed that Ambow’s acquisition of Changsha Tutoring was

5 fraudulent, and designed to inflate Ambow’s revenue without actually acquiring

6 true ownership of the schools. The Zhicheng Finance article asserted that Ambow

7 had fraudulently acquired other schools in addition to Changsha Tutoring, citing for

8 example Changsha Career Enhancement.

9 67. The Zhicheng article described in great detail Ambow’s fraudulent 10 acquisition of Changsha Tutoring. 11 68. According to the Zhicheng report, the so-called "acquisition" money for 12 Changsha Tutoring was paid in batches by Ambow from the bank account of 13 “Ambow Sihua”- a subsidiary of Ambow who was acquiring all those schools 14 including Changsha Tutoring into accounts (pre-agreed by both parties) designated 15 by Changsha Tutoring, such as “Changsha Heyuan Electrical and Mechanical 16 Manufacturing Co., Ltd." another company owned by Changsha Tutoring’s former 17 owner Minxu Huang (remittances: from company to company). Then in the 18 following three years, Changsha Tutoring used this money to purchase so-called 19 "blasting School" software from Ambow, and made the payments from Changsha 20 Heyuan Electrical to the account of “Ambow Online”- a subsidiary of Ambow 21 engaged in software business (remittance: from company to company or from 22 individual to company). 23

69. Further demonstrating the fraudulent nature of the acquisition, the Zhicheng 24

Finance article also attached several bank wire receipts as examples for payments 25

from Changsha Heyuan to Ambow Online. Details of the receipts are as following: 26

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Date I From I To I Amount I Purpose

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3 http://www.ctcnew.com/show.asp?ArticleID=9079, last time checked on February 18, 2013.



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70. The former employee who reported this fake acquisition to Ambow’s auditor

on July 2, 2012 and who is referenced in the Chinese Times Weekly article as the

“key person” and in the Zhicheng Finance article as the person who reported the

fraudulent acquisition to Ambow’s auditor on July 2, 2012 is the former owner and

manager of Changsha Tutoring, Mr. Minxu Huang.

71. The Zhicheng Finance article asserted that many of Ambow’s other

acquisitions were also structured fraudulently, citing the acquisition of, Changsha

Career Enhancement and Changsha Tutoring as examples.

72. According to both Mr. Minxu Huang’s close family member (as told to

Plaintiffs’ counsel) and the Zhicheng Finance article, Ambow refused to allow Mr.

Minxu Huang to convert his Ambow common shares it paid to him for “borrowing”

Changsha Tutoring into ADSs that he could sell the shares publicly on the NYSE.

As a result, Mr. Minxu Huang reported this fraudulent acquisition to Ambow’s

auditors, PriceWaterhouseCoopers on July 2, 2012.

73. Ambow then leveled embezzlement charges against Minxu Huang in

retaliation for blowing the whistle on Ambow’s fake acquisition strategy in an

effort to cover up the fake acquisitions. The police subsequently determined that

Minxhu Huang did not embezzle and funds because he was the rightful owner of

Changsha Tutoring. Mr. Huang was able to prove his innocence and obtain release

from police custody by providing documents evidencing that he still legally owned

and controlled Changsha Tutoring.

74. On July 5, 2012, the Company announced that the Audit Committee of the

Board of Directors determined that it would conduct an internal investigation to

review allegations made on July 2, 2012 by a former Ambow employee financial

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1 impropriety and wrongful conduct related to the 2008 acquisition of a training

2 school. These allegations referenced in Ambow’s press release were the ones made 3 by Mr. Huang to PriceWaterHouseCoopers concerning his sale of Changsha 4 Tutoring to Ambow in 2008. Mr. Huang’s close family member stated that 5 PriceWaterhouseCoopers interviewed him concerning the fraud he reported,

6 however, no one from Ambow’s board’s Independent Investigation Committee has

7 ever interviewed him.

8 75. The Company stated that it will “refrain from commenting further on this

9 matter until the independent investigation is concluded.”

10 76. Immediately following this announcement, Ambow’s share price plunged

11 $0.91/share on July 5, $0.52/share on July 6 and $0.43/share

12 77. On July 9, 2012, Jeffries reduced its ratings on Ambow stock as a result of

13 the adverse news.

14 78. On July 10, 2012, one of the investment banks for the IPO, Macquarie

15 Group, reduced its rating for Ambow as a result of the recent adverse news and its

16 share price dropped another 8.2% or $0.18/share.

17 79. To date, Ambow has not revealed the results of its special investigation.

18 FALSE STATEMENTS AS TO SOFTWARE SALES IN THE

19 REGISTRATIONS STATEMENT AND FOLLOWING THE IPO

20 80. In the Registration Statement and following the IPO, Ambow continued to 21 tout its fast growing, high profit margin software business in an effort to attract 22 investors, increase market demand for its stock and increase its stock price relative 23 to its earnings and attract investors.

24 81. In Ambow’s Form 20-F, filed with the SEC on April 14, 2011, Ambow

25 reported historical net revenue and growth, citing both its acquisitions, changes in

26 the way is sells training materials to students and its selling stand-alone software

27 products to distributors:

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In addition to organic growth, our historical net revenues and profitability


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growth was largely driven by acquisitions, which may not be sustainable or indicative of our future results. In the past, we delivered our learning materials through courses to students at our partner schools with the help of sales agents and maintained responsibility for the delivery of this service. In May 2008, we began to change the method by which we utilized our training materials to students at our partner schools, and started selling stand-alone software products to distributors who then sell those products to students not in our directly-operated schools and centers. For these product sales under our new business model we have no obligation to students or schools. At the same time, we have phased out our previous model of providing services to students of schools and centers that are not directly operated by ourselves. This change in our business process and changes in our business mix amongst our four operating segments will make our historical results and growth rates less effective for predicting our future results. Under our new product sales model for sales to distributors we recognize less net revenue per sale, but higher gross margins. As a result of these and other factors, we may not sustain our past growth rates in future periods, and we may not sustain profitability on a quarterly or annual basis in the future.

See Ambow Form 20-F filed April 14, 2011

82. Ambow cited its relationship with distributors and corporate partners, who

purportedly helped it distribute software products throughout China, as a factor

contributing to its growth:

We rely on our distributors and corporate partners to help drive our net revenues and profitability growth rates. We have developed a number of strategic partnerships with significant national and multinational corporations who are expanding the business they do in China, including Cisco Systems, Inc., Skillsoft Plc and The McGraw-Hill Companies, Inc. We derive both direct benefits, such as expanding and improving the curriculum in our career enhancement centers and helping to attract additional students to these centers, and indirect benefits, such as strengthening the Ambow brand, from these partnerships. We have distributors who help us to distribute our software products throughout China to additional schools and students and to expand our geographic reach to areas where we do not have a direct presence.

See Ambow Form 20-F filed April 14, 2011 at page 10.

83. Ambow also received preferential tax treatment in the PRC because Ambow

online was recognized as a “Software Enterprise”. Ambow was able to do this by

fulfilling the criteria necessary to be recognized as a Software Enterprise. One of

these criteria is that annual software sales must comprise more than 35% of annual

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-cv-05062-PSG-AJW Document 21 Filed 02/19/13 of 70 Page ID #:216 Case 2:

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revenue. Ambow was able to fulfill this criterion by fraudulently transferring

revenue from slow growth student tuition to high growth software sales:

For the years ended December 31, 2008, 2009 and 2010, we received the following preferential tax treatments: (i) Ambow Online was recognized as a "Software Enterprise" and was exempted from income tax on its profits for 2008 and 2009, and is subject to a 50% reduction in income tax rate from 2010 to 2012; and (ii) certain of the affiliated entities of our VIEs, namely, Shandong North Resource Information Technology Co., Ltd. and Jinan Prosperous Resource Technology Co., Ltd., were recognized as "Software Enterprises." Shandong North Resource Information Technology Co., Ltd. was exempt from income tax on profits for 2005 and 2006, and was subject to a 50% reduction in income tax rate from 2007 to 2009 while Jinan Prosperous Resource Technology Co., Ltd. was exempt from income tax for 2008 and 2009 and is subject to a 50% reduction in income tax rate from 2010 to 2012. In order to maintain the "Software Enterprise" status, each of these entities is required to obtain a Certificate of Software Enterprise issued by the provincial IT industry administration authorities through meeting the following conditions....(g) its annual software sales make up more than 35% of its total annual revenue and the sales of self-produced software make up more than 50% of the software sales.

See April 14, 2011 Form 20-F at 16-17.

84. Ambow reported an increase in gross profit under its new services delivery

model, and an increase in gross margins for software products:

Gross profit as a percentage of our net revenues was 35.6%, 54.7% and 58.6% in 2008, 2009 and 2010, respectively. The significant increase in our gross margin from 2008 to 2009 was primarily due to the increased gross margins generated by our acquired entities as well as changes in services delivery model. In 2008, during the initial period of our transition to our new services delivery model, our gross margin was 35.6%. Under our new model, gross margins for our software products are significantly higher as our costs to produce these software products are minimal . In 2009 and 2010, gross margin was 54.7% and 58.6% respectively, the improvement in gross margin was attributable to increased demand for premium services as well as better utilization of facilities in tutoring and career enhancement.

See April 14, 2011 Form 20-F at 76.

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1

85. Ambow attributed its explosive growth from 2008 to 2009 in part to

additional sales of software products under its new sales model (4/14/11 Form 20-F

at page 85):

Year ended December 31, 2009 compared with year ended December 31, 2008

Net revenues . Our net revenues increased by 77.4% from RMB508.4 million in 2008 to RMB902.0 million in 2009. This increase was primarily due to a full year of net revenues generated in 2009 from our ten acquisitions through business combinations and one acquisition of long-term operating rights completed in 2008, and partial year revenues from the 13 acquisitions completed in 2009, as well as additional sales of our software products under our new sales model .

See April 14, 2011 20-F at page 85.

86. In truth, Ambow inflated its software sales by transferring all of the revenue

from the slower growing and less appealing bricks and mortar education business in

its career education subgroup into revenue from software sales by creating fake

software sales contracts.

87. Plaintiffs’ investigator interviewed the former vice president of Ambow

Group in charge of Ambow’s Career Enhancement division, who was employed

from September 2009 to September 2012 He was responsible for the group's career

enhancement division's strategy making, overall and regional sales target and

budget making, processes supervision and crisis management, among other things.

88. This Ambow vice-president stated that in order to inflate software sales, the

acquired companies transferred their income derived from tuition for traditional

tutoring services into sales of software and signed fake software sales contracts

which were never used.

89. The Ambow Vice-President stated that to inflate the sales of strategic

software products, all the acquired companies in Ambow’s career education

subgroup transferred their revenue from tuition to sales of software products when

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1 they submit revenue figures to Ambow Online Software Co., Ltd. so that the

2 revenue from these acquired companies will be reported as software sales based on 3 how many student software accounts have been sold instead of as tuition in the 4 financial records. In the meantime, the acquired companies would sign a bogus 5 software sales contract with Ambow Online Software Co., Ltd for the same number

6 of student software accounts. Then Ambow’s IT staff would produce accounts in

7 the Ambow system for the same amount. But actually, most of these student

8 software accounts were never used, said the former vice president.

9 90. Under Ambow senior management’s direction, the acquired schools set up

10 fake e-learning login accounts to disguise and facilitate the recording of tuition

11 revenue as online software revenue. If for example a school had 50 million RMB

12 of traditional tuition revenue, since each e-learning account typically generated

13 revenue of about 5,000 RMB, the school would create 1,000 fake e-learning

14 account log-ins. This created a pretext for Ambow to record on its consolidated

15 financial statements e–learning software revenue of 50 million RMB or 5,000 RMB

16 for each fake e-learning account. While Ambow headquarters recorded the 50

17 million RMB revenue as e-learning software revenue, the school recorded the

revenue on its books as revenue from tuition. 18

91. The Registration Statement reported software revenue of 141,582 RMB for 19

fiscal 2009. 20 92. Ambow’s annual report on 20-F for fiscal year ended December 31, 2010 21 filed on April 14, 2010 reported 141,582 RMB and 229,161 for software sales in 22 fiscal 2009 and 2010 respectively. 4 23 93. In truth, according to the Ambow Vice President in charge of the Career

24 Enhancement Division, Ambow’s software sales never exceeded 30-40 million

25 RMB in any of fiscal years 2009 through 2011. Thus, Ambow materially

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4 Ambow’s quarterly reports on 6-K similarly misrepresented the amount of software revenue.



1 overstated its revenue from software sales in the Registration Statement and each

2 quarterly and annual report following the IPO. 3

4 AMBOW’S POST-IPO FINANCIAL STATEMENTS MISREPRESENTED 5 REVENUE, INCOME AND ACCOUNTS RECEIVABLE 6

7 94. On April 14, 2011, Ambow filed its Annual Report on Form 20-F with the

8 SEC for the 2010 fiscal year. The Company stated its revenue recognition policy as

9 follows:

10 Revenue recognition

11

12 Revenue for education program and services and sales of products are

recognized when all four of the following criteria are met: (i) pervasive 13 evidence that an arrangement exists; (ii) delivery of the products and/or

14 services has occurred and risks and rewards of ownership have passed to the

customer; (iii) the selling price is both fixed and determinable; and (iv) 15 collection of the resulting receivable is reasonably assured. If a sales

16 contract stipulates more than one deliverable and the deliverables are

considered as multiple accounting units in accordance with ASC Topic 605, 17

Revenue, the total revenue on such arrangements is allocated among the

18 individual deliverables based on their relative fair values. For example, the

Company has arrangement where sales of product are bundled with sales of 19 educational services. In such arrangement, the product is delivered initially

20 before the provision of services. If sufficient vendor-specific objective

evidence of fair value does not exist for the allocation of revenue, the fee for 21

the entire arrangement is recognized ratably over the term of the

22 arrangement. Revenue is recorded net of business tax and surcharges.

(Emphasis added). 23

24 95. Additionally, the Company's 2010 Annual Report on Form 20-F filed with 25 the SEC on April 14, 2011, in relevant part, described a recent change in the 26 Company's sales model as well as the key terms of sales to its distributors: 27

28 Effects of change in our sales model



1

In 2007, we provided services through sales agents to students attending our partner schools where we did not control the facilities or teachers. In May 2008, we began to change our sales model and started to cease providing services directly to students where we did not control the facilities or teachers. Our new business model focuses on providing services to students attending our directly operated centers and schools and, to a lesser extent, on the sale of stand-alone software products to distributors.

Under our old sales model, we delivered the learning materials we had developed through courses to students attending our partner schools with the help of sales agents, and we remained responsible for the delivery of the services to students. As a result, the net revenues we recognized were the gross amounts paid by students for our services, and we incurred significant costs relating to the services we were responsible to provide under this sales model. Our gross margin in 2008, when a substantial majority of our net revenues were recognized pursuant to our old sales model, was 35.6%.

Under our new business model, our directly-operated tutoring centers, schools, career enhancement centers and colleges generate revenues from tuition fees, education services fees and, to a much lesser extent, stand-alone software products. Our new sales model for selling software products is focused on selling these products to our distributors. The distributors are responsible for the delivery of services that incorporate our software products or for selling the software products on a stand-alone basis with no further service obligation. Under the new product sales model, we contract directly with distributors and have no direct contact with schools or their students. We also have no further obligation to the schools or students in terms of the delivery of services. As a result, for sales of software products under the new sales model, we recognize less revenue for each sale compared to the old sales model but recognize a higher gross margin as we are no longer responsible for the cost of delivering the services to schools or students or for sales agent costs.

Sales through our distributors

For the years ended December 31, 2008, 2009 and 2010, an estimated 4.0%, 15.0% and 10.9%, respectively, of our net revenues were generated by sales through our distributors. We expect net revenues generated on sales through

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distributors as a percentage of total net revenues to fluctuate from period to period.

The following are the key terms of sales to our distributors, the nature of support services provided by our distributors to their customers and our basis for estimating returned products from distributors.

Terms of sales

In 2009, we generally sold software products to our distributors on a prepaid basis. Sales with credit terms require special approval by our management. While not significant in 2010, we have extended credit terms to our two key distributors. We do not give refunds and only offer replacements to the extent of product defaults. We provide secondary support in rare instances when the distributors cannot answer end users' questions. This support is available for a short period after the sales of the software product and has been immaterial for all periods presented.

How we estimate amounts of returned products

We do not give refunds and only offer replacements to the extent of product defaults within 30 days after delivery. Based on our past experience and quality control procedures performed before products are shipped out, the number of returns is minimal and we, therefore, do not expect any significant returns in the future.

(Emphasis in original).

96. Beginning in second quarter 2011, Ambow adopted an improper revenue

recognition policy that masked the worsening in payment conditions by rapidly

expanding its credit sales by over 450% without making any corresponding

absolute or percentage increases in its allowance for doubtful accounts even though

the customers it was providing credit to were new, untested and had no proven

payment history.

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97. On May 18, 2011 the Company issued a press release entitled, "Ambow

Education Announces Strong First Quarter 2011 Unaudited Financial Results."

Therein, the Company, in relevant part, stated:

Financial Highlights for the Quarter Ended March 31, 2011:

• Total net revenues increased 29.6% to $51.5 million from $39.7 million for the same period in 2010. Existing business contributed 24.2% growth, while 5.4% came from acquisitions • Tutoring revenues increased 24.6% to $25.3 million from $20.3 million for the same period in 2010. • Career Enhancement revenues increased 116.2% to $11.8 million from $5.5 million for the same period in 2010. • Net income increased 151.6% to $1.5 million from $0.6 million for the same period in 2010. • Operating income increased 86.5% to $2.8 million from $1.5 million for the same period in 2010. • Adjusted EBITDA increased 28.9% to $8.6 million from $6.7 million for the same period in 2010. • Total student enrollments increased 16% year-over-year to 234,000.

98. The same day, Ambow filed with the SEC the press release on Form 6-K

along with financial statements that materially overstated revenue by $4.6 million

or 9.8%; and it overstated gross profit by $501,000 or 7.1%. The complete details

of the overstatement are attached hereto as Exhibit 2-4.

99. On August 25, 2011, the Company came out with more good earnings news,

issuing a press release entitled, "Ambow Education Announces Second Quarter

2011 Unaudited Financial Results." Therein, the Company, in relevant part, stated:

Financial Highlights for the Quarter Ended June 30, 2011:

• Total net revenues increased 26.1% to $77.8 million from $61.7 million for the same period in 2010.

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1 o Tutoring revenues increased 20.3% to $33.7 million from $28.0 million for the same period in 2010. o Career Enhancement revenues increased 90.0% to $20.8 million from $11.0 million for the same period in 2010. o The growth layer, which consists of Tutoring and Career Enhancement, achieved 39.9% year-over-year revenue growth. Excluding revenue of $6.2 million from acquisition, our organic growth is 24.0%.

• EBITDA increased 27.3% to $25.2 million from $19.8 million for the same period in 2010.

• Operating income increased 33.3% to $20.4 million from $15.3 million for the same period in 2010.

• Net income increased 22.2% to $16.7 million from $13.6 million for the same period in 2010.

• Diluted non-'GAAP net income per adjusted ADS attributable to Ambow increased to $0.24 as compared to $0.22 for the same period in 2010.

Financial Highlights for the Six Months Ended June 30, 2011:

• Total net revenues increased 27.5% to $130.0 million from $102.0 million for the same period in 2010.

o Tutoring revenues increased 22.1% to $59.3 million from $48.6 million for the same period in 2010.

o Career Enhancement revenues increased 98.8% to $32.8 million from $16.5 million for the same period in 2010.

o The growth layer, which consists of Tutoring and Career Enhancement, achieved 41.5% year-over-year revenue growth. Excluding revenue of $8.3 million from acquisition, our organic growth is 28.8%.

• EBITDA increased 28.0% to $32.9 million from $25.7 million for the same period in 2010.

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1 • Operating income increased 38.1% to $23.3 million from $16.9 million for the same period in 2010.

• Net income increased 27.7% to $18.2 million from $14.2 million for the same period in 2010.

• Diluted non-GAAP net income per adjusted ADS attributable to Ambow increased to $0.27 as compared to $0.25 for the same period in 2010.

100. That same day, Ambow filed with the SEC the press release on Form 6-K

along with financial statements that materially overstated revenue by $7.99 million

or 11.4%; it overstated gross profit by $5.2 million or 12.3%; it overstated

operating income by $2.6 million or 14.8%; it overstated income from continuing

operations by $2.8 million or 20%. The complete details of the overstatement are

attached hereto as Exhibits 2-4.

101. On November 15, 2011, the Company issued another press release and filed

it with the SEC on Form 6-K touting its positive results entitled, "Ambow

Education Announces Third Quarter 2011 Unaudited Financial Results." Therein,

the Company, in relevant part, stated:

Financial Highlights for the Third Quarter Ended September 30, 2011:

• Total net revenue increased 42.6% to $72.8 million from $51.1 million for the same period in 2010 and organic growth increased 25.0% year-over-year.

o Tutoring revenue increased 32.7% to $33.9 million from $25.5 million for the same period in 2010.

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o Career Enhancement revenue increased 88.7% to $23.0 million from $12.2 million for the same period in 2010.

o The growth layer, which consists of Tutoring and Career Enhancement, achieved 50.8% year-over-year revenue growth, of which organic growth was 26.9%.



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• Non-GAAP operating income increased to $10.3 million from $8.1 million for the same period in 2010.

• Non-GAAP net income increased to $7.3 million from $6.6 million for the same period in 2010.


• Total student enrollments increased to 301,000 from 246,000 for the same period in 2010.

o The growth layer's student enrollments increased 26.6% to 267,000 from 211,000 for the same period in 2010.

Financial Highlights for the Nine Months Ended September 30, 2011:

• Total net revenue increased 32.5% to $204.5 million from $154.4 million for the same period in 2010 and organic growth increased 23.1 % year-over-year.

o Tutoring revenue increased 25.7% to $94.0 million from $74.7 million for the same period in 2010.

o Career Enhancement revenue increased 94.5% to $56.2 million from $28.9 million for the same period in 2010.

o The growth layer, which consists of Tutoring and Career Enhancement, achieved 44.9% year-over-year revenue growth, of which organic growth was 31.1 %.

• Non-GAAP operating income increased to $36.1 million from $27.5 million for the same period in 2010.

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• Non-GAAP net income increased to $28.0 million from $23.4 million for the same period in 2010.




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2 • The growth layer's student enrollments increased 20.0% to 729,000

from 608,000 for the same period in 2010. 3

4 102. That same day, Ambow filed with the SEC the press release on Form 6-K 5 along with financial statements that materially overstated revenue by $5.2 million 6 or 7.7%. In addition, Ambow overstated accounts receivable by $16.5 million or 7 96% because it recognized revenue from customers with no payment history and

8 failed to record any dollar or percentage increase in its allowance for doubtful

9 accounts even though its accounts receivable (sales on credit) doubled between

10 June 30, 2011 and September 30, 2011. The complete details of the misstatements

11 are attached hereto as Exhibits 2-4.

12 103. On March 5, 2012, the Company issued a press release entitled, "Ambow

13 Education Announces Record Fourth Quarter and Full-Year 2011 “Unaudited

14 Financial Results." Therein, the Company, in relevant part, stated:

15 Financial Highlights for the Fourth Quarter Ended December 31, 2011:

16

17 • Total net revenue from continuing operations increased 58.5% to $89.2

million from $56.2 million for the same period in 2010 and organic growth 18

increased 42.6 % year-over-year.

19 o The growth assets from continuing operations, which consists of

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Tutoring and Career Enhancement, achieved 77.7 % year-over-year

21 revenue growth, of which organic growth was 54.9%.

22 o Tutoring revenue from continuing operations increased 47.6% to

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$35.7 million from $24.2 million for the same period in 2010, of which organic growth was 35.0%.

24

25 o Career Enhancement revenue from continuing operations

increased 126.7% to $33.8 million from $14.9 million for the same 26 period in 2010, of which organic growth was 87.2%. 27

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1 • Non-GAAP operating income from continuing operations increased 41.2% to $21.6 million from $15.3 million for the same period in 2010.

• Non-GAAP net income from continuing operations increased over 54.6% to $18.4 million from $11.9 million for the same period in 2010.

• Diluted non-GAAP net income from continuing operations per adjusted ADS attributable to Ambow increased to $0.25 as compared to $0.16 for the same period in 2010.

• Total student enrollments from continuing operations increased 40% to 341,000 from 243,000 for the same period in 2010.

o The student enrollments from continuing operations for growth assets increased 46.5% to 312,000 from 213,000 for the same period in 2010.

Financial Highlights for the Full-Year 2011:

• Total net revenue from continuing operations increased 44.4% to $279.3 million from $193.4 million in 2010 with 39.3% increase year-over-year from organic growth.

o The growth assets from continuing operations, which consists of Tutoring and Career Enhancement, achieved 58.3% year-over-year revenue growth, of which organic growth was 38.7%.

o Tutoring revenue from continuing operations increased 35.2% to $127.9 million from $94.6 million in 2010, of·which organic growth was 27.3%.

o Career Enhancement revenue from continuing operations increased 109.0% to $90.1 million from $43.1 million for the same period in 2010, of which organic growth was 63.6%.

• Non-GAAP operating income from continuing operations increased 52.1 % to $58.1 million from $38.2 million in 2010.

• Non-GAAP net income from continuing operations increased 49.0% to $46.2 million from $31.0 million in 2010.

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1 • Diluted non-GAAP net income from continuing operations per

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adjusted ADS attributable to Ambow increased to $0.61 as compared to $0.44 in 2010.

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4 • The student enrolments from continuing operations in the growth

assets increased 27.3% to 1,034,000 from 812,000 in 2010. 5

6 104. That same day, Ambow filed with the SEC the press release on Form 6-K 7 along with financial statements for both the quarterly and annual period ended 8 December 31, 2011. The complete details of the overstatement are attached hereto 9 as Exhibit 2-4.

10 105. For the quarter ended December 31, 2011, Ambow materially overstated

11 revenue by $12.95 million or 17%; it overstated gross profit by $13.2 million or

12 30.8%; it overstated operating income by $18.96 million or 1,632%; it overstated

13 net income from continuing operations by $13.4 million or 837%.

14 106. For the year ended December 31, 2011, Ambow materially overstated

15 revenue by $14.1 million or 5.3%; it overstated gross profit by $16.2 million or

16 10.7% it overstated operating income by $20.1 million or 61.5%; it overstated net

17 income from continuing operations by $14.5 million or 67.2%; and overstated net

18 income by $14.5 million or 563%.

19 107. In addition, Ambow overstated accounts receivable as of 12/31/ 2011 by

20 $16.6 million or 96% because it recognized revenue from customers with no

21 payment history and failed to record any dollar or percentage increase in its

allowance for doubtful accounts since 12/31/2010 even though its accounts 22

receivable (sales on credit) doubled between June 30, 2011 and September 30, 2011 23

and increased by 450% from December 31, 2010 to December 31, 2011. 24

108. The rosy financial picture Ambow portrayed of itself in each quarterly 25 financial statement for fiscal 2010 and in its full fiscal year 2010 financial statement 26 masked serious and known problems with customer payments and collectability of 27

28



1 accounts receivable, among other things, and concealed from investors the true

2 condition of the Company. 3 109. Indeed, the statements contained above about the Company’s revenue and 4 operations were materially false and/or misleading when made because defendants 5 failed to disclose or indicate the following: (1) that certain of the Company's

6 distributors did not have an adequate history of timely payment; (2) that, as such,

7 the collection of resulting receivables from· these distributors was not reasonably

8 assured; (3) that, as a result, the Company was improperly recognizing revenue on

9 sales to these distributors; (4) that the Company was improperly accounting for

10 certain business acquisitions; (5) that, as a result of the foregoing, the Company's

11 financial results were misstated during the Class Period; (6) that the Company

12 lacked adequate internal and financial controls; and (7) that, as a result of the

13 above, the Company's financial results were materially false and misleading at all

14 relevant times.

15 110. The true facts about Ambow slowly began to emerge bit-by-bit in April

2012. 16

17 111. On April 30, 2012, Ambow filed a Notification of Late Filing on Form 13b-

25 with SEC. Therein, the Company, in relevant part, stated: 18

19

20

Ambow Education Holding Ltd. (the "Company") is unable to file its Annual

21 Report on Form 20-F within the prescribed time period without unreasonable

effort or expense, because the compilation and review of the information 22 required to be in the annual report has not been finalized and will not be

23 complete before the filing deadline.

24

The Company expects that it will file it Form 20-F for the fiscal year ended

25 December 31, 2011 within the fifteen-day extension provided by Rule 12b-

25. 26

112. On this news, the Company's shares declined $0.59 per share, or 7.71%, to 27 close on April 30, 2012 at $7.06 per share, on unusually heavy volume. 28



113. On May 1, 2012, the Company issued a press release entitled, "Ambow

Expects to File 20-F." Therein, the Company, in relevant part, stated:

BEIJING, May 1, 2012 - Ambow Education Holding Ltd. ("Ambow" or the "Company") (NYSE: AMBO), a leading national provider of educational and career enhancement services in China, today announced that it has filed with the United States Securities and Exchange Commission, Form 12b-25 Notification of Late Filing for its Annual Report on Form 20-F for the year ended December 31, 2011. The Form 12b-25 will allow the Company an additional 15 calendar days to file the Form 20-F which is otherwise due on April 30, 2012. The Company expects to be able to file by May 15, 2012, which is within the additional time allowed by the Form 12b-25.

114. On May 16, 2012, the Company issued a press release entitled, "Ambow

Education Announces Delay in Filing 2011 Annual Report on Form 20-F: Identifies

Preliminary Adjustments to Previously Announced 2011 Financial Results."

Therein, the Company, in relevant part, stated:

BEIJING, May 16, 2012, Ambow Education Holding Ltd., ("Ambow" or the "Company") (NYSE: AMBO), a leading national provider of educational and career enhancement services in China, today announced that the filing of its 2011 annual report on Form 20-F (the "2011 Annual Report") is delayed beyond the end of the 15 day extension period provided by the rules of the U.S. Securities and Exchange Commission (the "SEC") because the Company requires additional time to complete the audit of its 2011 financial statements. The Company is working to complete the audit as soon as practicable and expects to file the 2011 Annual Report with the SEC within one month.

The Company also announced that it has identified certain preliminary adjustments to the 2011 unaudited financial results included in the Company's press release dated March 5, 2012, which was included as an exhibit to the Company's Form 6-K furnished to the SEC on March 5, 2012 (the "Form 6-K"). In connection with its annual audit, which has yet to be completed, the Company expects to make the following adjustments:

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1

1. The Company will change the revenue recognition method in respect

2 of sales of the Company's educational services and software products to

certain distributors. For those distributors with a proven payment history, the

3

Company will continue to recognize revenue upon delivery of services and

4 products. For those distributors without adequate history of timely payment,

the Company will defer the recognition of revenue until cash is collected.

5

Accordingly, the Company expects that between US$13.5 million (RMB85

6 million) and US$15.1 million (RMB95 million) of revenue previously

recognized in 2011 will be reversed and recognized in the future when cash

7

is collected from certain distributors. This adjustment does not impact

8 revenue in 2010. As of the date of this press release, the Company has

collected approximately US$12.2 million (RMB77 million) of the cash

9 associated with the revenue to be deferred as of December 31, 2011, which

10 collected revenue (together with any additional collections before June 30,

2012) will be recognized by the Company in the first half of 2012. Any

11 remaining balance will be recognized when collected. All future sales to

12 distributors without adequate history of timely payment will be recognized

13 on the cash basis until such time as a proven payment history is established.

14 2. The Company expects to make a bad debt provision of between

15 US$2.1 million (RMB13 million) and US$2.4 million (RMB 15 million).

16 ...

17 115. On this news, the Company's shares declined $0.99 per share, or 17.55%, to

18 close on May 16, 2012 at $4.65 per share on unusually heavy volume, and further

19 declined $0.30 per share, or 6.45%, to close on May 17, 2012 at $4.35 per share,

20 also on unusually heavy volume.

21 116. On May 29, 2012 Ambow filed its 2011 Annual Report on Form 20-F,

confirming adjustments to its 2011 financial results. In its Annual Report, the 22

Company stated that it reached a conclusion on certain discussions included in its 23

press release dated May 16, 2012 (the “May 16 Press Release”), regarding the 24

preliminary adjustments to the Company’s 2011 unaudited annual financial results 25 included in the Company’s press release dated March 5, 2012 (the “March 5 Press 26 Release”), which was included as an exhibit to the Company’s Form 6-K furnished 27 to the SEC on March 5, 2012. The Company determined: 28



1. For those distributors with a proven payment history, the Company will continue to recognize revenue upon delivery of services and products. For those distributors without adequate history of timely payments, the Company will recognize revenue at the later of cash collection or the delivery of services and products. Accordingly, the Company determined that US$14.1 million(1) (RMB88.8 million) of revenue previously recognized in 2011 should be reversed and recognized in the future when cash is collected from certain distributors without a proven history of timely payments. The related account receivables have also been removed from the balance sheet. This adjustment does not impact revenue in 2010. As of the date of this press release, the Company has collected approximately US$12.2 million (RMB77 million) of the cash associated with the revenue to be deferred as of December 31, 2011, which collected revenue (together with any additional collections before June 30 2012) will be recognized by the Company in the first half of

,2012. Any remaining

balance will be recognized when collected. All future sales to distributors without adequate history of timely payment will be recognized on the cash basis until such time as a proven payment history is established.

2. The Company determined to make a bad debt provision of US$2.2 million (RMB14.0 million).

...

DEFENDANTS’ VIOLATIONS OF GAAP AND SEC RULES

117. During the Class Period, Defendants represented that Ambow’s financial

statements were prepared in conformity with Generally Accepted Accounting

Principles (“GAAP”), which are recognized by the accounting profession and the

SEC as the uniform rules, conventions and procedures necessary to define accepted

accounting practice at a particular time. However, in order to artificially inflate the

price of Ambow’s stock, Defendants used improper accounting practices in

violation of GAAP and SEC reporting requirements to falsely inflate the

Company’s revenues, earnings, assets, and stockholders’ equity during the Class

Period.

118. Ambow’s materially false and misleading financial statements resulted from

a series of deliberate senior management decisions designed to violate GAAP and

SEC rules in order to misrepresent and conceal the truth regarding Ambow’s actual

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financial position and operating results. The Defendants violations of GAAP and

SEC rules caused the Company to among other things:

1) Improperly overstate the Company’s revenues and gross profit; and

2) Improperly overstate the Company’s accounts receivables.

119. As set forth in Financial Accounting Standards Board (“FASB”) Statements

of Concepts (“Concepts Statement”) No. 1, one of the fundamental objectives of

financial reporting is to provide accurate and reliable information concerning an

entity’s financial performance during the period being presented. Concepts

Statement No. 1, paragraph 42, states:

Financial reporting should provide information about an enterprise’s financial performance during a period. Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors’ and creditors’ expectations about future enterprise performance, those expectations are commonly based at least partly on evaluations of past enterprise performance.

120. SEC Rule 4-01(a) of SEC Regulation S-X provides that: “Financial

statements filed with the [SEC] which are not prepared in accordance with [GAAP]

will be presumed to be misleading or inaccurate.” 17 C.F.R. § 210.4-01(a)(1).

Management is responsible for preparing financial statements that conform to

GAAP. As stated in the professional standards adopted by the AICPA:

[F]inancial statements are management’s responsibility . . . . [M]anagement is responsible for adopting sound accounting policies and for establishing and maintaining internal control that will, among other things, record, process, summarize, and report transactions (as well as events and conditions) consistent with management’s assertions embodied in the financial statements. The entity’s transactions and the related assets, liabilities and equity are within the direct knowledge and control of management . . . . Thus, the fair presentation of financial statements in conformity with Generally Accepted Accounting Principles is an implicit and integral part of management’s

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1 responsibility.

121. Defendants violated GAAP and SEC regulations by engaging in improper

revenue recognition practices, as a result of recording revenue from certain of the

Company’s distributors that did not have an adequate history of timely payment and

as such, the collectibility of resulting receivables from these distributors was not

reasonably assured, thus overstating Ambow revenues, gross profit and earnings

during the Class Period.

122. In addition, by transferring revenue from traditional tutoring services to

online e-learning software sales, and by engaging in fake “round-trip” transactions

by which the acquisition price of schools was returned to Ambow in the form of

software product sales, defendants violated GAAP

123. GAAP permits the recognition of revenue only if the following criteria are

met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred;

(iii) the vendor’s fee is fixed or determinable; and (iv) collectibility is probable.

SEC Staff Accounting Bulletin (“SAB”) No. 104. Moreover, in order for revenue

to be recognized, it must be earned and realized or realizable. Concepts Statement

No. 5, Recognition and Measurement in Financial Statements of Business

Enterprises, ¶ 83, ASC § 605-10-25-1(a) 5 . Revenues are earned when the reporting

entity has substantially accomplished what it must do to be entitled to the benefits

represented by the revenues. Id. Revenues are realizable when related assets

received or held are readily convertible to known amounts of cash or claims to cash.

Id. If collectibility is not reasonably assured, revenues should be recognized on the

basis of cash received. Concepts Statement No. 5, ¶ 84g; see also Accounting

5 With the issuance of FASB Statement No. 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles , the FASB approved the Codification (“ASC”) as the source of authoritative US GAAP for non-governmental entities for interim and annual periods ending after September 15, 2009. The FASB Accounting Standards Codification , hereinafter cited as “ASC __.”

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Case 2: -cv-05062-PSG-AJW Document 21 Filed 02/19/13 of 70 Page ID #:235

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4

Research Bulletin No. 43 (“ARB 43”), Ch. 1A, ¶ 1 (June 1943); ASC § 605-10-25-

1; Accounting Principles Board Opinion No. 10 (“APB 10”) Omnibus Opinion-

1966 ¶ 12 (Dec. 1966). If payment is subject to a significant contingency, revenue

recognition is improper. Statement of Financial Accounting Standards (“SFAS”)

No. 5, Accounting for Contingencies (Mar. 1975); ASC § 450-30-25-1.

124. Defendants represented that the Company’s accounting for revenue

recognition was consistent with GAAP. For example, in the Company’s 2010 20-F

filed on April 14, 2011 6, Defendants represented the following:

Revenue recognition

Revenue for education program and services and sales of products are recognized when all four of the following criteria are met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred and risks and rewards of ownership have passed to the customer; (iii) the selling price is both fixed and determinable; and (iv) collection of the resulting receivable is reasonably assured. If a sales contract stipulates more than one deliverable and the deliverables are considered as multiple accounting units in accordance with ASC Topic 605, Revenue, the total revenue on such arrangements is allocated among the individual deliverables based on their relative fair values. For example, the Company has arrangement where sales of product are bundled with sales of educational services. In such arrangement, the product is delivered initially before the provision of services. If sufficient vendor-specific objective evidence of fair value does not exist for the allocation of revenue, the fee for the entire arrangement is recognized ratably over the term of the arrangement. Revenue is recorded net of business tax and surcharges.

a) Educational programs and services

Educational programs and services mainly consist of primary and secondary curriculum education, university curriculum education, tutoring programs that supplement primary and secondary curriculum education and career enhancement and other corporate training programs that are provided directly or indirectly to customers, where the Group is responsible for delivery of the programs and services. For the curriculum

6 The Company did not include footnote disclosures in the quarterly 6-Ks filed during the Class Period. Defendants, however, represented that the Company “prepared the unaudited consolidated financial information on the same basis as its audited consolidated financial statements.”

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education programs, the tuition revenue, including accommodation, is recognized on a straight-line basis over the length of the course, which is typically over a period of a semester. For tutoring programs, tuition revenue is recognized on a straight-line basis over the period during which tutoring services are provided to students. Educational materials revenue, which is immaterial and has not been disclosed separately, relates to the sales of books, course materials, course notes for which the Group recognizes revenue when the materials have been delivered to students.

b) Sales of products:

Product revenues relate to revenues from the sale of educational compact disks ("CDs") or downloaded through the internet. The sales arrangements do not include post customer support services and the Group does not provide customers with upgrades. The Group recognizes revenue for these products in accordance with US GAAP guidance on software revenue recognition .

(Emphasis added).

125. In addition, pursuant to GAAP, revenues and gains are realizable when

related assets received or held are readily convertible to known amounts of cash or

claims to cash. Concepts Statement No. 5, ¶ 83(a); ASC § 605-10-25-1. Readily

convertible assets have (i) interchangeable (fungible) units and (ii) quoted prices

available in an active market that can rapidly absorb the quantity held by the entity

without significantly affecting the price. Id. However, by engaging in the

recording of revenue from certain of the Company’s distributors that did not have

an adequate history of timely payment, defendants improperly recognized revenue

and earnings because, among other things, the foregoing transactions were not

readily convertible to known amounts of cash or claims to cash due to the

uncertainty of collectibility. Accordingly, as a result of improperly recording the

revenue from certain of the Company’s distributors, defendants overstated the

Company’s revenue and earnings during the Class Period.

Ambow’s Overstated Materially its Accounts Receivable

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126. Ambow’s reported financial results during the Class Period were materially

false and misleading by overstating its accounts receivables, as a result of recording

revenue from certain of the Company’s distributors that did not have an adequate

history of timely payment and as such, the collectibility of resulting receivables

from these distributors was not reasonably assured.

127. Defendants represented in the Company’s public filings the following:

Accounts receivable mainly represent the amounts due from the customers or students of the Company’s various subsidiaries and VIEs. An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable based on an assessment of specific evidence indicating doubtful collection, historical experience, account balance aging and prevailing economic conditions. Accounts receivable balances are written off after all collection efforts have been exhausted and the potential for recovery is considered remote.

128. GAAP provides that an estimated loss from a loss contingency, such as the

collectibility of receivables, “shall be accrued by a charge to income” if: (i)

information available before the financial statements are issued indicates that it is

probable that an asset had been impaired or a liability had been incurred at the date

of the financial statements; and (ii) the amount of the loss can be reasonably

estimated. ASC §450-20-25-2 7 .

129. In addition, Accounting Research Bulletin (“ARB”) No. 43, Chapter 3,

Section 9 provides that the objective of providing for reserves against receivables is

to assure that, “[a]ccounts receivable net of allowances for uncollectible accounts . .

. are effectively stated as the amount of cash estimated as realizable.

130. Defendants disclosed in the Company’s 2010 20-F that:

In 2009, we generally sold software products to our distributors on a prepaid basis. Sales with credit terms require special approval by our management. While not significant in 2010, we have extended credit terms to our two key distributors.

7 With the issuance of FASB Statement No. 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles , the FASB approved the Codification as the source of authoritative US GAAP for non-governmental entities for interim and annual periods ending after September 15, 2009. The FASB Accounting Standards Codification , hereinafter cited as “ASC § __.”

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1

131. Defendants, however, failed to disclose that in 2011 the Company had begun

to extend credit beyond its “two key distributors,” causing a fundamental change in

the Company’s business model. In this regard, the Company’s 2011 20-F,

defendants disclosed that “[f]rom 2010, we started to offer credit terms to certain

distributors.” GAAP states that “[t]he conditions under which receivables exist

usually involve some degree of uncertainty about their collectability.” ASC § 310-

10-35-6. Despite the increased risk inherent in the Company’s receivables,

resulting from extending credit to distributors which had no payment history,

defendants maintained a minimal allowance. Not until the restatement on May 29,

2012 did the Company finally record bad debt provisions consistent with the

inherent risks in its burgeoning accounts receivable, as a result of extending credit

to distributors with no proven credit history.

132. On May 16, 2012, the Company disclosed that it “expects to make a bad debt

provision of between US$2.1 million (RMB13 million) and US$2.4 million

(RMB15 million).”

133. The Company’s 20-F filed on May 29, 2012, reflects a total allowance for

bad debt of $2.3 million (RMB14.6 million).

Accounts receivable Less: allowance for doubtful accounts

Balance at beginning of year

Additional provision for bad debt Balance t d n (14,639) (2,326) year

o

Accounts receivable, net 1 08,247 $17,199

Ambow 20-F at F-22 (May 29, 2012) aConverted to USD at 6.2938.

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RMB

122,886

$19,525

(458)

(73)

(14,181)

(2,253)



1

2 134. Accordingly, the Company failed to record adequate, if any provisions,

during the Class Period for bad debt, as evidenced by the belated provision

disclosed on May 16, 2012.

135. As a result of recording revenue from certain of the Company's distributors

that did not have an adequate history of timely payment, Ambow accumulated

millions of dollars of aging receivables on its balance sheet. In this regard, the

Company’s receivables at June 30, 2011 grew to $14.8 million or 73 percent. And

at September 30, 2011, receivables grew by almost $19 million or 128 percent.

At At March At June At At

in thousands December 31, 30, September December in USD 31, 2010 2011 2011 30, 2011 31, 2011 Accounts receivable, $ 7,374 $8,560 $14,774 $ 33,739 $ 33,820 net

136. A quarter by quarter analysis of Ambow accounts receivable and allowance

for doubtful accounts demonstrates that Ambow’s CFO and CEO knew that

Ambow had failed to properly record accounts receivable and a corresponding

allowance and bad debt expense in each quarter and at year end during fiscal 2011.

USD in 000's

Restated

12/31/09 12/31/10 3/31/11 6/30/11 9/30/11 12/31/11 2011

Total Accts. Receivable

$ 3,203 $ 7,444 $ 8,633 $ 14,847 $ 33,812 $ 33,893 $ 19,525

Allow. Doubt Accts. - 54 73 73 73 73 73

Increase bad debt provis. 51 16 - - - - 2,253

Net Accounts Receivable

$ 3,152 $ 7,374 $ 8,560 $ 14,774 $ 33,739 $ 33,820 $ 17,199

Allowance / Receivables

1.6% 0.9% 0.8% 0.5% 0.2% 0.2% 11.9% 25

26 Exchange rate RMB:Dollar

6.83 6.55 6.52 6.41 6.31 6.31 6.31

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1 137. The above analysis shows that Ambow reduced allowance for doubtful

2 accounts as a percentage of accounts receivable and did not increase the allowance

3 by any dollar amount during 2011 even though its credit sales (accounts receivable)

4 ballooned by over 450%.

5 138. On May 16, 2012, defendants admitted that the Company’s accounts

6 receivable at December 31, 2011 was overstated by $16.6 million or 96 percent. In

7 connection with the overstated receivables the Company disclosed that it “expects

8 that between US$13.5 million (RMB85 million) and US$15.1 million (RMB95

9 million) of revenue previously recognized in 2011 will be reversed and recognized 10 in the future when cash is collected from certain distributors.” The Company’s 11 failure to properly account for and disclose Ambow’s accounts receivables was 12 materially misleading to investors. Accordingly, in order to falsely and materially 13 inflate earnings during the Class Period, defendants violated GAAP and SEC rules 14 by failing to record adequate provisions for uncollectible receivables in its financial 15 statements related to its uncollectible accounts. 16

17 The Accounting Improprieties were Material to Ambow’s 18 Financial Statements as Evidenced by the Restatement 19

20 139. The above-described fraudulent transactions had a material impact on 21 Ambow’s financial statements. 22 140. According to GAAP, a retroactive restatement of financial statements is 23 reserved for material accounting errors “resulting from mathematical mistakes, 24 mistakes in the application of GAAP, or oversight or misuse of facts that existed at 25 the time the financial statements were prepared.” SFAS No. 154, Accounting 26 Changes and Error Corrections, ¶ 2h (May 2005); ASC § 250. 27

28



141. Since GAAP allows only to restate financial statements for correction of

errors that are “material,” resulting from “mistakes in the application of GAAP . . .

that existed at the time,” by acknowledging their intent to restate the Company’s

financial statements, defendants have admitted the materiality of the errors in its

previously issued financial statements.

142. On May 16, 2012, the Company announced in a 6-K that it would be delayed

in filing its 2011 Annual report on Form 20-F. The Company also disclosed that it

had “identified certain preliminary adjustments to the 2011 unaudited financial

results included in the Company’s press release dated March 5, 2012, which was

included as an exhibit to the Company’s Form 6-K furnished to the SEC on March

5, 2012 . . . .” In the 6-K, the Defendants also disclosed that:

[T]he Company expects to make the following adjustments:

1. The Company will change the revenue recognition method in respect of sales of the Company’s educational services and software products to certain distributors. For those distributors with a proven payment history, the Company will continue to recognize revenue upon delivery of services and products. For those distributors without adequate history of timely payment, the Company will defer the recognition of revenue until cash is collected. Accordingly, the Company expects that between US$13.5 million (RMB85 million) and US$15.1 million (RMB95 million) of revenue previously recognized in 2011 will be reversed and recognized in the future when cash is collected from certain distributors. This adjustment does not impact revenue in 2010. As of the date of this press release, the Company has collected approximately US$12.2 million (RMB77 million) of the cash associated with the revenue to be deferred as of December 31, 2011, which collected revenue (together with any additional collections before June 30, 2012) will be recognized by the Company in the first half of 2012. Any remaining balance will be recognized when collected. All future sales to distributors without adequate history of timely payment will be recognized on the cash basis until such time as a proven payment history is established.

2. The Company expects to make a bad debt provision of between US$2.1 million (RMB13 million) and US$2.4 million (RMB15 million).

3. In addition to the 10 new tutoring centers opened in the fourth quarter of 2011 as described in the Form 6-K, an additional 12 centers began operations in late December 2011, bringing the total number of newly opened centers to 22 in the

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fourth quarter of 2011. As a result, depreciation and other expense is expected to increase by between US$0.5 million (RMB3 million) and US$0.6 million (RMB3.5 million).

143. The adjustments materially reduced the Company’s previously reported year

end results. For example, the adjustments reduced, among other things, previously

reported revenues and net income by $14.1 million or 5 percent, and $14.5 million

or 81 percent, respectively. In addition, accounts receivable were reduced $104.6

million or 49 percent.

144. The Company’s quarterly results reported on Form 6-K were also materially

misstated and required correction in each quarterly report in each quarterly period

during fiscal 2011.

145. As reflected in the schedules attached as Exhibits 2-4, the restatements

materially reduced the Company’s net revenues during the first three quarters of

2011 – 9 percent for the quarter ended March 31, 2011; 10 percent for the quarter

ended June 30, 2011; and 7 percent for the quarter ended September 30, 2011.

Additionally, the restatements adversely impacted net income. Net income was

reduced by 2 percent for the quarter ended June 30, 2011; and 14 percent for the

quarter ended September 30, 2011. Miraculously, despite the 9 percent downward

revision in revenues in the first quarter 2011, net income was not impacted.

CLASS ACTION ALLEGATIONS

146. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a class, consisting of all those who

purchased Ambow's ADS between August 5, 2010 and July 5, 2012, inclusive (the

"Class Period") and who were damaged thereby (the "Class"). Excluded from the

Class are Defendants, the officers and directors of the Company, at all relevant

times, members of their, immediate families and their legal representatives, heirs,

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1 successors or assigns and any entity in which Defendants have or had a controlling

2

interest.

3 147. The members of the Class are so numerous that joinder of all members is

4 impracticable. Throughout the Class Period, Ambow's ADSs were actively traded

5 on the New York Stock Exchange (the "NYSE"). While the exact number of Class

6 members is unknown to Plaintiff at this time and can only be ascertained through

7 appropriate discovery, Plaintiff believes that there are hundreds or thousands of

8 members in the proposed Class. Millions of Ambow ADSs were traded publicly

9 during the Class Period on the NYSE. During the Class Period, there were more 10 than 10 million Ambow ADS outstanding. Record owners and other members of 11 the Class may be identified from records maintained by Ambow or its transfer agent 12 and may be notified of the pendency of this action by mail, using the form of notice 13 similar to that customarily used in securities class actions. 14 148. Plaintiffs’ claims are typical of the claims of the members of the Class as all 15 members of the Class are similarly affected by Defendants' wrongful conduct in 16 violation of federal law that is complained of herein. 17 149. Plaintiff will fairly and adequately protect the interests of the members of the 18 Class and has retained counsel competent and experienced in class and securities

19 litigation. 20 150. Common questions of law and fact exist as to all members of the Class and 21 predominate over any questions solely affecting individual members of the Class. 22 Among the questions of law and fact common to the Class are: 23

(a) whether the federal securities laws were violated by Defendants' 24

acts as alleged herein;

25 (b) whether statements made by Defendants to the investing public

26 during the Class Period omitted and/or misrepresented material facts about

27 the business, operations, and prospects of AMBO; and 28



1 (c) to what extent the members of the Class have sustained

2 damages and the proper measure of damages. 3

4 151. A class action is superior to all other available methods for the fair and

5 efficient adjudication of this controversy since joinder of all members is

6 impracticable. Furthermore, as the damages suffered by individual Class members

7 may be relatively small, the expense and burden of individual litigation makes it

8 impossible for members of the Class to individually redress the wrongs done to

9 them. There will be no difficulty in the management of this action as a class action.

10 APPLICABILITY OF PRESUMPTION OF RELIANCE

11 (FRAUD-ON-THE-MARKET DOCTRINE) 12

13 152. The market for Ambow's ADSs was open, well-developed and efficient at all

14 times during the Class Period permitting Plaintiffs a presumption of reliance on the

15 integrity of the market for Ambow’s ADSs.

16 153. The market for Ambow's securities was an efficient market during the Class

17 Period for the following reasons, among others:

18 ( a) Ambow's ADSs met the requirements for listing, and were listed

19 and actively traded on the NYSE, a highly efficient and automated market;

20

(b) As a regulated issuer, Ambow filed periodic public reports with

21

the SEC and/or the NYSE;

22

(c) Ambow regularly communicated with public investors via

23 established market communication mechanisms, including through regular

24

dissemination of press releases on the national circuits of major news wire

25 services and through other wide-ranging public disclosures, such as

26 communications with the financial press and other similar reporting services;

27 (d) Ambow was followed by securities analysts including Wells

28 Fargo, Macquarie Capital, Jeffries, JP Morgan and other brokerage and



1 research firms who wrote research reports about the Company, and these

2 reports were distributed widely. Each of these reports was publicly available

3 and entered the public marketplace;

4 (e) According Ambow’s Form 20-F filed with the SEC on April 14,

5

2011, Ambow had issued and outstanding 10,677,207 ADSs as of December

6

31, 2010;

7

(f) on average, approximately 3.5% of Ambow’s 10,677,207

8 outstanding ADSs were traded on a weekly basis during the Class Period;

9

(g) Ambow met the SEC requirements to file an S-3 registration

10 statement during the Class Period;

11 (h) Unexpected material public news concerning Ambow was rapidly

12 reflected in Ambow’s share price.

13 154. As a result of the foregoing, the market for Ambow's securities promptly

14 digested current information regarding Ambow from all publicly available sources

15

16 and reflected such information in Ambow's ADS price.

17 FIRST CLAIM

18

19 Violation of Section 10(b) Of The Exchange Act Against and Rule 10b-5

20 Promulgated Thereunder Against Ambow, Jin Huang and Paul Chow 21

22 155. Plaintiffs repeat and reallege each and every allegation contained above as if

23 fully set forth herein.

24 156. This claim is brought against Ambow, Jin Huang and Paul Chow.

25 157. During the Class Period, Defendants Ambow, Jin Huang and Paul Chow

26 carried out a plan, scheme and course of conduct which was intended to and,

27 throughout the Class Period, did: (1) deceive the investing public, including

28 plaintiff and other Class members, as alleged herein; and (2) cause plaintiff and



1 other members of the Class to purchase Ambow’s ADSs at artificially inflated

2 prices. In furtherance of this unlawful scheme, plan and course of conduct,

3 Defendants, and each of them, took the actions set forth herein.

4 158. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made

5 untrue statements of material fact and/or omitted to state material facts necessary to

6 make the statements not misleading; and (c) engaged in acts, practices, and a course

7 of business that operated as a fraud and deceit upon the purchasers of the

8 Company’s common stock in an effort to maintain artificially high market prices

9 for AMBOW’s common stock in violation of Section 10(b) of the Exchange Act

10 and Rule 10b-5 thereunder. All Defendants are sued either as primary participants

11 in the wrongful and illegal conduct charged herein or as controlling persons as

12 alleged below.

13 159. Defendants, individually and in concert, directly and indirectly, by the use,

14 means or instrumentalities of interstate commerce and/or of the mails, engaged and

15 participated in a continuous course of conduct to conceal adverse material

16 information about the business, operations and future prospects of AMBOW as

17 specified herein.

18 160. Each of these Defendants’ primary liability, and controlling person liability,

19 arises from the following facts: (1) Jin Huang and Paul Chow were Ambow’s two

20 highest high-level executives and directors at the Company during the Class Period 21 and most senior ranking members of the Company’s management team and had 22 control thereof; (2) each of these defendants, by virtue of his or her responsibilities 23 and activities as a senior officer and/or director of the Company, was privy to and

24 participated in the creation, development and reporting of the Company’s financial

25

condition; (3) each of these defendants enjoyed significant personal contact and

26

familiarity with senior financial management and the auditors and was advised of

27 and had access to other members of the Company’s management team, internal

28 reports and other data and information about the Company’s finances, operations,



1 and sales at all relevant times; and (4) each of these defendants was aware of the

2 Company’s dissemination of information to the investing public which they knew

3 or recklessly disregarded was materially false and misleading. 4 161. By virtue of the foregoing, Defendants Ambow, Jin Huang and Paul Chow

5

have violated Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated

6

thereunder.

7

162. As a direct and proximate result of these Defendants’ wrongful conduct,

8 Plaintiffs and the other members of the Class suffered damages in connection with

9

their respective purchases and sales of the Company’s ADSs during the Class

10

Period.

11 163. This action was filed within two years of discovery of the fraud and within

12 five years of each plaintiff’s purchases of securities giving rise to the cause of

13 action.

14

15 SECOND CLAIM

16 Violation of Section 20(a) Of

The Exchange Act Against the Paul Chow and Jin Huang 17

18 164. Plaintiffs repeat and reallege each and every allegation contained above as if

19 fully set forth herein.

20 165. Defendants Jin Huang and Paul Chow acted as controlling persons of

21 AMBOW within the meaning of Section 20(a) of the Exchange Act as alleged

22 herein. By virtue of their high-level positions, agency, and their ownership and

23 contractual rights, participation in and/or awareness of the Company’s operations

24 and/or intimate knowledge of the false financial statements filed by the Company

25 with the SEC and disseminated to the investing public, Chow and Huang had the

26 power to influence and control, and did influence and control, directly or

27

indirectly, the decision-making of the Company, including the content and

28



1 dissemination of the various statements that plaintiff contends are false and

2 misleading.

3 166. Chow and Huang were provided with or had unlimited access to copies of the

4 Company’s reports, press releases, public filings and other statements alleged by

5 Plaintiff to have been misleading prior to and/or shortly after these statements were

6

issued and had the ability to prevent the issuance of the statements or to cause the

7 statements to be corrected.

8 167. In particular, Chow and Huang had direct and supervisory involvement in the

9 day-to-day operations of the Company and, therefore, are presumed to have had the

10 power to control or influence the particular transactions giving rise to the securities

11 violations as alleged herein, and exercised the same.

12 168. As set forth above, Ambow, Chow and Huang each violated Section 10(b)

13 and Rule 10b-5 by their acts and omissions as alleged in this Complaint.

14 169. By virtue of their positions as controlling persons of Ambow (and Huang as

15 controlling person of Chow), Chow and Huang are liable pursuant to Section 20(a)

16 of the Exchange Act. As a direct and proximate result of Defendants’ wrongful

17 conduct, Plaintiff and other members of the Class suffered damages in connection

18 with their purchases of the Company’s common stock during the Class Period.

170. This action was filed within two years of discovery of the fraud and within 19

five years of each Plaintiff’s purchases of securities giving rise to the cause of 20

action.

21 THIRD CLAIM

22 Violation of Section 11 of the Securities Act Against All Defendants 23

24 171. Plaintiffs repeat and reallege every allegation contained above as if fully set

25 forth herein.

26 172. This claim is not based on fraud, does not allege fraud, and does not sound in

27 fraud.

28



1 173. This claim is asserted on by Plaintiffs against all Defendants by, and on

2 behalf of all persons who acquired shares of the Company’s securities pursuant

3 and/or traceable to the IPO Registration Statement. 4 174. Each of the Individual Defendants signed the IPO Registration Statement. 5 175. Each of the Individual Defendants was officers or directors of Ambow at the 6 time of the filing of the Registration Statement and sale of Ambow ADSs in the

7

IPO.

8 176. None of the Defendants made a reasonable investigation or possessed

9 reasonable grounds for the belief that the statements contained in the Registration

10 Statement were true or that there was no omission of material facts necessary to

11 make the statements therein not misleading.

12 177. As a direct and proximate result of Defendants’ acts and omissions in

13 violation of the Securities Act, the market price of Ambow’s ADSs sold in the

14 Offering was artificially inflated and Plaintiffs and the Class suffered substantial

15 damage in connection with their purchase of Ambow ADSs pursuant to the

16 Registration Statement.

17 178. Ambow is the issuer of the ADSs sold via the Registration Statement.

18 179. As issuer of the securities, the Company is strictly liable to Plaintiffs and the

Class for the material misstatements and omissions therein. 19

180. At the times they obtained their shares of Ambow, Plaintiffs and members of 20

the Class did so without knowledge of the facts concerning the misstatements or 21 omissions alleged herein. 22 181. This action is brought within one year after discovery of the untrue 23 statements and omissions in the Registration Statement which should have been 24 made through the exercise of reasonable diligence, and within three years of the

25 effective date of the Registration Statement.

26 182. By virtue of the foregoing, Plaintiffs and the other members of the Class are

27 entitled to damages under Section 11 as measured by the provisions of Section

28 11(e), from the defendants and each of them, jointly and severally.



1

2 FOURTH CLAIM

3 Violations of section 15 of the Securities Act Against the Individual

4 Defendants 5

6

183. Plaintiffs repeat and reallege each and every allegation contained

7 above as if fully set forth herein.

8

184. This claim is asserted on behalf of Plaintiffs and all Class members

9 against Jin Huang and Paul Chow, each of whom was a control person of

10 the primary violator liable under Section 11 during the Class Period.

11 185. The primary violator liable under Section 11 for purposes of this claim

12 under Section 15 is Ambow and Chow.

13 186. Huang and Chow both controlled Ambow and Huang also controlled

14 Chow at all times during the Class Period.

15 187. Neither Chow nor Huang made a reasonable investigation or possessed

16 reasonable grounds for the belief that the statements contained in the

17 Registration Statement and Prospectus were accurate and complete in all

18 material respects. Had they exercised reasonable care, they should have

known of the material misstatements and omissions alleged herein.

19 188. This claim was brought within one year after the discovery of the

20 untrue statements and omissions in the IPO Registration Statement and

21 Prospectus and within three years after Ambow ADS was sold the class in

22 connection with the public offering.

23 189. By reason of the misconduct alleged herein, the Individual Defendants

24 are jointly and severally liable with and to the same extent as Ambow

25 pursuant to Section 15 of the Securities Act.

26

27

PRAYER FOR RELIEF

28

WHEREFORE , Plaintiff prays for relief and judgment, as follows:



1 (a) Determining that this action is a proper class action, designating

2 Plaintiff as class representative under Rule 23 of the Federal Rules of Civil

3 Procedure and Plaintiff’s counsel as Class Counsel;

4 (b) Awarding compensatory damages in favor of Plaintiff and the other

5 Class members against all defendants, jointly and severally, for all damages

6 sustained as a result of defendants’ wrongdoing, in an amount to be proven at

7

trial, including interest thereon;

8

(c) Awarding Plaintiff and the Class their reasonable costs and expenses

9

incurred in this action, including counsel fees and expert fees;

10

(d) Awarding rescissory damages; and

11 (d) Such other and further relief as the Court may deem just and proper.

12 JURY TRIAL DEMANDED

13 Plaintiff hereby demands a trial by jury.

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Respectfully submitted,

THE ROSEN LAW FIRM, P.A.

/alolt Laurence M. Rosen, Esq. (SBN 219683) THE ROSEN LAW FIRM, P.A. 355 South Grand Avenue, Suite 2450 Los Angeles, CA 90071 Telephone: (213) 785-2610 Facsimile: (213) 226-4684 Email: [email protected]

Counsel Plaintiffs



EXHIBIT 1


I ON

'S S S tS

S S IS SSS SSSS

2

:0. H 5 5

S 55

S S S

S S SSS S :5 S S SSS h :5

55• 5S J.' 2 '5 5 5 S 55 S.

'55 55

S 'S

S '5

' S

S

\'\ I 5'

I' '0.'I I'ss


H.

S •

S.

S . S5 •.

.5. 5. . . 1

flH S +

N 'jS5 5+

S .

+5 5

'+5

. .

S +J 5+5 )

+


EXHIBIT 2

Quarter Ended March 31, 2011 As Originally

Reported' As Restated $ Change % Change

$ 25,254 $ 24,317 $ (937) -4%

8,266 8,266 0 0%

11,808 11,559

6,171 2,741

51,499 46,883

25,108 22,320

26,391 24,563

(249)

(3,430)

(4,616)

(2,788)

(1,828)

-2%

-125%

-10%

- 12%

-7%

9,131 8,976

13,266 11,092

1,190 1,189

23,587 21,258

2,804 3,305

(155) -2%

(2,174) -20%

(1) 0%

(2,329) -11%

501 15%

848 875

266 266

193 171

1,497 1,993

236 314

1,261 1,678

27 3%

0 0%

(22) -13%

496 25%

78 25%

417 25%


EXHIBIT 2

(USD in thousands) Better Schools

Tutoring

K-12 Schools

Better Job

Career Enhancement

Colleges

NET REVENUES

Cost of revenues

GROSS PROFIT

Operating expenses:

Selling and marketing

General and administrative

Research and development

Impairment loss

TOTAL OPERATING EXPENSES

OPERATING INCOME

OTHER INCOME (EXPENSE)

Interest expense, net

Foreign exchange losses, net

Disposal loss continuining operations

Other income, net

INCOME BEFORE TAX AND NON-CONTROLLING INTEREST

Income tax expense

INCOME/(LOSS) FROM CONTINUING OPERATIONS Income/(loss) from discontinued operations, net of income taxes NET INCOME/(LOSS)

Add: Net gain/(loss) attributable to non-controlling interests NET INCOME/(LOSS) ATTRIBUTABLE TO AMBOW EDUCATION HOLDING LTD

'Ambow 6-K at 8 (May 19, 2011).

2Ambow 6-K Ex. 99.3 (July 5, 2012).

3Ambow 6-K at 10 (Aug. 26, 2011).

4Ambow 6-K at 9 (Nov. 15, 2011).

5Ambow 6-K, Ex. 99.1 at 11 (Mar. 5, 2012).

6Ambow 6-K, Ex. 99.1 at 13 (Mar. 5, 2012).

1,261 1,261

(0) 0%

228 228

(0) 0%

$ 1,489 $ 1,489 $

(0) 0%

•1

Quarter Ended June 30, 2011 As Originally


$ 33,712 $ 32,630 $ (1,082)

12,142 12,142 (0)

20,813 20,327

(486)

11,118 4,697

(6,421)

77,785 69,795

(7,990)

30,404 27,614

(2,790)

47,381 42,181

(5,200)

12,970

12,770 (200)

12,731

10,366 (2,365)

1,245

1,245 0

26,946

24,382 (2,564)

20,435

17,800 (2,635)

880

962

82

266

266

0

(70) (78)

(8)

19,359 16,649

(2,710)

2,479 2,582

103

16,880 14,066

(2,814)

- 2,497

2,497

16,880 16,564

(316)

(227) (227)

0

$ 16,653 $ 16,337 $

(316)

-3%

0%

-2%

-137%

-11%

-10%

-12%

-2%

-23%

0%

-11%

-15%

9%

0%

10%

-16%

4%

-20%

-2%

0%

-2%


EXHIBIT 2


Tutoring

K-12 Schools

Better Job

Career Enhancement

Colleges

NET REVENUES

Cost of revenues

GROSS PROFIT

Operating expenses:




Impairment loss


OPERATING INCOME





Other income, net


Income tax expense



'Ambow 6-K at 8 (May 19, 2011).

2Ambow 6-K Ex. 99.3 (July 5, 2012).

3Ambow 6-K at 10 (Aug. 26, 2011).

4Ambow 6-K at 9 (Nov. 15, 2011).

5Ambow 6-K, Ex. 99.1 at 11 (Mar. 5, 2012

6Ambow 6-K, Ex. 99.1 at 13 (Mar. 5, 2012

2


EXHIBIT 2


Tutoring

K-12 Schools

Better Job

Career Enhancement

Colleges

NET REVENUES

Cost of revenues

GROSS PROFIT

Operating expenses:




Impairment loss


OPERATING INCOME





Other income, net


Income tax expense



'Ambow 6-K at 8 (May 19, 2011).

2Ambow 6-K Ex. 99.3 (July 5, 2012).

3 Ambow 6-K at 10 (Aug. 26, 2011).

4Ambow 6-K at 9 (Nov. 15, 2011).

5Ambow 6-K, Ex. 99.1 at 11 (Mar. 5, 2012

6Ambow 6-K, Ex. 99.1 at 13 (Mar. 5, 2012

Quarter Ended September 30, 2011 As Originally

Reported As Restated $ Change % Change

$ 33,877 $ 32,942 $ (935) -3%

7,876 7,876 0 0%

22,974 21,955 (1,019) -5%

8,110 4,885 (3,225) -66%

72,837 67,658 (5,179) -8%

31,828 28,389 (3,439) -12%

41,009 39,269 (1,740) -4%

15,824 15,579

(245) -2%

14,250 11,824

(2,426) -21%

2,198 2,198

(0)

0%

32,272 29,600

(2,672) -9%

8,737 9,668

931

10%

995 1,073

78

7%

280 280

0

0%

(62) (88)

(26)

30%

7,524 8,403

879

10%

1,397 1,512

115

8%

6,127 6,892

765

11%

- (1,556) (1,556)

6,127 5,336 (791) -15%

(360) (360) 0

0%

$ 5,767 $ 4,976 $ (791) -16%


EXHIBIT 2


Tutoring

K-12 Schools

Better Job

Career Enhancement

Colleges

NET REVENUES

Cost of revenues

GROSS PROFIT

Operating expenses:




Impairment loss


OPERATING INCOME





Other income, net


Income tax expense



Quarter Ended December 31, 2011 As Originally

Reported5 As Restated $ Change % Change

$ 35,707 $ 31,417 $ (4,290) -14%

13,858 13,858 (0)

0%

33,784 25,121

(8,663) -34%

5,802 5,802

0

0%

89,151 76,199

(12,952) -17%

33,040 33,308

268

1%

56,111 42,891

(13,220) -31%

17,913 17,914

0%

16,836 18,250

1,414

8%

1,242 1,539

297

19%

- 4,025

4,025

35,991 41,729

5,738

14%

20,120 1,162

(18,958) -1632%

922 922

0

0%

15 15

(0)

0%

4,025 - (4,025)

(376) (376)

(0)

0%

15,534 601

(14,933) -2486%

3,754 2,199

(1,555) -71%

11,780 (1,598)

(13,378) 837%

(19,554) (19,554)

(0)

(7,774) (21,153)

(13,379) 63%

1,149 1,149

0 0%

$ (6,625) $ (20,003) $ (13,378)

67%

'Ambow 6-K at 8 (May 19, 2011).

2Ambow 6-K Ex. 99.3 (July 5, 2012).

3Ambow 6-K at 10 (Aug. 26, 2011).

4Ambow 6-K at 9 (Nov. 15, 2011).

5Ambow 6-K, Lx. 99.1 at 11 (Mar. 5, 2012

6Ambow 6-K, Ex. 99.1 at 13 (Mar. 5, 2012

ru

Year Ended December 31, 2011 As Originally


90,088 80,269

18,428 18,428

279,321 265,211

111,594 113,655

1671727 151,556

56,154 56,154

52,825 52,418

5,985 6,282

4,025

114,964 118,879

52,763 32,677

3,909 3,909

849 849

4,025 -

(367) (367)

44,347 28,286

8,265 6,710

36,082 21,576

(19,000)

17,082

789

$ 17,871

-3%

0%

-12%

0%

-5%

2%

-11%

0%

-1%

5%

3%

-61%

0%

0%

0%

-57%

-23%

-67%

-563%

0%

-431%

$ 127,897 $ 123,607 $ (4,290)

42,908 42,908 0

(9,819)

(0)

(14,110)

2,061

(16,171)

(0)

(407)

297

4,025

3,915

(20,086)

0

(0)

(4,025)

(0)

(16,061)

(1,555)

(14,506)

(19,000) 0

2,577 (14,505)

789 0

$ 3,366 $ (14,505)


EXHIBIT 2


Tutoring

K-12 Schools

Better Job

Career Enhancement

Colleges

NET REVENUES

Cost of revenues

GROSS PROFIT

Operating expenses:




Impairment loss


OPERATING INCOME





Other income, net


Income tax expense



'Ambow 6-K at 8 (May 19, 2011).

2Ambow 6-K Ex. 99.3 (July 5, 2012).

3Ambow 6-K at 10 (Aug. 26, 2011).

4Ambow 6-K at 9 (Nov. 15, 2011).

5Ambow 6-K, Ex. 99.1 at 11 (Mar. 5, 2012

6Ambow 6-K, Ex. 99.1 at 13 (Mar. 5, 2012

5


EXHIBIT 3


Quarter Ended March 31, 2011 As Originally


165,374 159,232 (6,142) -4%

54,129 54,129 - 0%

77,321 75,690 (1,631) -2%

40,408 17,952 (22,456) -125%

337,232 307,003 (30,229) -10%

164,415 146,155 (18,260) -12%

172,817 160,848 (11,969) -7%

59,793 58,780 (1,013) -2%

86,867 72,636 (14,231) -20%

7,791 7,789 (2) 0%

154,451 139,205 (15,246) -11%

18,366 21,643 3,277 15%

(5,552) (5,733) (181) 3%

(1,742) (1,742) - 0%

(1,262) (1,119) 143 -13%

9,810 13,049 3,239 25%

1,547 2,059 512 25%

8,263 10,990 2,727 25%

- (2,727) (2,727) 100%

8,263 8,263 - 0%

1,492 1,492 - 0%

9,755 9,755 - 0%

(RMB in thousands)

Better Schools Tutoring K-12 Schools Better Job Career Enhancement Colleges NET REVENUES Cost of revenues GROSS PROFIT Operating expenses: Selling and marketing General and administrative Research and development Impairment loss


OPERATING INCOME


Interest expense, net Foreign exchange losses, net


Other income, net


Income tax expense

INCOME/(LOSS) FROM CONTINUING OPERATIONS

Income/(loss) from discontinued operations, net of income taxes

NET INCOME/(LOSS)

Add: Net gain/(loss) attributable to non-controlling interests

NET INCOME/(LOSS) ATTRIBUTABLE TO AMBOW EDUCATION HOLDING LTD

Ambow 6-K at 8 (May 19, 2011). 2Ambow 6-K Ex. 99.3 (July 5, 2012). 3Ambow 6-K at 10 (Aug. 26, 2011). 4Ambow 6-K at 9 (Nov. 15, 2011). Ambow 6-K, Ex. 99.1 at 11 (Mar. 5, 2012). Ambow 6-K, Ex. 99.1 at 13 (Mar. 5, 2012).

1


'Ambow 6-K at 8 (May 19, 2011). 2Ambow 6-K Ex. 99.3 (July 5, 2012). 3Ambow 6-K at 10 (Aug. 26, 2011). 4Ambow 6-K at 9 (Nov. 15, 2011). 3Ambow 6-K, Ex. 99.1 at 11 (Mar. 5, 2012). 3Ambow 6-K, Ex. 99.1 at 13 (Mar. 5, 2012).

Quarter Ended June 30, 2011 As Originally


217,895 210,903 (6,992) -3%

78,477 78,477 - 0%

134,524 131,379 (3,145) -2%

71,865 30,356 (41,509) -137%

502,761 451,115 (51,646) -11%

196,517 178,480 (18,037) -10%

306,244 272,635 (33,609) -12%

83,829 82,540 (1,289) -2%

82,286 67,002 (15,284) -23%

8,049 8,047 (2) 0%

174,164 157,589 (16,575) -11%

132,080 115,046 (17,034) -15%

(5,687) (6,221) (534) 9%

(1,720) (1,720) - 0%

451 501 50 10%

125,124 107,606 (17,518) -16%

16,021 16,691 670 4%

109,103 90,915 (18,188) -20%

- 16,142 16,142 100%

109,103 107,057 (2,046) -2%

1,465 1,465 - 0%

107,638 105,592 (2,046) -2%

(RMB in thousands)



OPERATING INCOME




Other income, net


Income tax expense



NET INCOME/(LOSS)



2


'Ambow 6-K at 8 (May 19, 2011). 2Ambow 6-K Ex. 99.3 (July 5, 2012). 3Ambow 6-K at 10 (Aug. 26, 2011). 4Ambow 6-K at 9 (Nov. 15, 2011). 'Ambow 6-K, Ex. 99.1 at 11 (Mar. 5, 2012). 'Ambow 6-K, Ex. 99.1 at 13 (Mar. 5, 2012).

Quarter Ended September 30, 2011 As Originally


216,067 210,096 (5,971) -3%

50,233 50,233 - 0%

146,529 140,023 (6,506) -5%

51,730 31,156 (20,574) -66%

464,559 431,508 (33,051) -8%

203,001 181,061 (21,940) -12%

261,558 250,447 (11,111) -4%

100,924 99,359 (1,565) -2%

90,889 75,409 (15,480) -21%

14,018 14,016 (2) 0%

205,831 188,784 (17,047) -9%

55,727 61,663 5,936 10%

(6,348) (6,844) (496) 7%

(1,787) (1,787) - 0%

394 563 169 30%

47,986 53,595 5,609 10%

8,908 9,641 733 8%

39,078 43,954 4,876 11%

- (9,923) (9,923) 100%

39,078 34,031 (5,047) -15%

2,295 2,295 - 0%

36,783 31,736 (5,047) -16%

(RMB in thousands)



OPERATING INCOME




Other income, net


Income tax expense



NET INCOME/(LOSS)



3


tAmbow 6-K at 8 (May 19, 2011). 2Ambow 6-K Ex. 99.3 (July 5, 2012). Ambow 6-K at 10 (Aug. 26, 2011).

4Ambow 6-K at 9 (Nov. 15, 2011). Ambow6-K, Ex. 99.1 at 11 (Mar. 5, 2012). Ambow6-K, Ex. 99.1 at 13 (Mar. 5, 2012).

Quarter Ended December 31, 2011 As Originally

Reported As Restated $ Change % Cjgnig

224,737 197,738 (26,999) -14%

87,221 87,220 (1) 0%

212,633 158,110 (54,523) -34%

36,518 36,518 - 0%

561,109 479,586 (81,523) -17%

207,948 209,636 1,688 1%

353,161 269,950 (83,211) -31%

112,745 112,746 1 0%

105,961 114,866 8,905 8%

7,818 9,689 1,871 19%

- 25,336 25,336 -

226,524 262,637 36,113 14%

126,637 7,313 (119,324) -1632%

(5,806) (5,805) 1 0%

(94) (94) - 0%

(25,336) - 25,336

2,367 2,367 - 0%

97,768 3,781 (93,987) -2486%

23,628 13,840 (9,788) -71%

74,140 (10,059) (84,199) 837%

(123,072) (123,073) (1) 0%

(48,932) (133,132) (84,200) 63%

7,234 7,234 - 0%

(41,698) (125,898) (84,200) 67%

(RMB in thousands)



OPERATING INCOME




Other income, net


Income tax expense



NET INCOME/(LOSS)




'Ambow 6-K at 8 (May 19, 2011). 2Ambow 6-K Ex. 99.3 (July 5, 2012). 3Ambow 6-K at 10 (Aug. 26, 2011). 4Ambow 6-K at 9 (Nov. 15, 2011). 5Ambow 6-K, Ex. 99.1 at 11 (Mar. 5, 2012). 5Ambow 6-K, Ex. 99.1 at 13 (Mar. 5, 2012).

Year Ended December 31, 2011

As Originally As Reported -' Restated2 $ Change % Change

804,969 777,969 (27,000) -3%

270,059 270,059 - 0%

567,005 505,202 (61,803) -12%

115,982 115,982 - 0%

1,758,015 1,669,212 (88,803) -5%

702,364 715,332 12,968 2%

1,055,651 953,880 (101,771) -11%

353,425 353,425 - 0%

332,473 329,913 (2,560) -1%

37,670 39,541 1,871 5%

- 25,336 25,336 -

723,568 748,215 24,647 3%

332,083 205,665 (126,418) -61%

(24,603) -24,603 - 0%

(5,343) -5,343 - 0%

(25,336) 0 25,336

2,312 2,312 - 0%

279,113 178,031 (101,082) -57%

52,019 42,231 (9,788) -23%

227,094 135,800 (91,294) -67%

(119,581) -119581 - 0%

107,513 16,219 (91,294) -563%

4,966 4966 - 0%

112,479 21,185 (91,294) -431%

(RMB in thousands)



OPERATING INCOME




Other income, net


Income tax expense



NET INCOME/(LOSS)




EXHIBIT 4

2:12-cv-05062-PSG-AJW Document 21 Filed 02/19/13 of 70 Page ID #:269 EX Case

RMB in 000's

Total Accounts Receivable

Allowance Doubt Accounts

Increase bad debt provision


Allowance I Receivables

2009 2010 3/31/2011 6/30/2011 9/30/2011

21,879 48,745 55,784 94,684 212,806

- 351 458 458 458

351 107 - - -

21,528 48,287 55,326 94,226 212,348

1.6% 0.9% 0.8% 0.5% 0.2%

Restated

2011 2011 Adjustments

213,315 122,886 (90,429)

458 458 -

- 14,181 14,181

212,857 108,247 (104,610)

0.2% 11.9%

USD in 000's

Total Accounts Receivable

Allowance Doubt Accounts

Increase bad debt provision


Allowance / Receivables

Exchange rate RMB:Dollar

Restated

2009 2010 3/31/2011 6/30/2011 9/30/2011 2011 2011 \djustments

$ 3,203 $ 7,444 $ 8,633 $ 14,847 $ 33,812 $ 33,893 $ 19,525 $(14,368)

- 54 73 73 73 73 73 (0)

51 16 - - - - 2,253 2,253

$ 3,152 $ 7,374 $ 8,560 $ 14,774 $ 33,739 $ 33,820 $ 17,199 $(16,621)

1.6% 0.9% 0.8% 0.5% 0.2% 0.2% 11.9%

6.83 6.55 6.52 6.41 6.31 6.31 6.31

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