UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
20-F
(Mark
One)
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended August 31, 2023.
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from to
OR
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
.. . . . . . . . . . . . . . . . . . .
For the transition period from to
Commission file number: 001-38430
Meta Data Limited |
(Exact Name of Registrant as Specified in Its Charter) |
|
Not Applicable |
(Translation of Registrant’s Name Into English) |
|
The Cayman Islands |
(Jurisdiction of Incorporation or Organization) |
|
Flat H 3/F, Haribest Industrial Building, 45-47 Au Pui Wan Street |
Sha Tin New Territories |
Hong Kong |
(Address of principal executive offices) |
|
Chee Jiong Ng, Chief Financial Officer |
Flat H 3/F, Haribest Industrial Building, 45-47 Au Pui Wan Street |
Sha Tin New Territories |
Hong Kong |
Telephone: +86-1365 5939 932 |
Email: huangzhizhang@aiumeta.com |
(Name, Telephone, E-mail, and/or Facsimile number and Address of Company Contact Person) |
Securities registered or to be registered pursuant to Section 12(b)
of the Act:
Title of Each Class | | Trading Symbol | | Name of Each Exchange On Which Registered |
American depositary shares, each American depositary share representing two Class A ordinary shares, par value US$0.0005 per share* | | AIU | | New York Stock Exchange |
* |
Not
for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares. |
Securities registered or to be registered pursuant to Section 12(g)
of the Act:
None |
(Title of Class) |
|
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act: |
|
None |
(Title of Class) |
Indicate the
number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by
the annual report:
As
of August 31, 2023, there were 153,948,323 ordinary shares outstanding, par value US$0.0005 per share, being the sum of 153,948,323 Class
A ordinary shares and nil Class B ordinary shares.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐
Yes ☒ No
If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934.
☐
Yes ☒ No
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
☒
Yes ☐ No
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
☒
Yes ☐ No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Emerging growth company ☐ |
If
an emerging growth company that prepare its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided
pursuant to Section 13(a) of the Exchange Act. ☐
†The
term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board
to its Accounting Standards Codification after April 5, 2012.
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
If
“Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.
☐
Item 17 ☐ Item 18
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
☐
Yes ☒ No
(APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐
Yes ☐ No
TABLE OF CONTENTS
INTRODUCTION
Except where the context otherwise requires and for purposes of this
annual report only, references in this annual report to:
|
● |
“ADSs” are
to our American depositary shares, each of which represents 1,000 Class A ordinary shares; |
|
● |
“ADRs” are
to the American depositary receipts that evidence our ADSs; |
|
● |
“China” or
the “PRC” are to the People’s Republic of China, including, for the purposes of this annual report only, Taiwan
and the special administrative regions of Hong Kong and Macau; |
|
● |
each “enrollment,”
for the purpose of calculation, are to a student who takes at least one class for one subject in a certain period is treated as one
enrollment in the same period. Under this methodology, a student taking at least one class for each of two subjects in a certain
period is treated as two enrollments in the same period. The number of students enrolled in our invested schools is not included
for this purpose; |
|
● |
“Hong Kong”
are to the Hong Kong Special Administrative Region of the People’s Republic of China for the purposes of this annual report
only; |
|
● |
“mainland China”
or “mainland Chinese” are to the mainland China of the People’s Republic of China, excluding Taiwan and the special
administrative regions of Hong Kong and Macau for the purposes of this annual report only; |
|
● |
“ordinary shares”
are to our Class A ordinary shares and Class B ordinary shares, par value US$0.0005 per share; |
|
● |
“RMB” and “Renminbi”
are to the legal currency of China; |
|
● |
“US$,” “U.S.
dollars,” “$,” and “dollars” are to the legal currency of the United States; and |
|
● |
“we” “us”
“our company” and “our” are to Meta Data Limited, and its subsidiaries. |
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking
statements that reflect our current expectations and views of future events. Known and unknown risks, uncertainties and other factors,
including those listed under “Item 3. Key Information-D. Risk Factors,” may cause our actual results, performance or achievements
to be materially different from those expressed or implied by the forward-looking statements.
You can identify some of these forward-looking
statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,”
“estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,”
“continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations
and projections about future events that we believe may affect our financial condition, results of operations, business strategy and
financial needs. These forward-looking statements include statements relating to:
|
● |
our goals and strategies; |
|
● |
our future business development,
results of operations and financial conditions; |
|
● |
our expectations regarding
demand for and market acceptance of our products and services; |
|
● |
our relationships with
our business partners and other stakeholders; |
|
● |
competition in our industry;
and |
|
● |
relevant government policies
and regulations relating to our industry. |
These forward-looking statements involve various
risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our
expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks
and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item
3. Key Information-D. Risk Factors,” “Item 4. Information on the Company-B. Business Overview,” “Item 5. Operating
and Financial Review and Prospects,” and other sections in this annual report. You should read thoroughly this annual report and
the documents that we refer to with the understanding that our actual future results may be materially different from and worse than
what we expect. We qualify all of our forward-looking statements by these cautionary statements.
The forward-looking statements made in this annual
report relate only to events or information as of the date on which the statements are made in this annual report. Except as required
by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information,
future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You
should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to the registration
statement, of which this annual report is a part, completely and with the understanding that our actual future results may be materially
different from what we expect.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
Meta Data Limited (formerly
known as OneSmart International Education Group Limited) (the “Company” or “Meta Data”) is a holding company
incorporated in the Cayman Islands in March 2017 and not a Chinese or Hong Kong operating company. As a holding company with no material
operations of our own, we conduct our operations through our subsidiaries, Metaverse Information Technology Limited (“Meta HK”)
in Hong Kong and Metaverse Digital Technology Co., Limited (“Meta Digital”) in Wyoming, United States. Our current corporate
structure involves unique risks to investors. Our securities are securities of Meta Data, the offshore holding company in the Cayman
Islands, instead of securities of our subsidiaries. Investors may never hold equity interests in our subsidiaries.
The following diagram
illustrates our corporate structure, including our subsidiaries, as of the date of this annual report:
Meta HK faces various
legal and operational risks and uncertainties relating to its operations in Hong Kong. Our current corporate structure does not contain
any variable interest entity (the “VIE”) in mainland China and we do not have intention establishing any VIEs in mainland
China in the future. If in the future there is any significant change to the current political arrangements between mainland China and
Hong Kong and mainland China’s expanded authority in Hong Kong result in the PRC regulatory authorities disallowing our current
corporate structure, or if in the future our structure were to contain a VIE and the mainland PRC regulatory authorities expand to Hong
Kong and disallow the VIE structure, it would likely result in a material adverse change in our operations, and the value of our securities
may decline significantly in value or become worthless. Although currently we do not have any business operations in mainland China nor
do we have any VIE structure and we believe that the laws and regulations of the PRC applicable in China do not currently have any material
impact on our business, financial condition or results of operations, we face risks and uncertainties associated with the complex and
evolving PRC laws and regulations and as to whether and how the recent PRC government statements and regulatory developments, such as
those relating to VIE, data and cyberspace security, and anti-monopoly concerns, would be applicable to a company such as the Company
or Meta HK given our substantial operations in Hong Kong and the Chinese government’s significant oversight authority over the
conduct of business in Hong Kong.
In light of China’s
recent expansion of authority in Hong Kong, we are subject to the risks of uncertainty about any future actions of the PRC government
or authorities in Hong Kong. The Chinese government may intervene or influence our current and future operations in Hong Kong at any
time, or may exert more control over offerings conducted overseas and/or foreign investment in issuers likes ourselves. We believe that,
on the basis that we currently do not have any business operations in mainland China, we currently are not required to obtain approvals
from Chinese authorities to operate our business or list on the U.S. exchanges and offer securities; specifically, Meta HK is currently
not required to obtain any permission or approval from the China Securities Regulatory Commission (“CSRC”), Cyberspace Administration
of China (“CAC”) or any other PRC governmental authority to operate its business or for us to continue to list our securities
on a U.S. securities exchange or issue securities to foreign investors. However, there is no assurance that there will not be any changes
in the economic, political and legal environment in Hong Kong in the future. Should the PRC government choose to affect operations of
any company with any level of operations in Hong Kong, or should certain PRC laws and regulations or these statements or regulatory actions
become applicable to the VIEs in the future. Such governmental actions: (i) could significantly limit or completely hinder our ability
to continue our operations; (ii) could significantly limit or hinder our ability to offer or continue to offer our ADSs to investors;
and (iii) may cause the value of our ADSs to significantly decline or be worthless.
We are also aware that recently, the PRC government
initiated a series of regulatory actions and statements to regulate business operations in certain areas in mainland China with little
advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over mainland Chinese companies
listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding
the efforts in anti-monopoly enforcement. Nevertheless, since these statements and regulatory actions are new, it is highly uncertain
how soon the legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed
implementations and interpretations will be modified or promulgated, if any. It is also highly uncertain what the potential impact such
modified or new laws and regulations will have on Meta HK’s daily business operation, and the continued listing of our ADSs on
a U.S. or other foreign exchanges. If any or all of the foregoing were to occur, it may significantly limit or completely hinder our
ability to complete this offering or cause the value of our ADSs to significantly decline or become worthless. See “Risk Factors
- Risks Related to Our Corporate Structure” and “Risk Factors - Risks Relating to Doing Business in Hong Kong”. As
of the date of this report, these new laws and guidelines have not impacted the Company’s ability to conduct its business, or list
and trade on a U.S. or other foreign exchange as the Company has listed on NYSE before these laws take effect and the business activities
conducted by the VIE do not affect national security; however, there are uncertainties in the interpretation and enforcement of these
new laws and guidelines, which could materially and adversely impact our business and financial outlook and may impact our ability to
accept foreign investments or continue to list on a U.S. or other foreign exchange. Any change in foreign investment regulations, and
other policies in China or related enforcement actions by China government could result in a material change in our operations and the
value of our securities and could significantly limit or completely hinder our ability to offer our securities to investors or cause
the value of our securities to significantly decline or be worthless.
In addition, our ADSs
may be prohibited from trading on a national exchange or over-the-counter under the Holding Foreign Companies Accountable Act (the “HFCA
Act”) if the Public Company Accounting Oversight Board (United States) (the “PCAOB”) is unable to inspect our auditors
for three consecutive years beginning in 2021. Our auditor, OneStop Assurance PAC (“OneStop”), is headquartered in Singapore
with its address 10 Anson Road, #13-09, International Plaza, Singapore 079903, and is a firm registered with the PCAOB and is subject
to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional
standards and is not subject to the determinations announced by the PCAOB on December 16, 2021. If trading in our ADSs is prohibited
under the HFCA Act in the future because the PCAOB determines that it cannot inspect or fully investigate our auditor at such future
time, NYSE may determine to delist our ADSs and trading in our ADSs could be prohibited. On December 29, 2022, legislation entitled “Consolidated
Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President Biden, which, among
other things, amended HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges
if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering
the prohibition on trading. Furthermore, our auditor is not among the auditor firms listed on an HFCA Act Determination List, which includes
all of the auditor firms that the PCAOB is not able to inspect. While our auditor is based in the U.S. and is registered with the PCAOB
and subject to PCAOB inspection, in the event it is later determined that the PCAOB is unable to inspect or investigate completely our
auditor because of a position taken by an authority in a foreign jurisdiction, then such lack of inspection could cause trading in our
ADSs to be prohibited under the HFCA Act, and ultimately result in a determination by a securities exchange to delist our Ordinary Shares.
On August 26, 2022, the PCAOB signed a Statement of Protocol (the “SOP”) Agreement with the CSRC and China’s Ministry
of Finance. The SOP Agreement, together with two protocol agreements (collectively, “SOP Agreements”), governing inspections
and investigations of audit firms based in mainland China and Hong Kong, taking the first step toward opening access for the PCAOB to
inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. Pursuant to the fact sheet
with respect to the Protocol disclosed by the U.S. Securities and Exchange Commission (the “SEC”), the PCAOB shall have independent
discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the
SEC. On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered
public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary.
However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will
consider the need to issue a new determination.
Permissions or Approval
Required from the PRC Authorities for Our Operations and Listing
We are a holding company incorporated in Cayman
Islands with all of our operation conducted by the operating entities in Hong Kong and Wyoming, United States. We currently do not have
or intend to set up any subsidiary or enter into any contractual arrangements to establish a VIE structure with any entity in mainland
China. Hong Kong is a special administrative region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in
the Basic Law, namely, Hong Kong’s constitutional document, which provides Hong Kong with a high degree of autonomy and executive,
legislative and independent judicial powers, including that of final adjudication under the principle of “one country, two systems”.
Accordingly, we believe the laws and regulations of the PRC do not currently have any material impact on our business, financial condition
or results of operations and that, as advised by our PRC counsel, Hebei Changjun Law Firm, as of the date of this annual report, Meta
HK is currently not required to obtain permissions or approvals from the PRC government to operate its business and we are not required
to obtain permissions or approvals from the PRC government to list on the U.S. exchanges and offer securities. However, there is no assurance
that there will not be any changes in the economic, political and legal environment in Hong Kong in the future. In light of China’s
recent expansion of authority in Hong Kong, we are subject to the risks of uncertainty about any future actions of the PRC government
or authorities in Hong Kong. Should the PRC government choose to affect operations of any company with any level of operations in Hong
Kong, or should certain PRC laws and regulations or these statements or regulatory actions become applicable to Meta HK in the future.
Such governmental actions: (i) could significantly limit or completely hinder our ability to continue our operations; (ii) could significantly
limit or hinder our ability to offer or continue to offer our ADSs to investors; and (iii) may cause the value of our ADSs to significantly
decline or be worthless.
We are aware that, recently, the PRC government
initiated a series of regulatory actions and statements to regulate business operations in certain areas in mainland China with little
advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies
listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding
the efforts in anti-monopoly enforcement.
On July 6, 2021, the General Office of the Communist
Party of China Central Committee and the General Office of the State Council jointly issued a document to crack down on illegal activities
in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant
governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over
China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities
laws.
On July 10, 2021, the Cyberspace Administration
of China, or the “CAC”, issued a revised draft of the Measures for Cybersecurity Review for public comments, or the Revised
Review Measures, which required that, among others, in addition to “operator of critical information infrastructure”, any
“data processor” controlling personal information of no less than one million users (which to be further specified) which
seeks to list in a foreign stock exchange should also be subject to cybersecurity review, and further elaborated the factors to be considered
when assessing the national security risks of the relevant activities. On December 28, 2021, the CAC, the National Development and Reform
Commission (“NDRC”), and several other administrations jointly issued the revised Measures for Cybersecurity Review, or the
“Revised Review Measures”, which became effective and replaced the existing Measures for Cybersecurity Review on February
15, 2022. According to the Revised Review Measures, if an “online platform operator” that is in possession of personal data
of more than one million users intends to list in a foreign country, it must apply for a cybersecurity review. Based on a set of Q&A
published on the official website of the State Cipher Code Administration in connection with the issuance of the Revised Review Measures,
an official of the said administration indicated that an online platform operator should apply for a cybersecurity review prior to the
submission of its listing application with non-PRC securities regulators. Moreover, the CAC released the draft of the Regulations on
Network Data Security Management in November 2021 for public consultation, which among other things, stipulates that a data processor
listed overseas must conduct an annual data security review by itself or by engaging a data security service provider and submit the
annual data security review report for a given year to the municipal cybersecurity department before January 31 of the following year.
Since these statements and regulatory actions are newly published, however, official guidance and related implementation rules have not
been issued. It is highly uncertain what the potential impact such modified or new laws and regulations will have on the daily business
operations of our subsidiaries, our ability to accept foreign investments, and our listing on an U.S. exchange.
Our Hong Kong subsidiary, Meta HK may collect
and store certain data (including certain personal information) from our clients, who may be mainland Chinese individuals. It remains
unclear whether a Hong Kong company which collects personal information from mainland Chinese individuals shall be subject to the Revised
Review Measures. We do not currently expect the Revised Review Measures to have an impact on our business, operations or this offering
as we do not believe that Meta HK is deemed to be an “operator of critical information infrastructure” or a “data processor”
controlling personal information of no less than one million users, that are required to file for cybersecurity review for our listing
in the U.S., because (i) Meta HK is incorporated and operating in Hong Kong without any subsidiary or VIE structure in mainland China
and the Revised Review Measures remains unclear whether it shall be applied to a Hong Kong company; (ii) as of date of this annual report,
Meta HK does not collected and stored personal information far less than one million users; and (iii) as of the date of this annual report,
Meta HK has not been informed by any PRC governmental authority of any requirement that it file for a cybersecurity review. However,
there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations. If Meta
HK is deemed to be an “operator of critical information infrastructure” or a “data processor” controlling personal
information of no less than one million users, Meta HK’s operation and the listing of our ADSs in the U.S. could be subject to
CAC’s cybersecurity review in the future.
On December 24, 2021, the CSRC published the
Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Draft
Administration Provisions”), and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic
Companies (the “Draft Measures”) for public comment. On February 17, 2023, the CSRC promulgated the Trial Administrative
Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”), which took
effect on March 31, 2023. Compared to the Draft Measures, the Trial Administrative Measures further clarified and emphasized that the
comprehensive determination of the “indirect overseas offering and listing by PRC domestic companies” shall comply with the
principle of “substance over form” and particularly, an issuer will be required to go through the filing procedures under
the Trial Administrative Measures if the following criteria are met at the same time: a) 50% or more of the issuer’s operating
revenue, total profits, total assets or net assets as documented in its audited consolidated financial statements for the most recent
accounting year are accounted for by PRC domestic companies, and b) the main parts of the issuer’s business activities are conducted
in mainland China, or its main places of business are located in mainland China, or the senior managers in charge of its business operation
and management are mostly Chinese citizens or domiciled in mainland China. On the same day, the CSRC held a press conference for the
release of the Trial Administrative Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing
by Domestic Companies, which, among others, provided the exemption from immediate filings for issuers that a) have been listed or have
been registered but not yet listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial Administrative
Measures, b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory authority or the overseas
stock exchange, and c) will complete the overseas securities offering and listing before September 30, 2023. Nonetheless, such issuers
shall carry out the filing procedures as required if they subsequently conduct refinancing or are involved in other circumstances that
require filings with the CSRC. Furthermore, the Trial Administrative Measures and its supporting guidelines provide a negative list of
types of issuers banned from listing overseas, the issuers’ obligation to comply with national security measures and the personal
data protection laws, and certain other matters such as the requirements that an issuer (i) file with the CSRC within three business
days after it submits an application for initial public offering to the competent overseas regulator and (ii) file subsequent reports
with the CSRC on material events, including change of control and voluntary or forced delisting, after its overseas offering and listing.
As the Trial Administrative Measures are newly
issued, there remains uncertainty as to how it will be interpreted or implemented. Therefore, we cannot assure you that when the Company
is subject to such filing requirements, we will be able to get clearance from the CSRC in a timely manner, or at all, even though we
believe that none of the situations that would clearly prohibit overseas listing and offering applies to us. Based on laws and regulations
currently in effect in the PRC, as of the date of this annual report, subject to final determination by the CSRC and relevant competent
authorities, we believe Meta HK is not required to obtain regulatory permissions or approval from the CSRC or go through the filing procedures
under the Trial Administrative Measures for the listing of our ADSs in the U.S. because a) the Company does not, directly or indirectly,
own or control any entity or subsidiary in mainland China, and b) none of the Company’s business activities are conducted in mainland
China, nor is its main place of business located in mainland China.
Nevertheless, since these statements and regulatory
actions are new, it is highly uncertain how soon the legislative or administrative regulation making bodies will respond and what existing
or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any. It is also highly
uncertain what the potential impact such modified or new laws and regulations will have on Meta HK’s daily business operation,
its ability to accept foreign investments and the listing of our ADSs on NYSE.
As of the date of this annual report, subject
to final determination by the CSRC and relevant competent authorities, as advised by our PRC counsel, Hebei Changjun Law Firm, on the
basis that (i) the Company does not, directly or indirectly, own or control any entity or subsidiary in mainland China, nor is it controlled
by any mainland Chinese company or individual directly or indirectly; (ii) the Company and its subsidiary(s) currently do not have any
business operations in mainland China; (iii) the Company currently does not have or intend to set up any subsidiary or enter into any
contractual arrangements to establish a variable interest entity structure with any entity in mainland China; and (iv) the Company and
its subsidiary(s) possess personal information of less than one million individuals in the PRC and do not possess any core data or important
data of the PRC, or any information which affects or may affect national security of the PRC, Meta HK is currently not required to obtain
any permission or approval from the PRC authorities to operate its business or to list in the U.S. or issue our ADSs to foreign investors.
However, it is highly uncertain that whether
there will be significant changes to current political arrangements between mainland China and Hong Kong, or the applicable laws, regulations,
or interpretations change, and that Meta HK will be required to obtain such permission or approval in the future. In the event that (i)
the PRC government expanded the categories of industries and companies whose foreign securities offerings are subject to review by any
governmental agency in addition to the CSRC or the CAC and that we are required to obtain such permissions or approvals; or (ii) we inadvertently
concluded that relevant permissions or approvals were not required or that we did not receive or maintain relevant permissions or approvals
required, any action taken by the PRC government could significantly limit or completely hinder our operations in Hong Kong and our ability
to offer or continue to offer securities to investors and could cause the value of such securities to significantly decline or be worthless.
Transfers Between
Our Company and Our Subsidiaries
As of the date of this
annual report, our current corporate structure does not contain any variable interest entity in mainland China.
Our management is directly
supervising cash management. Our finance department is responsible for establishing the cash management policies and procedures among
our departments and the operating entities. Each department or operating entity initiates a cash request by putting forward a cash demand
plan, which explains the specific amount and timing of cash requested, and submitting it to designated management members of our Company,
based on the amount and the use of cash requested. The designated management member examines and approves the allocation of cash based
on the sources of cash and the priorities of the needs, and submit it to the cashier specialists of our finance department for a second
review. Other than the above, we currently do not have other cash management policies or procedures that dictate how funds are transferred.
During the fiscal years
ended August 31, 2023 and 2022, our Company, our subsidiaries, and the former VIEs have not distributed any earnings or settled any amounts
owed under the VIE Agreements. Cash, not in the form of earnings distribution, was transferred between our Company, our subsidiaries
and the former VIEs for the purpose of providing working capital between Meta Data, its subsidiaries, VIEs and its subsidiaries and WFOE.
As set forth in the tables below, intercompany receivables were cash transferred from Meta Data (for example) to other entities that
are consolidated, while intercompany payables were cash received by Meta Data (for example). There is no tax consequence arising from
the cash transfer. Please refer to Note 2(d) to the Consolidated Financial Statements – Consolidated of variable interest entities
– for a more detailed description in regard to these matters.
The condensed consolidating table below disaggregated
the Consolidated Balance Sheets of the Company into Meta Data, the former VIEs and their subsidiaries, the former WFOE that is the primary
beneficiary of the former VIEs, of which assets and liabilities are classified as discontinued operation, and an aggregation of other
entities that are consolidated as of August 31, 2023 and 2022. As illustrated in the table below, Meta Data Limited transferred $100.3
million to its wholly owned subsidiary, Metaverse Digital Technology Co., Limited as of August 31, 2023 and $25.2 million to its wholly
owned subsidiary, Onesmart Edu (HK) Limited as of August 31, 2022, while its wholly owned subsidiary, Shanghai Jingrui Education Technology
Group Co., Ltd, transferred nil and $25.2 million to Meta Data Limited as of August 31, 2023 and 2022, respectively.
| |
As of August 31, 2023 | |
| |
Other entities | | |
WFOE that is | | |
| | |
| | |
| |
| |
that are | | |
the primary | | |
VIE and its | | |
The | | |
Consolidated | |
| |
consolidated | | |
beneficiary | | |
subsidiaries | | |
Company | | |
total | |
Intercompany receivables | |
| - | | |
| - | | |
| - | | |
$ | 100,271 | | |
| - | |
Current assets excluding intercompany
receivables | |
$ | 121,088 | | |
| - | | |
| - | | |
| 32 | | |
$ | 121,120 | |
Current assets | |
$ | 121,088 | | |
| - | | |
| - | | |
$ | 100,303 | | |
$ | 121,120 | |
Non-current assets | |
$ | 24 | | |
| - | | |
| - | | |
| - | | |
$ | 24 | |
Total assets | |
$ | 121,112 | | |
| - | | |
| - | | |
$ | 100,303 | | |
$ | 121,144 | |
Intercompany payables | |
$ | 100,271 | | |
| - | | |
| - | | |
| - | | |
| - | |
Current liabilities excluding intercompany
payables | |
| 5,019 | | |
| - | | |
| - | | |
| 110,119 | | |
$ | 115,138 | |
Current liabilities | |
$ | 105,290 | | |
| - | | |
| - | | |
$ | 110,119 | | |
$ | 115,138 | |
Non-current liabilities | |
| - | | |
| - | | |
| - | | |
| 1,212 | | |
$ | 1,212 | |
Total liabilities | |
$ | 105,290 | | |
| - | | |
| - | | |
$ | 111,331 | | |
$ | 116,350 | |
Total shareholders' equity (net assets) | |
$ | 15,822 | | |
| - | | |
| - | | |
$ | (11,028 | ) | |
$ | 4,794 | |
| |
As of August 31, 2022 | |
| |
Other entities | | |
WFOE that is | | |
| | |
| | |
| |
| |
that are | | |
the primary | | |
VIE and its | | |
The | | |
Consolidated | |
| |
consolidated | | |
beneficiary | | |
subsidiaries | | |
Company | | |
total | |
Intercompany receivables | |
| - | | |
| - | | |
| - | | |
$ | 25,200 | | |
| - | |
Current assets excluding intercompany
receivables | |
| 29,163 | | |
| 2,664 | | |
| 15,479 | | |
| 2,274 | | |
$ | 49,580 | |
Current assets | |
$ | 29,163 | | |
| 2,664 | | |
| 15,479 | | |
| 27,474 | | |
$ | 49,580 | |
Total assets | |
$ | 29,163 | | |
$ | 2,664 | | |
$ | 15,479 | | |
$ | 27,474 | | |
$ | 49,580 | |
Intercompany payables | |
$ | 25,200 | | |
| - | | |
| - | | |
| - | | |
| - | |
Current liabilities excluding intercompany
payables | |
| 3,771 | | |
| 2,651 | | |
| 717,064 | | |
| 72,548 | | |
$ | 796,034 | |
Current liabilities | |
$ | 28,971 | | |
| 2,651 | | |
| 717,064 | | |
| 72,548 | | |
$ | 796,034 | |
Non-current liabilities | |
| - | | |
| - | | |
| - | | |
| 35,000 | | |
$ | 35,000 | |
Total liabilities | |
$ | 28,971 | | |
| 2,651 | | |
| 717,064 | | |
| 107,548 | | |
$ | 831,034 | |
Total shareholders' equity (net assets) | |
$ | 192 | | |
$ | 13 | | |
$ | (701,585 | ) | |
$ | (80,074 | ) | |
$ | (781,454 | ) |
The condensed consolidating table below
disaggregated the Consolidated Statements of Operations and Comprehensive Income (Loss) of the Company into Meta Data, the former VIEs
and their subsidiaries, the WFOE that is the primary beneficiary of the former VIEs and an aggregation of other entities that are consolidated
for the financial years ended August 31, 2023 and 2022.
| |
For the year ended August 31, 2023 | |
| |
Other entities | | |
WFOE that is | | |
| | |
| | |
| |
| |
that are | | |
the primary | | |
VIE and its | | |
The | | |
Consolidated | |
| |
consolidated | | |
beneficiary | | |
subsidiaries | | |
Company | | |
total | |
Revenues | |
$ | 32,426 | | |
| - | | |
| - | | |
| - | | |
$ | 32,426 | |
Cost of revenues | |
| (17,005 | ) | |
| - | | |
| - | | |
| - | | |
| (17,005 | ) |
Gross profit | |
| 15,421 | | |
| - | | |
| - | | |
| - | | |
| 15,421 | |
Operating expenses | |
| (359 | ) | |
| - | | |
| - | | |
| (1,462 | ) | |
| (1,821 | ) |
Income (loss) from operations | |
| 15,062 | | |
| - | | |
| - | | |
| (1,462 | ) | |
| 13,600 | |
Other income (expenses) | |
| 569 | | |
| - | | |
| - | | |
| (3,635 | ) | |
| (3,066 | ) |
Income (loss) before income taxes | |
| 15,631 | | |
| - | | |
| - | | |
| (5,097 | ) | |
| 10,534 | |
Provision for income taxes | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Gain on disposal of discontinued operations | |
| - | | |
| - | | |
| (2,315 | ) | |
| 686,276 | | |
| 683,961 | |
Net income (loss) | |
$ | 15,631 | | |
| - | | |
| (2,315 | ) | |
$ | 681,179 | | |
$ | 694,495 | |
| |
For the year ended August 31, 2022 | |
| |
Other entities | | |
WFOE that is | | |
| | |
| | |
| |
| |
that are | | |
the primary | | |
VIE and its | | |
The | | |
Consolidated | |
| |
consolidated | | |
beneficiary | | |
subsidiaries | | |
Company | | |
total | |
Revenues | |
$ | 2,120 | | |
| - | | |
| - | | |
| - | | |
$ | 2,120 | |
Cost of revenues | |
| (1,856 | ) | |
| - | | |
| - | | |
| - | | |
| (1,856 | ) |
Gross profit | |
| 264 | | |
| - | | |
| - | | |
| - | | |
| 264 | |
Operating expenses | |
| (60 | ) | |
| - | | |
| - | | |
| (53,375 | ) | |
| (53,435 | ) |
Income (loss) from operations | |
| 204 | | |
| - | | |
| - | | |
| (53,375 | ) | |
| (53,171 | ) |
Other income (expenses) | |
| (11 | ) | |
| - | | |
| - | | |
| (7,393 | ) | |
| (7,404 | ) |
Income (loss) before income taxes | |
| 193 | | |
| - | | |
| - | | |
| (60,768 | ) | |
| (60,575 | ) |
Provision for income taxes | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Loss from discontinued operations | |
| - | | |
| (68,285 | ) | |
| (45,329 | ) | |
| - | | |
| (113,614 | ) |
Net income (loss) | |
$ | 193 | | |
$ | (68,285 | ) | |
$ | (45,329 | ) | |
$ | (60,768 | ) | |
$ | (174,189 | ) |
The condensed consolidating table below disaggregated
the Consolidated Statements of Cash Flows of the Company into Meta Data, the VIEs and their subsidiaries, the WFOE that is the primary
beneficiary of the VIEs and an aggregation of other entities that are consolidated for the financial years ended August 30, 2022 and
2023.
| |
For the year ended August 31, 2023 | |
| |
| | |
WFOE | | |
| | |
| | |
| |
| |
Other | | |
that is the | | |
| | |
| | |
| |
| |
entities | | |
primary | | |
VIE | | |
| | |
| |
| |
that are | | |
beneficiary | | |
and its | | |
The | | |
Consolidated | |
| |
consolidated | | |
of the VIE | | |
subsidiaries | | |
Company | | |
total | |
Net cash provided by (used in) operating activities | |
$ | 91,244 | | |
| - | | |
| - | | |
| (77,889 | ) | |
$ | 13,355 | |
Net cash provided by (used in) investing activities | |
| (16,097 | ) | |
| - | | |
| - | | |
| 1,000 | | |
| (15,097 | ) |
Net cash provided by (used in) financing activities | |
| 705 | | |
| - | | |
| - | | |
| 76,670 | | |
| 77,375 | |
Effect of exchange rate changes on cash | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Net increase (decrease) in cash | |
| 75,852 | | |
| - | | |
| - | | |
| (219 | ) | |
| 75,633 | |
Cash, beginning of year | |
| 29,163 | | |
| - | | |
| - | | |
| 219 | | |
| 45,479 | |
Cash, end of year | |
$ | 105,015 | | |
| - | | |
| - | | |
| - | | |
$ | 121,112 | |
| |
For the year ended August 31, 2022 | |
| |
| | |
WFOE | | |
| | |
| | |
| |
| |
Other | | |
that is the | | |
| | |
| | |
| |
| |
entities | | |
primary | | |
VIE | | |
| | |
| |
| |
that are | | |
beneficiary | | |
and its | | |
The | | |
Consolidated | |
| |
consolidated | | |
of the VIE | | |
subsidiaries | | |
Company | | |
total | |
Net cash provided by (used in) operating activities | |
$ | 29,162 | | |
$ | (7,769 | ) | |
$ | (28,494 | ) | |
$ | (36,729 | ) | |
$ | (43,830 | ) |
Net cash provided by (used in) investing activities | |
| - | | |
| - | | |
| 3,012 | | |
| 8,559 | | |
| 11,571 | |
Net cash provided by (used in) financing activities | |
| 1 | | |
| - | | |
| (8,000 | ) | |
| 30,680 | | |
| 22,681 | |
Effect of exchange rate changes on cash | |
| - | | |
| - | | |
| 3,876 | | |
| (8,358 | ) | |
| (4,482 | ) |
Net increase (decrease) in cash | |
| 29,163 | | |
| (7,769 | ) | |
| (29,606 | ) | |
| (5,848 | ) | |
| (14,060 | ) |
Cash, beginning of year | |
| - | | |
| 8,411 | | |
| 41,736 | | |
| 6,067 | | |
| 59,539 | |
Cash, end of year | |
$ | 29,163 | | |
$ | 642 | | |
$ | 12,130 | | |
$ | 219 | | |
$ | 45,479 | |
Cash is transferred within the Company through
the banking system in PRC. Under the VIE agreements, the Company intends to distribute all or part of VIEs’ earnings after eliminating
VIEs’ accumulated losses and making appropriation of VIEs’ after-tax net income into the statutory surplus reserve based
on at least 10% of the after-tax net income determined in accordance with generally accepted accounting principles of the PRC. When there
are retained earnings available for distribution, the distribution of VIEs’ earnings will be through payment of service fees to
Meta Data, such service fee is subject to 6% value-added sales tax, other taxes of 12% which calculation is based on 6% value-added taxes.
Under the VIE agreements, when there is a change of shareholder in VIEs, amount owed by VIEs to the Company should be first settled.
Cash transfers were mainly for the purpose of providing working capital between Meta Data and its subsidiaries, VIEs and its subsidiaries
and WFOE that is the primary beneficiary of the VIEs.
Dividends or Distributions
Made to our Company and U.S. Investors and Tax Consequences
Under the Cayman Islands law, we are permitted
to provide funding to our subsidiaries through loans or capital contributions without restrictions on the amount of the funds, and we
are permitted to pay a dividend out of either profit or share premium amount, provided that in no circumstances may a dividend be paid
if this would result in us being unable to pay our debts due in the ordinary course of business.
Meta HK is permitted under the laws of Hong Kong
to provide funding to Meta Data, the holding company incorporated in Cayman Islands through dividend distribution without restrictions
on the amount of the funds. Both Meta Data and Meta HK currently intend to retain all available funds and future earnings, if any, for
the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future
determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial
condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the board of directors
deems relevant, and subject to the restrictions contained in any future financing instruments. See “ – D. Risk Factors –
Risks Related to Our Corporate Structure – We rely on dividends and other distributions on equity paid by our subsidiaries to fund
any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments to us could have
a material adverse effect on our ability to conduct our business.”
According to the Companies Ordinance of Hong
Kong, a Hong Kong company may only make a distribution out of profits available for distribution or other distributable reserves. Dividends
cannot be paid out from share capital. In addition, there can be no assurance that in the future the PRC government will not intervene
or impose restrictions on Meta HK’s ability to transfer or distribute cash/assets to entities outside of Hong Kong, which could
result in an inability or prohibition on making transfers or distributions to Meta Data and adversely affect our business. There are
currently no restrictions or limitation under the laws of Hong Kong imposed on the conversion of HKD into foreign currencies and the
remittance of currencies out of Hong Kong. The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies
and, in certain cases, the remittance of currency out of China. We do not maintain any funds in mainland China. See “ – D.
Risk Factors – Risks Related to Doing Business in China – Governmental control of currency conversion may limit our ability
to utilize our revenues effectively and affect the value of your investment.”
As of the date of this annual report, none of
our subsidiaries have made any dividends or distributions to our Company and our Company has not made any dividends or distributions
to our shareholders. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any
cash dividends will be paid in the foreseeable future. Subject to the passive foreign investment company (“PFIC”) rules,
the gross amount of distributions we make to investors with respect to our Class A Ordinary Shares (including the amount of any taxes
withheld therefrom) will be taxable as a dividend, to the extent that the distribution is paid out of our current or accumulated earnings
and profits, as determined under U.S. federal income tax principles. Cash, not in the form of earnings distribution, was transferred
between our Company, our subsidiaries and the former VIEs for the purpose of providing working capital between Meta Data, its subsidiaries,
VIEs and its subsidiaries and WFOE. As of August 31, 2023 and August 31, 2022, Meta Data Limited transferred $100.3 million to its wholly
owned subsidiary, Metaverse Digital Technology Co., Limited as of August 31, 2023 and $25.2 million to its wholly owned subsidiary, Onesmart
Edu (HK) Limited as of August 31, 2022, while its wholly owned subsidiary, Shanghai Jingrui Education Technology Group Co., Ltd, transferred
nil and $25.2 million to Meta Data Limited as of August 31, 2023 and 2022, respectively.
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
ENFORCEABILITY OF CIVIL LIABILITIES
Cayman Islands
Our business operations are primarily conducted
in Hong Kong and United States, and part of our assets are located in Hong Kong. Most of our directors and officers reside in mainland
China or Hong Kong and most of their assets are located outside the United States. As a result, it may be difficult for a shareholder
to effect service of process within the United States upon these individuals, to bring an action against us or these individuals in the
United States, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil
liability provisions of the securities laws of the United States or any state in the United States.
We have been informed by Maples and Calder (Hong
Kong) LLP, our Cayman Islands legal counsel, that the United States and the Cayman Islands do not have a treaty providing for reciprocal
recognition and enforcement of judgments of U.S. courts in civil and commercial matters and that there is uncertainty as to whether the
courts of the Cayman Islands would (i) recognize or enforce judgments of U.S. courts obtained against us or our directors or officers,
predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (ii)
entertain original actions brought in the Cayman Islands against us or our directors or officers, predicated upon the securities laws
of the United States or any state in the United States. We have also been advised by our Cayman Islands legal counsel that a judgment
obtained in any federal or state court in the United States will be recognized and enforced in the courts of the Cayman Islands at common
law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand
Court of the Cayman Islands, provided such judgment (i) is given by a foreign court of competent jurisdiction, (ii) imposes on the judgment
debtor a liability to pay a liquidated sum for which the judgment has been given, (iii) is final and conclusive, (iv) is not in respect
of taxes, a fine or a penalty, (v) is not inconsistent with a Cayman Islands judgment in respect of the same matter, and (vi) is not
impeachable on the grounds of fraud and was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural
justice or the public policy of the Cayman Islands.
However, the Cayman Islands courts are unlikely
to enforce a judgment obtained from the United States courts under the civil liability provisions of the securities laws if such judgment
is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature.
A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
Hong Kong
Currently, foreign judgments of United States
courts will not be directly enforced in Hong Kong as there are currently no treaties or other arrangements providing for reciprocal enforcement
of foreign judgments between Hong Kong and the United States. However, the common law permits an action to be brought upon a foreign
judgment. That is to say, a foreign judgment itself may form the basis of a cause of action since the judgment may be regarded as creating
a debt between the parties to it. In a common law action for enforcement of a foreign judgment in Hong Kong, the enforcement is subject
to various conditions, including but not limited to, that the foreign judgment is a final judgment conclusive upon the merits of the
claim, the judgment is for a liquidated amount in civil matter and not in respect of taxes, fines, penalties, or similar charges, the
proceedings in which the judgment was obtained were not contrary to natural justice, and the enforcement of the judgment is not contrary
to public policy of Hong Kong. Such a judgment must be for a fixed sum and must also come from a “competent” court as determined
by the private international law rules applied by the Hong Kong courts. The defenses that are available to a defendant in a common law
action brought on the basis of a foreign judgment include lack of jurisdiction, breach of natural justice, fraud, and contrary to public
policy. However, a separate legal action for debt must be commenced in Hong Kong in order to recover such debt from the judgment debtor.
As a result, subject to the conditions with regard to enforcement of judgments of United States courts being met, including but not limited
to the above, a foreign judgment of United States of civil liabilities predicated solely upon the federal securities laws of the United
States or the securities laws of any State or territory within the United States could be enforceable in Hong Kong.
China
The recognition and enforcement of foreign judgments
are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements
of the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on reciprocity between
jurisdictions. There are no treaties or other forms of reciprocity between the PRC and the U.S. for the mutual recognition and enforcement
of court judgments. Under PRC law, PRC courts will not enforce a foreign judgment against us or our officers and directors if the court
decides that such judgment violates the basic principles of PRC law or national sovereignty, security or public interest, thus making
the recognition and enforcement of a U.S. court judgment in the PRC difficult.
A description of factors that could materially affect our business,
financial condition or operating results is provided below.
Summary of Risk Factors
An investment in our ADSs is subject to a number
of risks, including risks related to our business and corporate structure, risks related to doing business in China and risks related
to our ADSs. The following summarizes some, but not all, of these risks. Please carefully consider all of the information discussed in
“Item 3. Key Information—D. Risk Factors” in this annual report for a more thorough description of these and other
risks.
Risks Related to Our Business
|
● |
We are transitioning our
business from a PRC based business to being internationally operated. Our business plan is at its early stage of development. See
“ – D. Risk Factors – Risks Related to Our Business – We are transitioning our business from a PRC based
business to being internationally operated. Our business plan is at its early stage of development.” on page 12 of this
annual report. |
|
● |
System limitations or failures
could harm our business. See “– D. Risk Factors – Risks Related to Our Business – System limitations or
failures could harm our business.” on page 12 of this annual report. |
| ● | The
success of our business depends on our ability to market and advertise the services we provide
effectively. See “ – D. Risk Factors – Risks Related to Our Business –
The success of our business depends on our ability to market and advertise the services we
provide effectively.” on page 12 of this annual report. |
|
● |
The failure to manage growth
effectively could have an adverse effect on our employee efficiency, product quality, working capital levels, and results of operations.
See “ – D. Risk Factors – Risks Related to Our Business – The failure to manage growth effectively could
have an adverse effect on our employee efficiency, product quality, working capital levels, and results of operations.” on
page 13 of this annual report. |
|
● |
If we need additional capital
to fund our growing operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.
See “ – D. Risk Factors – Risks Related to Our Business – If we need additional capital to fund our growing
operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.” on page
13 of this annual report. |
|
● |
We are dependent on a trained
workforce and any inability to retain or effectively recruit such employees, particularly distribution personnel and regional retail
managers for our business, could have a material adverse effect on our business, financial condition and results of operations. See
“ – D. Risk Factors – Risks Related to Our Business – We are dependent on a trained workforce and any inability
to retain or effectively recruit such employees, particularly distribution personnel and regional retail managers for our business,
could have a material adverse effect on our business, financial condition and results of operations.” on page 13 of
this annual report. |
| ● | Security
breaches and attacks against our systems and network, and any potentially resulting breach
or failure to otherwise protect confidential and proprietary information, could damage our
reputation and negatively impact our business, as well as materially and adversely affect
our financial condition and results of operations. See “ – D. Risk Factors –
Risks Related to Our Business – Security breaches and attacks against our systems and
network, and any potentially resulting breach or failure to otherwise protect confidential
and proprietary information, could damage our reputation and negatively impact our business,
as well as materially and adversely affect our financial condition and results of operations.”
on page 13 of this annual report. |
| ● | If
we fail to implement and maintain an effective system of internal controls, we may be unable
to accurately or timely report our results of operations or prevent fraud and investor confidence,
and the market price of our ADSs may be materially and adversely affected. See “ –
D. Risk Factors – Risks Related to Our Business – If we fail to implement and
maintain an effective system of internal controls, we may be unable to accurately or timely
report our results of operations or prevent fraud and investor confidence, and the market
price of our ADSs may be materially and adversely affected.” on page 15 of this
annual report. |
| ● | We
may require additional capital to meet our future capital needs, which may adversely affect
our financial position and result in additional shareholder dilution. See “ –
D. Risk Factors – Risks Related to Our Business – We may require additional capital
to meet our future capital needs, which may adversely affect our financial position and result
in additional shareholder dilution.” on page 15 of this annual report. |
| ● | Regulatory
scrutiny of privacy, data protection, and the collection, storage, use, and sharing of personal
data is increasing around the world. There is uncertainty associated with the legal and regulatory
environment relating to privacy and data protection laws, which continue to develop in ways
the Company cannot predict, including with respect to evolving technologies such as artificial
intelligence. See “ – D. Risk Factors – Risks Related to Our Business –
Regulatory scrutiny of privacy, data protection, and the collection, storage, use, and sharing
of personal data is increasing around the world. There is uncertainty associated with the
legal and regulatory environment relating to privacy and data protection laws, which continue
to develop in ways the Company cannot predict, including with respect to evolving technologies
such as artificial intelligence.” on page 16 of this annual report. |
| ● | Issues
in the use of artificial intelligence (including machine learning) in our platforms may result
in reputational harm or liability. See “ – D. Risk Factors – Risks Related
to Our Business – Issues in the use of artificial intelligence (including machine learning)
in our platforms may result in reputational harm or liability.” on page 16 of
this annual report. |
Risks Related to Our Corporate Structure
|
● |
We rely on dividends and
other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation
on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
See “ – D. Risk Factors – Risks Related to Our Corporate Structure – We rely on dividends and other distributions
on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of
our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.” on page
16 of this annual report. |
|
● |
There are uncertainties
regarding the enforcement of laws and rules and regulations in China, which can change quickly with little advance notice, and there
is a risk that the Chinese government may intervene or influence our operations at any time, exert more oversight and control over
offerings that are conducted overseas and/or foreign investment in China-based issuers, which could materially and adversely affect
our business and hinder our ability to offer or continue our operations, and cause the value of our securities to significantly decline
or become worthless. See “ – D. Risk Factors – Risks Related to Our Corporate Structure – There are uncertainties
regarding the enforcement of laws and rules and regulations in China, which can change quickly with little advance notice, and there
is a risk that the Chinese government may intervene or influence our operations at any time, exert more oversight and control over
offerings that are conducted overseas and/or foreign investment in China-based issuers, which could materially and adversely affect
our business and hinder our ability to offer or continue our operations, and cause the value of our securities to significantly decline
or become worthless.” on page 17 of this annual report. |
| ● | We
may face negative tax implications due to the termination of the VIE structure. See “
– D. Risk Factors – Risks Related to Our Corporate Structure – We may face
negative tax implications due to the termination of the VIE structure.” on page 17
of this annual report. |
Risks Related to Doing Business in Hong
Kong and Having Clients in Mainland China
|
● |
If the Chinese government
chooses to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China based issuers,
such action may significantly limit or completely hinder our ability to offer or continue to offer ADSs to investors and cause the
value of our ADSs to significantly decline or be worthless. See “ – D. Risk Factors – Risks Related to Doing Business
in Hong Kong – If the Chinese government chooses to exert more oversight and control over offerings that are conducted overseas
and/or foreign investment in China based issuers, such action may significantly limit or completely hinder our ability to offer or
continue to offer ADSs to investors and cause the value of our ADSs to significantly decline or be worthless.” on page 17
of this annual report. |
|
● |
It may be difficult
for overseas shareholders and/or regulators to conduct investigation or collect evidence within China. See “ – D. Risk
Factors – Risks Related to Doing Business in Hong Kong – It may be difficult for overseas shareholders and/or regulators
to conduct investigation or collect evidence within China.” on page 19 of this annual report. |
|
● |
You may incur additional
costs and procedural obstacles in effecting service of legal process, enforcing foreign judgments or bringing actions in Hong Kong
against us or our management named in this annual report based on Hong Kong laws. See “ – D. Risk Factors – Risks
Related to Doing Business in Hong Kong – You may incur additional costs and procedural obstacles in effecting service of legal
process, enforcing foreign judgments or bringing actions in Hong Kong against us or our management named in this annual report based
on Hong Kong laws.” on page 19 of this annual report. |
|
● |
The enactment of Law of
the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region (the “Hong Kong National Security
Law”) could impact our Hong Kong holding subsidiary. See “ – D. Risk Factors – Risks Related to Doing Business
in Hong Kong – The enactment of Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region
(the “Hong Kong National Security Law”) could impact our Hong Kong holding subsidiary.” on page 20 of this
annual report. |
|
● |
The Hong Kong legal system
embodies uncertainties which could limit the availability of legal protections. See “ – D. Risk Factors – Risks
Related to Doing Business in Hong Kong – The Hong Kong legal system embodies uncertainties which could limit the availability
of legal protections.” on page 20 of this annual report. |
|
● |
Although the audit report
included in this annual report is prepared by U.S. auditors who are currently inspected by the PCAOB, there is no guarantee that
future audit reports will be prepared by auditors inspected by the PCAOB and, as such, in the future investors may be deprived of
the benefits of such inspection. Furthermore, trading in our securities may be prohibited under the HFCA Act if the SEC subsequently
determines our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, and as a result,
U.S. national securities exchanges, such as the NYSE, may determine to delist our securities. Furthermore, on December 29, 2022,
the Consolidated Appropriations Act was signed into law by President Biden, among other things, amended the HFCA Act by requiring
the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB
inspections for two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading.
See “ – D. Risk Factors – Risks Related to Doing Business in Hong Kong – Although the audit report included
in this annual report is prepared by U.S. auditors who are currently inspected by the PCAOB, there is no guarantee that future audit
reports will be prepared by auditors inspected by the PCAOB and, as such, in the future investors may be deprived of the benefits
of such inspection. Furthermore, trading in our securities may be prohibited under the HFCA Act if the SEC subsequently determines
our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national
securities exchanges, such as the NYSE, may determine to delist our securities. Furthermore, on December 29, 2022, the Consolidated
Appropriations Act was signed into law by President Biden, among other things, amended the HFCA Act by requiring the SEC to prohibit
an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two
consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading.” on page 20
of this annual report. |
Risks Related to Our ADSs
|
● |
The trading price of our
ADSs is likely to be volatile, which could result in substantial losses to investors. See “ – D. Risk Factors –
Risks Related to Our ADSs – The trading price of our ADSs is likely to be volatile, which could result in substantial losses
to investors.” on page 22 of this annual report. |
|
● |
Our dual-class voting structure
will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions
that holders of our Class A ordinary shares and ADSs may view as beneficial. See “ – D. Risk Factors – Risks Related
to Our ADSs – Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others
from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.”
on page 23 of this annual report. |
|
● |
Because we do not expect
to pay dividends in the foreseeable future, you must rely on a price appreciation of our ADSs for a return on your investment. See
“ – D. Risk Factors – Risks Related to Our ADSs – Because we do not expect to pay dividends in the foreseeable
future, you must rely on a price appreciation of our ADSs for a return on your investment.” on page 23 of this annual
report. |
|
● |
You, as holders of ADSs,
may have fewer rights than holders of our Class A ordinary shares and must act through the deposit to exercise those rights. You
may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because
we are incorporated under Cayman Islands law. See “ – D. Risk Factors – Risks Related to Our ADSs – You,
as holders of ADSs, may have fewer rights than holders of our Class A ordinary shares and must act through the deposit to exercise
those rights. You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts
may be limited, because we are incorporated under Cayman Islands law.” on page 24 of this annual report. |
|
● |
You may experience dilution
of your holdings due to the inability to participate in rights offerings and may be subject to limitations on the transfer of your
ADSs. See “ – D. Risk Factors – Risks Related to Our ADSs – You may experience dilution of your holdings
due to the inability to participate in rights offerings and may be subject to limitations on the transfer of your ADSs.” on
page 25 of this annual report. |
Risks Related to Our Business
We are transitioning our business from
a PRC based business to being internationally operated. Our business plan is at its early stage of development.
Historically, the Company operated as one of
the leading providers of K-12 after-school education services in China which developed a comprehensive K-12 after-school education platform
that primarily focused on young children mathematics training services and FasTrack English services through a nationwide network of
480 learning centers across 40 cities in China. However, on July 24, 2021, the General Office of Central Committee of the Communist Party
of China and the General Office of the State Council jointly released Opinions on what they termed “Further Reducing the Burden
of Homework and Off-campus Tutoring for Compulsory Education Students”, the (“Double Reduction Policy”), which basically
requires suspension of all subject-based off-campus tutoring business targeting pre-school kids and K12 students. As a result, since
October 12, 2021, the Company suspended all education programs and learning centers in China, and we started to expand our business to
Artificial Intelligent Education (AIE) service and Artificial Intelligent Universe (AIU) IAAS service and develop smart training systems
incorporating VR (virtual reality), AI (artificial intelligence), blockchain and other technologies to facilitate the teaching and training
process. We are currently in an early development stage and may be subject to growth-related risks.
Although our management believes that our current
business strategy has significant potential, our Company may never attain profitable operations and our management may not succeed in
realizing its business objectives. If it is not able to execute our business strategy as anticipated, the Company may not be able to
achieve profitability, and our business and financial condition may be adversely affected.
System limitations or failures could harm
our business.
Our businesses depend on the integrity and performance
of the technology, computer and communications systems supporting them. If our systems cannot expand to cope with increased demand or
otherwise fail to perform, we could experience unanticipated disruptions in service, slower response times and delays in the introduction
of new services. These consequences could result financial losses and decreased customer service and satisfaction. If trading volumes
increase unexpectedly or other unanticipated events occur, we may need to expand and upgrade our technology, transaction processing systems
and network infrastructure. We do not know whether we will be able to accurately project the rate, timing or cost of any increases, or
expand and upgrade our systems and infrastructure to accommodate any increases in a timely manner.
The success of our business depends on
our ability to market and advertise the services we provide effectively.
Our ability to establish effective marketing
campaigns is the key to our success. Our advertisements promote our corporate image and our services. If we are unable to increase awareness
of our brand, we may not be able to attract new customers. Our marketing activities may not be successful in promoting our services or
in retaining and increasing our customer base. We cannot assure you that our marketing programs will be adequate to support our future
growth, which may result in a material adverse effect on our results of operations.
The failure to manage growth effectively
could have an adverse effect on our employee efficiency, product quality, working capital levels, and results of operations.
Any significant growth in the market for our
services or our entry into new markets may require an expansion of our employee base for managerial, operational, financial, and other
purposes. During any growth, we may face problems related to our operational and financial systems and controls, including quality control
and delivery and service capacities. We would also need to continue to expand, train and manage our employee base. Continued future growth
will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate
new employees.
Aside from increased difficulties in the management
of human resources, we may also encounter working capital issues, as we will need increased liquidity to finance the development of new
products and services, and the hiring of additional employees. For effective growth management, we will be required to continue improving
our operations, management, and financial systems and controls. Our failure to manage growth effectively may lead to operational and
financial inefficiencies that will have a negative effect on our profitability. We cannot assure investors that we will be able to timely
and effectively meet that demand and maintain the quality standards required by our existing and potential customers.
If we need additional capital to fund our
growing operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.
If adequate additional financing is not available
on reasonable terms, we may not be able to undertake our expansion plan and we would have to modify our business plans accordingly. There
is no assurance that additional financing will be available to us.
In connection with our growth strategies, we
may experience increased capital needs and accordingly, we may not have sufficient capital to fund our future operations without additional
capital investments. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the release of
competitive products by our competitors; (iii) the level of our investment in research and development; and (iv) the amount
of our capital expenditures, including acquisitions. We cannot assure you that we will be able to obtain capital in the future to meet
our needs.
If we cannot obtain additional funding, we may
be required to: (i) limit our investments in research and development; (ii) limit our marketing efforts; and (iii) decrease
or eliminate capital expenditures. Such reductions could materially adversely affect our business and our ability to compete.
Even if we do find a source of additional capital,
we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us. Any future capital
investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. In addition,
new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our
ordinary shares. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on
terms favorable to us.
We are dependent on a trained workforce
and any inability to retain or effectively recruit such employees, particularly distribution personnel and regional retail managers for
our business, could have a material adverse effect on our business, financial condition and results of operations.
We must attract, recruit and retain a sizeable
workforce of qualified and trained staff to operate our business. Our ability to implement effectively our business strategy and expand
our operations will depend upon, among other factors, the successful recruitment and retention of highly skilled and experienced distribution
personnel, regional retail managers and other technical and marketing personnel. There is significant competition for qualified personnel
in our business and we may not be successful in recruiting or retaining sufficient qualified personnel consistent with our current and
future operational needs.
Security breaches and attacks against our
systems and network, and any potentially resulting breach or failure to otherwise protect confidential and proprietary information, could
damage our reputation and negatively impact our business, as well as materially and adversely affect our financial condition and results
of operations.
Although we have employed significant resources
to develop our security measures against breaches, our cybersecurity measures may not detect or prevent all attempts to compromise our
systems, including distributed denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering,
security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted
by our systems or that we otherwise maintain. Breaches of our cybersecurity measures could result in unauthorized access to our systems,
misappropriation of information or data, deletion or modification of client information, or a denial-of-service or other interruption
to our business operations. As techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be
known until launched against us or our third-party service providers, we may be unable to anticipate, or implement adequate measures
to protect against, these attacks.
If we are unable to avert these attacks and security
breaches, we could be subject to significant legal and financial liability, our reputation would be harmed and we could sustain substantial
revenue loss from lost sales and customer dissatisfaction. We may not have the resources or technical sophistication to anticipate or
prevent rapidly evolving types of cyber-attacks. Cyber-attacks may target us, our business partners or other participants, the communication
infrastructure, or the e-platform on which we depend. Actual or anticipated attacks and risks may cause us to incur significantly higher
costs, including costs to deploy additional personnel and network protection technologies, train employees, and engage third-party experts
and consultants. Cybersecurity breaches would not only harm our reputation and business, but also could materially decrease our revenue
and net income.
Future strategic alliances or acquisitions
may materially and adversely affect our business, financial condition and results of operations.
We have pursued and may continue to pursue selected
strategic alliances and potential strategic acquisitions that are complementary to our business and operations. See “Item 4. Information
on the Company— A. History and Development of the Company” for some examples. Strategic alliances or acquisitions could subject
us to a number of risks, including risks associated with sharing proprietary information, and non-performance or default by counterparties,
any of which may materially and adversely affect our business. We may have little ability to control or monitor the actions of our counterparties
in these transactions or alliances. To the extent a strategic partner or investment target suffers any negative publicity as a result
of its business operations, our reputation may be negatively affected by virtue of our association with such party.
Strategic acquisitions and subsequent integrations
of newly acquired businesses would also require significant managerial and financial resources and could result in a diversion of resources
from our existing business. The cost and duration of integrating newly acquired businesses could substantially exceed our expectations
and the acquired businesses or assets may not generate expected financial results and may have historically incurred and continue to
incur losses. Any such negative developments could materially and adversely affect our business, financial condition, and results of
operations.
If we fail to protect our intellectual
property rights, our brand and business may suffer.
We consider our copyrights, trademarks, trade
names, internet domain names, patents and other intellectual property rights invaluable to our ability to continue to develop and enhance
our brand recognition. Unauthorized use of our intellectual property rights may damage our reputation and brands. Unauthorized use of
any of our intellectual property may adversely affect our business and reputation. However, preventing unauthorized uses of intellectual
property rights could be difficult, costly and time-consuming, particularly in China. Implementation and enforcement of PRC laws relating
to intellectual property have historically been deficient and ineffective. Accordingly, protection of intellectual property rights in
China may not be as effective as in the United States or other developed countries.
The measures we take to protect our intellectual
property rights may not be adequate to prevent infringement on or misuse of our intellectual property. Furthermore, the practice of intellectual
property rights enforcement by the PRC regulatory authorities is subject to significant uncertainty. Failure to adequately protect our
intellectual property could harm our brand name and materially affect our business and results of operations. Furthermore, our management’s
attention may be diverted by violations of our intellectual property rights, and we may have to enter into costly litigation to protect
our proprietary rights against any infringement or violation.
We may from time to time become a party
to litigation, legal disputes, claims or administrative proceedings that may materially and adversely affect us.
We may from time to time become a party to various
litigation, legal disputes, claims or administrative proceedings arising in the ordinary course of our business. Negative publicity relating
to such litigation, legal disputes, claims or administrative proceedings may damage our reputation and adversely affect the image of
our brands and services. In addition, ongoing litigation, legal disputes, claims or administrative proceedings may distract our management’s
attention and consume our time and other resources. Furthermore, any litigation, legal disputes, claims or administrative proceedings
which are not of material importance may escalate due to the various factors involved, such as the facts and circumstances of the cases,
the likelihood of winning or losing, the monetary amount at stake, and the parties concerned continue to evolve in the future, and such
factors may result in these cases becoming of material importance to us. We cannot assure you that the outcome of legal proceedings in
the future, if any, will be favorable to us. If any verdict or award is rendered against us or if we decide to settle the disputes, we
may be required to incur monetary damages or other liabilities. Even if we can successfully defend ourselves, we may have to incur substantial
costs and spend substantial time and efforts in these lawsuits. Consequently, any ongoing or future litigation, legal disputes, claims
or administrative proceedings could materially and adversely affect our business, financial condition and results of operations.
If we grant employees share options or
other equity incentives in the future, our net income could be adversely affected.
In connection with our initial public offering,
we undertook a series of corporate restructuring, or 2017 Restructuring. See “Item 4. Information on the Company—A. History
and Development of the Company.” Prior to the 2017 Restructuring, we, through our predecessor holding company in the British Virgin
Islands, adopted a 2013 share incentive plan in March 2013, which was replaced by a domestic share incentive plan of Shanghai OneSmart
approved in February 2016, or the 2015 Plan. As a part of the 2017 Restructuring, we adopted an amended and restated 2015 share incentive
plan in September 2017, which was further amended on February 5, 2018, or the Amended and Restated 2015 Plan. The maximum aggregated number
of our ordinary shares which may be issued pursuant to all awards under the Amended and Restated 2015 Plan is 673,285 Class A ordinary
shares, plus an annual 2.0% increase of the total number of ordinary shares outstanding on August 31 of the preceding calendar year of
the Company on the first day of each of the nine-fiscal-year period commencing on September 1, 2018. Following the annual increase on
September 1, 2021, the maximum aggregate number of shares which may be issued pursuant to all awards under the Amended and Restated
2015 Plan is 1,455,349. We were, and may from time to time be, subject to disputes with our current or former employees or advisors
who receive our share incentive grants, which may distract our management’s attention and attract negative publicity.
We are required to account for share-based compensation
in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation,
which generally requires a company to recognize, as an expense, the fair value of share options and other equity incentives to employees
based on the fair value of equity awards on the date of the grant, with the compensation expense recognized over the period in which
the recipient is required to provide service in exchange for the equity award. If we grant options or other equity incentives in the
future, we could incur significant additional compensation charges, and our results of operations could be adversely affected.
If we fail to implement and maintain an
effective system of internal controls, we may be unable to accurately or timely report our results of operations or prevent fraud and
investor confidence, and the market price of our ADSs may be materially and adversely affected.
We are a public company in the United States subject
to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, requires that we include a report of
management on our internal control over financial reporting in our annual report on Form 20-F. Our management has concluded that our internal
control over financial reporting was ineffective as of August 31, 2023. We intend to implement a number of measures to address the identified
material weakness subsequent to August 31, 2023. See “Item 15. Controls and Procedures-Management’s Annual Report on Internal
Control over Financial Reporting.” See “Item 15. Controls and Procedures—Management’s Report on Internal Control
over Financial Reporting.” However, we can give no assurance that the implementation of these measures will be sufficient to eliminate
such material weakness or that material weaknesses in our internal control over financial reporting will not be identified in the future.
Our management may conclude that our internal
control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial
reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report
that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated
or reviewed, or if it interprets the relevant requirements differently from us. In addition, our reporting obligations as a public company
may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be
unable to timely complete our evaluation testing and any required remediation.
Generally speaking, if we fail to achieve and maintain an effective
internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations,
which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital
markets, harm our results of operations and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control
over financial reporting could expose us to increased risk of fraud or misuse of corporate assets, and subject us to potential delisting
from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.
We may require additional capital to meet
our future capital needs, which may adversely affect our financial position and result in additional shareholder dilution.
We will require significant capital expenditures
to fund our future growth. We may need to raise additional funds through equity or debt financings in the future in order to meet our
capital needs mostly in relation to execution on our business plan.
If we raise additional funds through further
issuances of equity or equity-linked securities, our existing shareholders could suffer significant dilution in their percentage ownership
of our company, and any new equity securities we issue could have rights, preferences, and privileges senior to those of holders of our
ADSs or ordinary shares.
Regulatory scrutiny of privacy, data protection,
and the collection, storage, use, and sharing of personal data is increasing around the world. There is uncertainty associated with the
legal and regulatory environment relating to privacy and data protection laws, which continue to develop in ways the Company cannot predict,
including with respect to evolving technologies such as artificial intelligence.
Our AI smart training system often require large
amounts of data to function effectively, which include sensitive information about students, such as their academic records, personal
details, and learning patterns. Any failure, or perceived failure, by the Company to comply with its privacy policies as communicated
to users prior to its collection, use, storage and transfer, and disclosure of their personal data, with applicable industry data protection
or security standards, with any applicable regulatory requirements or orders, or with privacy, data protection, information security,
or consumer protection-related laws and regulations in one or more jurisdictions could result in proceedings or actions against the Company
by data protection authorities, governmental entities or others, including class action privacy litigation in certain jurisdictions,
would subject the Company to significant awards, fines, penalties, judgments, and negative publicity arising from any financial or non-financial
damages suffered by any individuals. This could, individually or in the aggregate, materially harm the Company’ business. Specifically,
this would likely require the Company to change its business practices, and would increase the costs and complexity of compliance.
Issues in the use of artificial intelligence
(including machine learning) in our platforms may result in reputational harm or liability.
AI is enabled by or integrated into our smart
training system and is a significant and potentially growing element of our business. As with many developing technologies, AI presents
risks and challenges that could affect its further development, adoption, and use, and therefore our business. AI algorithms may be flawed.
Datasets may be insufficient, of poor quality, or contain biased information. Inappropriate or controversial data practices by data scientists,
engineers, and end-users of our systems could impair the acceptance of AI solutions. Though our technologies and business practices are
designed to mitigate many of these risks, if we enable or offer AI solutions that are controversial because of their purported or real
impact on privacy or other social issues, we may experience brand or reputational harm.
Risks Related to Our Corporate Structure
We rely on dividends and other distributions
on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our
subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
We are a holding company incorporated in the
Cayman Islands, and we rely on dividends and other distributions on equity paid by our subsidiaries for our cash and financing requirements,
including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If
any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay
dividends or make other distributions to us.
According to the Companies Ordinance of Hong
Kong, a Hong Kong company may only make a distribution out of profits available for distribution or other distributable reserves. Dividends
cannot be paid out of share capital. As of the date of this report, there are no restrictions or limitation under the laws of Hong Kong
imposed on the conversion of HK$ into foreign currencies and the remittance of currencies out of Hong Kong or across borders and to U.S
investors. The PRC laws and regulations do not currently have any material impact on transfer of cash from our Hong Kong Subsidiaries
to the Company or our shareholders. However, there can be no assurance that in the future the PRC government will not intervene or impose
restrictions on our Hong Kong subsidiary, Metaverse Information Technology Limited (the “Meta HK”)’s ability to transfer
or distribute cash/assets to entities outside of Hong Kong, any limitation on the ability of Meta HK to pay dividends or make other distributions
to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business,
pay dividends, or otherwise fund and conduct our business.
There are uncertainties regarding the enforcement
of laws and rules and regulations in China, which can change quickly with little advance notice, and there is a risk that the Chinese
government may exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers,
which could materially and adversely affect our business and hinder our ability to offer or continue our operations, and cause the value
of our securities to significantly decline or become worthless.
Although we have direct ownership of our operating
entity in Hong Kong and have sold the VIE structure in mainland China and currently do not have or intend to have any contractual arrangement
to establish a VIE structure with any entity in mainland China, we are still subject to certain legal and operational risks associated
with our operating subsidiary, Meta HK, being based in Hong Kong and having all of its operations to date in Hong Kong. There are substantial
uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations
related to our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and
regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial
uncertainty. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations,
may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in
a manner different from our understanding of these laws and regulations. New laws and regulations that affect existing and proposed future
businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations
may have on our business.
The uncertainties regarding the enforcement of
laws and the fact that rules and regulations in mainland China can change quickly with little advance notice, along with the risk that
the Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas
and/or foreign investment in our subsidiary in Hong Kong could result in a material change in our operations, financial performance and/or
cause the value of our securities to significantly decline or become worthless and/or impair our ability to raise money.
We may face negative
tax implications due to the termination of the VIE structure.
We have terminated the VIE structure to mitigate
the potential risks arising from the PRC government provision of new guidance to and restrictions on China-based companies raising capital
offshore and currently do not have or intend to have any contractual arrangement to establish a VIE structure with any entity in mainland
China. However, if the relevant PRC tax authority determines that the Exclusive Service Agreement under the terminated VIE arrangements
had no reasonable business purpose and involved unreasonable transfer pricing, there might be potential tax liabilities on the Company.
According to the provision under the PRC Enterprise Income Tax Law, if the business transactions between related parties do not comply
with principle of independent transaction and reduce the taxable income or income, the tax authorities are entitled to make an adjustment
by using a reasonable method. Therefore, we cannot provide any assurance that there is no retrospective tax or other liabilities or consequences
on us due to the winding-up of the VIE structure.
Risks Related to Doing Business in Hong Kong
and Having Clients in Mainland China
If the Chinese government chooses to exert
more oversight and control over offerings that are conducted overseas and/or foreign investment in China based issuers, such action may
significantly limit or completely hinder our ability to offer or continue to offer ADSs to investors and cause the value of our ADSs
to significantly decline or be worthless.
Recent statements by the Chinese government have
indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investments in China-based
issuers. On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council
jointly issued a document to crack down on illegal activities in the securities market and promote the high-quality development of the
capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement
and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system
of extraterritorial application of the PRC securities laws.
Furthermore, on July 10, 2021, the CAC issued
a revised draft of the Measures for Cybersecurity Review for public comments, which required that, among others, in addition to “operator
of critical information infrastructure”, any “data processor” controlling personal information of no less than one
million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review, and further elaborated
the factors to be considered when assessing the national security risks of the relevant activities. On December 28, 2021, the CAC, the
National Development and Reform Commission (“NDRC”), and several other administrations jointly issued the revised Measures
for Cybersecurity Review, or the “Revised Review Measures”, which became effective and replaced the existing Measures for
Cybersecurity Review on February 15, 2022. According to the Revised Review Measures, if an “online platform operator” that
is in possession of personal data of more than one million users intends to list in a foreign country, it must apply for a cybersecurity
review. Based on a set of Q&A published on the official website of the State Cipher Code Administration in connection with the issuance
of the Revised Review Measures, an official of the said administration indicated that an online platform operator should apply for a
cybersecurity review prior to the submission of its listing application with non-PRC securities regulators. Moreover, the CAC released
the draft of the Regulations on Network Data Security Management in November 2021 for public consultation, which among other things,
stipulates that a data processor listed overseas must conduct an annual data security review by itself or by engaging a data security
service provider and submit the annual data security review report for a given year to the municipal cybersecurity department before
January 31 of the following year. Given the recency of the issuance of the Revised Review Measures and their pending effectiveness, there
is a general lack of guidance and substantial uncertainties exist with respect to their interpretation and implementation.
It remains unclear whether a Hong Kong company
which collects personal information from mainland Chinese individuals shall be subject to the Revised Review Measures. We do not currently
expect the Revised Review Measures to have an impact on our business, operations or this offering as we do not believe that Meta HK is
deemed to be an “operator of critical information infrastructure” or a “data processor” controlling personal
information of no less than one million users, that are required to file for cybersecurity review before listing in the U.S., because
(i) Meta HK is incorporated and operating in Hong Kong and the Revised Review Measures remains unclear whether it shall be applied to
a Hong Kong company; (ii) Meta HK operates without any subsidiary or VIE structure in mainland China; (iii) as of date of this annual
report, Meta HK has not yet collected any personal or customer or vendor information from mainland China, and it has five customers from
the U.S. and one vendor from the U.S.; and (iv) as of the date of this annual report, Meta HK has not been informed by any PRC governmental
authority of any requirement that it file for a cybersecurity review. However, there remains significant uncertainty in the interpretation
and enforcement of relevant PRC cybersecurity laws and regulations. If Meta HK is deemed to be an “operator of critical information
infrastructure” or a “data processor” controlling personal information of no less than one million users, Meta HK’s
operation and the listing of our ADSs in the U.S. could be subject to CAC’s cybersecurity review in the future.
On December 24, 2021, the CSRC published the
Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Draft
Administration Provisions”), and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic
Companies (the “Draft Measures”) for public comment. On February 17, 2023, the CSRC promulgated the Trial Administrative
Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”), which took
effect on March 31, 2023. Compared to the Draft Measures, the Trial Administrative Measures further clarified and emphasized that the
comprehensive determination of the “indirect overseas offering and listing by PRC domestic companies” shall comply with the
principle of “substance over form” and particularly, an issuer will be required to go through the filing procedures under
the Trial Administrative Measures if the following criteria are met at the same time: a) 50% or more of the issuer’s operating
revenue, total profits, total assets or net assets as documented in its audited consolidated financial statements for the most recent
accounting year are accounted for by PRC domestic companies, and b) the main parts of the issuer’s business activities are conducted
in mainland China, or its main places of business are located in mainland China, or the senior managers in charge of its business operation
and management are mostly Chinese citizens or domiciled in mainland China. On the same day, the CSRC held a press conference for the
release of the Trial Administrative Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing
by Domestic Companies, which, among others, provided the exemption from immediate filings for issuers that a) have been listed or have
been registered but not yet listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial Administrative
Measures, b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory authority or the overseas
stock exchange, and c) will complete the overseas securities offering and listing before September 30, 2023. Nonetheless, such issuers
shall carry out the filing procedures as required if they subsequently conduct refinancing or are involved in other circumstances that
require filings with the CSRC. Furthermore, the Trial Administrative Measures and its supporting guidelines provide a negative list of
types of issuers banned from listing overseas, the issuers’ obligation to comply with national security measures and the personal
data protection laws, and certain other matters such as the requirements that an issuer (i) file with the CSRC within three business
days after it submits an application for initial public offering to the competent overseas regulator and (ii) file subsequent reports
with the CSRC on material events, including change of control and voluntary or forced delisting, after its overseas offering and listing.
As the Trial Administrative Measures are newly
issued, there remains uncertainty as to how it will be interpreted or implemented. Therefore, we cannot assure you that when the Company
is subject to such filing requirements, we will be able to get clearance from the CSRC in a timely manner, or at all, even though we
believe that none of the situations that would clearly prohibit overseas listing and offering applies to us. Based on laws and regulations
currently in effect in the PRC, as of the date of this annual report, subject to final determination by the CSRC and relevant competent
authorities, we believe Meta HK is not required to obtain regulatory approval from the CSRC or go through the filing procedures under
the Trial Administrative Measures for the listing of our ADSs on NYSE because a) the Company does not, directly or indirectly, own or
control any entity or subsidiary in mainland China, and b) none of the Company’s business activities are conducted in mainland
China, nor is its main place of business located in mainland China, and the senior managers in charge of the Company’s business
operation and management are not mostly Chinese citizens or domiciled in mainland China.
As of the date of this annual report, subject
to final determination by the CSRC and relevant competent authorities, as advised by our PRC counsel, Hebei Changjun Law Firm on the
basis that (i) the Company does not, directly or indirectly, own or control any entity or subsidiary in mainland China, nor is it controlled
by any mainland Chinese company or individual directly or indirectly; (ii) the Company and its subsidiary(s) currently do not have any
business operations in mainland China; (iii) the Company currently does not have or intend to set up any subsidiary or enter into any
contractual arrangements to establish a variable interest entity structure with any entity in mainland China; and (iv) the Company and
its subsidiary(s) possess personal information of less than one million individuals in the PRC and do not possess any core data or important
data of the PRC, or any information which affects or may affect national security of the PRC, we believe Meta HK is currently not required
to obtain any permission or approval from the PRC authorities to operate its business or to list in the U.S. or issue our Ordinary Shares
to foreign investors.
However, uncertainties still exist, due to the
possibility that laws, regulations, or policies in the PRC could change rapidly in the future. In the event that (i) the PRC government
expanded the categories of industries and companies whose overseas listings are subject to review by the CSRC or the CAC that we are
required to obtain such permissions or approvals; or (ii) we inadvertently concluded that relevant permissions or approvals were not
required or that we did not receive or maintain relevant permissions or approvals required, any action taken by the PRC government could
significantly limit or completely hinder our operations in Hong Kong and our ability to continue to offer securities to investors and
could cause the value of such securities to significantly decline or be worthless.
It may be difficult for overseas shareholders
and/or regulators to conduct investigation or collect evidence within China.
Shareholder claims or regulatory investigations
that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China,
there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated
outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities
of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory
authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according
to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed
to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of
or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly
conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your
interests.
Part of our business operation is conducted in
Hong Kong. In the event that the U.S. regulators carry out investigation on us and there is a need to conduct investigation or collect
evidence within the territory of the PRC, the U.S. regulators may not be able to carry out such investigation or evidence collection
directly in the PRC under the PRC laws. The U.S. regulators may consider cross-border cooperation with securities regulatory authority
of the PRC by way of judicial assistance, diplomatic channels or regulatory cooperation mechanism established with the securities regulatory
authority of the PRC.
You may incur additional costs and procedural
obstacles in effecting service of legal process, enforcing foreign judgments or bringing actions in Hong Kong against us or our management
named in the prospectus based on Hong Kong laws.
Currently, part of our operations is conducted
outside the United States, and part of our assets are located outside the United States. Most of our directors and officers reside in
mainland China or Hong Kong outside of the United States and most of the assets of those persons are located outside of the United States.
You may incur additional costs and procedural obstacles in effecting service of legal process, enforcing foreign judgments or bringing
actions in Hong Kong against us or our management named in this annual report, as judgments entered in the United States can be enforced
in Hong Kong only at common law. If you want to enforce a judgment of the United States in Hong Kong, it must be a final judgment conclusive
upon the merits of the claim, for a liquidated amount in a civil matter and not in respect of taxes, fines, penalties, or similar charges,
the proceedings in which the judgment was obtained were not contrary to natural justice, and the enforcement of the judgment is not contrary
to public policy of Hong Kong. Such a judgment must be for a fixed sum and must also come from a “competent” court as determined
by the private international law rules applied by the Hong Kong courts.
The enactment of Law of the PRC on Safeguarding
National Security in the Hong Kong Special Administrative Region (the “Hong Kong National Security Law”) could impact our
Hong Kong holding subsidiary.
On June 30, 2020, the Standing Committee of the
PRC National People’s Congress adopted the Hong Kong National Security Law. This law defines the duties and government bodies of
the Hong Kong National Security Law for safeguarding national security and four categories of offences — secession,
subversion, terrorist activities, and collusion with a foreign country or external elements to endanger national security — and
their corresponding penalties. On July 14, 2020, the former U.S. President Donald Trump signed the Hong Kong Autonomy Act, or HKAA, into
law, authorizing the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have materially
contributed to the erosion of Hong Kong’s autonomy. On August 7, 2020 the U.S. government imposed HKAA-authorized sanctions on
eleven individuals, including HKSAR chief executive Carrie Lam. On October 14, 2020, the U.S. State Department submitted to relevant
committees of Congress the report required under HKAA, identifying persons materially contributing to “the failure of the Government
of China to meet its obligations under the Joint Declaration or the Basic Law.” The HKAA further authorizes secondary sanctions,
including the imposition of blocking sanctions, against foreign financial institutions that knowingly conduct a significant transaction
with foreign persons sanctioned under this authority. The imposition of sanctions may directly affect the foreign financial institutions
as well as any third parties or customers dealing with any foreign financial institution that is targeted. It is difficult to predict
the full impact of the Hong Kong National Security Law and HKAA on Hong Kong and companies located in Hong Kong. If our Hong Kong subsidiary
is determined to be in violation of the Hong Kong National Security Law or the HKAA by competent authorities, our business operations,
financial position and results of operations could be materially and adversely affected.
Chinese government may intervene or influence
our operations at any time or may exert more control over overseas listings and foreign investment in China-based issuers, which may
result in a material change in our operations and/or the value of our ADSs. Additionally, the governmental and regulatory interference
could significantly limit or completely hinder our ability to continue to offer securities to investors and cause the value of such securities
to significantly decline or be worthless.
We are aware that recently, the PRC government
initiated a series of regulatory actions and statements to regulate business operations in certain areas in mainland China with little
advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies
listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding
the efforts in anti-monopoly enforcement.
The Hong Kong legal system embodies uncertainties
which could limit the availability of legal protections.
As one of the conditions for the handover of
the sovereignty of Hong Kong to mainland China, mainland China accepted conditions such as Hong Kong’s Basic Law. The Basic Law
ensured Hong Kong will retain its own currency (the Hong Kong Dollar), legal system, parliamentary system and people’s rights and
freedom for fifty years from 1997. This agreement has given Hong Kong the freedom to function with a high degree of autonomy. The Special
Administrative Region of Hong Kong is responsible for its own domestic affairs including, but not limited to, the judiciary and courts
of last resort, immigration and customs, public finance, currencies and extradition. Hong Kong continues using the English common law
system.
However, if the PRC attempts to alter its agreement
to allow Hong Kong to function autonomously, this could potentially impact Hong Kong’s common law legal system and may in turn
bring about uncertainty in, for example, the enforcement of our contractual rights. This could, in turn, materially and adversely affect
our business and operations. Additionally, intellectual property rights and confidentiality protections in Hong Kong may not be as effective
as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the Hong Kong legal system,
including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local
regulations by national laws.
Although the audit report included in this
annual report is prepared by auditors who are currently inspected by the Public Company Accounting Oversight Board (the “PCAOB”),
there is no guarantee that future audit reports will be prepared by auditors inspected by the PCAOB and, as such, in the future investors
may be deprived of the benefits of such inspection. Furthermore, trading in our securities may be prohibited under the Holding Foreign
Companies Accountable Act (the “HFCA Act”) if the SEC subsequently determines our audit work is performed by auditors that
the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as the Nasdaq, may
determine to delist our securities. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies
Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading
on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three.
As part of a continued regulatory focus in the
United States on access to audit and other information currently protected by national law, in particular in Mainland China and Hong
Kong, the Holding Foreign Companies Accountable Act, or the HFCAA has been signed into law on December 18, 2020. The HFCAA states that
if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection
for the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national
securities exchange or in the over-the-counter trading market in the U.S. Accordingly, under the current law this will happen in 2024.
On March 24, 2021, the SEC adopted interim final
rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. We will be required to comply
with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently established
by the SEC.
On June 22, 2021, the U.S. Senate passed a bill
which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years
required for triggering the prohibitions under the HFCAA from three years to two. The SEC is also assessing how to implement other requirements
of the HFCAA, including the listing and trading prohibition requirements described above.
On November 5, 2021, the SEC approved the PCAOB
Rule 6100 that provides a framework for the PCAOB to determine whether it is unable to inspect or investigate completely registered public
accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The rule
states that the PCAOB will make these determinations promptly.
On December 2, 2021, the SEC adopted final amendments
to its rules implementing the HFCAA, or the Final Amendments. The Final Amendments include requirements to disclose information, including
the auditor name and location, the percentage of shares of the issuer owned by governmental entities, whether governmental entities in
the applicable foreign jurisdiction with respect to the auditor has a controlling financial interest with respect to the issuer, the
name of each official of the Chinese Communist Party who is a member of the board of the issuer, and whether the articles of incorporation
of the issuer contains any charter of the Chinese Communist Party. The Final Amendments also establish procedures the SEC will follow
in identifying issuers and prohibiting trading by certain issuers under the HFCAA. According to the Final Amendments, the SEC will identify
Commission-Identified Issuers for fiscal years beginning after December 18, 2020. A Commission-Identified Issuer will be required to
comply with the submission and disclosure requirements in the annual report for each year in which it was identified. If a registrant
is identified as a Commission-Identified Issuer based on its annual report for the fiscal year ended December 31, 2021, the registrant
will be required to comply with the submission or disclosure requirements in its annual report filing covering the fiscal year ended
December 31, 2022.
On December 16, 2021, the PCAOB issued the HFCAA
Determination Report, according to which our auditor is subject to the determinations that the PCAOB is unable to inspect or investigate
completely. The HFCAA Determination Report is a report relaying to the SEC its determinations that the PCAOB is unable to inspect or
investigate completely registered public accounting firms in Mainland China and Hong Kong due to positions taken by Chinese authorities.
The report, issued under Rule 6100, lists dozens of accounting firms based in Mainland China and Hong Kong subject to the determinations.
Under Rule 6100, the PCAOB will reassess its determinations at least annually. Our auditor, the independent registered public accounting
firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the
United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular
inspections to assess its compliance with the applicable professional standards. Our auditor, Onestop Assurance PAC, is headquartered
in Singapore, not mainland China or Hong Kong and was not identified in this report as a firm subject to the PCAOB’s determination.
Therefore, our auditor is not currently subject to the determinations announced by the PCAOB on December 16, 2021, and it is currently
subject to PCAOB inspections.
While our auditor is based in Singapore and is
registered with PCAOB and has been inspected by the PCAOB on a regular basis, in the event it is later determined that the PCAOB is unable
to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction, then such lack
of inspection could cause trading in the our securities to be prohibited under the Holding Foreign Companies Accountable Act, and ultimately
result in a determination by a securities exchange to delist the our securities. In addition, the recent developments would add uncertainties
to our offering and we cannot assure you whether NYSE or regulatory authorities would apply additional and more stringent criteria to
us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel
and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. It
remains unclear what the SEC’s implementation process related to the above rules will entail or what further actions the SEC, the
PCAOB or Nasdaq will take to address these issues and what impact those actions will have on U.S. companies that have significant operations
in the PRC and have securities listed on a U.S. stock exchange (including a national securities exchange or over-the-counter stock market).
In addition, the above amendments and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S.
regulatory access to audit information could create some uncertainty for investors, the market price of our ADSs could be adversely affected,
and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement or being required to engage a new
audit firm, which would require significant expense and management time.
On August 26, 2022, the China Securities Regulatory
Commission, the Ministry of Finance of the PRC (the “MOF”), and the PCAOB signed a Statement of Protocol (the “Protocol”),
governing inspections and investigations of audit firms based in mainland China and Hong Kong, taking the first step toward opening access
for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. Pursuant to
the fact sheet with respect to the Protocol disclosed by the U.S. Securities and Exchange Commission (the “SEC”), the PCAOB
shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer
information to the SEC. On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect
and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations
to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the
PCAOB Board will consider the need to issue a new determination.
Risks Related to Our ADSs
The trading price of our ADSs is likely
to be volatile, which could result in substantial losses to investors.
During our fiscal year ended August 31, 2023,
the trading price of our ADSs has ranged from US$1.29 to US$0.99 per ADS. The trading price of our ADSs is likely to continue to be volatile
and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including
the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed
their securities in the United States. The securities of some of these companies, especially companies in the education industry, have
experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in their
trading prices. The trading performances of other Chinese companies’ securities after their offerings may affect the attitudes
of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our
ADSs, regardless of our actual operating performance.
In addition to market and industry factors, the
price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:
| ● | variations
in our revenues, earnings and cash flow; |
| ● | announcements
of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; |
| ● | changes
in financial estimates by securities analysts; |
| ● | detrimental
adverse publicity about us, our services or our industry; |
| ● | additions
or departures of key personnel; |
| ● | release
of lockup or other transfer restrictions on our outstanding equity securities or sales of
additional equity securities; and |
| ● | actual
or potential litigation or governmental and regulatory investigations or penalties resulting
from our failure to comply with applicable laws, regulations and policies, including those
adopted by the government to apply more stringent social, ethical and environmental standards
in connection with increased global focus on these areas. |
Any of these factors may result in large and
sudden changes in the volume and price at which our ADSs will trade.
In the past, shareholders of public companies
have often brought securities class action suits against those companies following periods of instability in the market price of their
securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and
other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our
results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise
capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which
could have a material adverse effect on our financial condition and results of operations.
Our dual-class voting structure will limit
your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders
of our Class A ordinary shares and ADSs may view as beneficial.
We have a dual-class voting structure such that
our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares
are entitled to one vote per share in respect of matters requiring the votes of shareholders, while holders of Class B ordinary
shares are entitled to twenty votes per share, subject to certain exceptions. Each Class B ordinary share is convertible into one
Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B
ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder thereof to any person or entity
which is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the
equal number of Class A ordinary shares.
As of the date of this report, there are no Class
B ordinary shares issued and outstanding. If we issue new Class B ordinary shares in the future, such shareholders will gain considerable
influence over matters requiring shareholder approval, over matters such as electing directors and approving material mergers, acquisitions
or other business combination transactions. This concentrated control will limit your ability to influence corporate matters and could
also discourage others from pursuing any potential merger, takeover or other change of control transactions, which could have the effect
of depriving the holders of our Class A ordinary shares and our ADSs of the opportunity to sell their shares at a premium over the
prevailing market price.
If securities or industry analysts do not
publish research or publishes inaccurate or unfavorable research about our business, or if they adversely change their recommendations
regarding our ADSs, the market price for our ADSs and trading volume could decline.
The trading market for our ADSs will be influenced
by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade
our ADSs or publishes inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one
or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets,
which in turn could cause the market price or trading volume for our ADSs to fall.
The sale or availability for sale of substantial
amounts of our ADSs could adversely affect their market price.
Sales of substantial amounts of our ADSs in the
public market, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially
impair our ability to raise capital through equity offerings in the future. We cannot predict what effect, if any, market sales of securities
held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the
market price of our ADSs. In addition, we may issue additional ordinary shares or ADSs for future acquisitions. If we pay for our future
acquisitions in whole or in part with additionally issued ordinary shares or ADSs, your ownership interest in our company would be diluted
and this, in turn, could have a material adverse effect on the price of our ADSs.
Because we do not expect to pay dividends
in the foreseeable future, you must rely on a price appreciation of our ADSs for a return on your investment.
We currently intend to retain most, if not all,
of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay
any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any future
dividend income.
Our board of directors has discretion as to whether
to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution
declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands company
may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would
result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors
decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations
and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial
condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment
in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate
in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs, and
you may even lose your entire investment in our ADSs.
Our memorandum and articles of association
contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our Class A ordinary shares
and ADSs.
Our sixth amended and restated memorandum and
articles of association contain certain provisions to limit the ability of others to acquire control of our company or cause us to engage
in change-of-control transactions, including a provision that grants authority to our board of directors to establish and issue from
time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of
preferred shares, the terms and rights of that series. These provisions could have the effect of depriving our shareholders and ADSs
holders of the opportunity to sell their shares or ADSs at a premium over the prevailing market price by discouraging third parties from
seeking to obtain control of our company in a tender offer or similar transactions.
You may face difficulties in protecting
your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman
Islands law.
We are an exempted company incorporated under
the laws of the Cayman Islands. Our corporate affairs are governed by our sixth amended and restated memorandum and articles of association,
the Companies Act (2020 Revision) of the Cayman Islands, or the Companies Act, and the common law of the Cayman Islands. The rights of
shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to
us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands
is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the
decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders
and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or
judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands have a less developed body of securities
laws than the United States. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action
in a federal court of the United States.
Shareholders of Cayman Islands exempted companies
like us have no general rights under Cayman Islands law to inspect corporate records (other than those available under the Companies
Act) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our articles of association
to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but our directors
are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed
to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
As a result of all of the above, our public shareholders
may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors
or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
Certain judgments obtained against us by
our shareholders may not be enforceable.
We are a Cayman Islands company and most of our
assets are located outside of the United States. Part of our current operations are conducted in Hong Kong. In addition, most of our
current directors and officers are nationals and residents of countries other than the United States, except Dr. Robert Angell and Mengchu
Zhou, two of our independent directors. Substantially all of the assets of these persons are located outside the United States. As a
result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in
the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are
successful in bringing an action of this kind, the laws of the Cayman Islands and of Hong Kong may render you unable to enforce a judgment
against our assets or the assets of our directors and officers.
You, as holders of ADSs, may have fewer
rights than holders of our Class A ordinary shares and must act through the deposit to exercise those rights.
Holders of ADSs do not have the same rights as
our registered shareholders. As a holder of our ADSs, you will not have any direct right to attend general meetings of our shareholders
or to cast any votes at such meetings. You will only be able to exercise the voting rights that are carried by the underlying Class A
ordinary shares represented by your ADSs indirectly in accordance with the provisions of the deposit agreement. Under the deposit agreement,
you may vote only by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will try,
as far as is practicable, to vote the Class A ordinary shares underlying your ADSs in accordance with your instructions. If we ask
for your instructions, then upon receipt of your voting instructions, the depositary will try to vote the underlying Class A ordinary
shares in accordance with these instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still
vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right
to vote with respect to the underlying Class A ordinary shares unless you withdraw the shares and become the registered holder of
such shares prior to the record date for the general meeting.
Under our articles of association, the minimum
notice period required to convene a general meeting is ten days. When a general meeting is convened, you may not receive sufficient advance
notice of the meeting to withdraw the shares underlying your ADSs and become the registered holder of such shares to allow you to attend
the general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general
meeting. In addition, under our articles of association, for the purposes of determining those shareholders who are entitled to attend
and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting,
and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the Class A ordinary
shares underlying your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able
to attend the general meeting or to vote directly. If we ask for your instructions, the depositary will notify you of the upcoming vote
and will arrange to deliver our voting materials to you. We have agreed to give the depositary at least 30 business days’ prior
notice of shareholder meetings. Nevertheless, we cannot assure you that you will receive the voting materials in time to ensure that
you can instruct the depositary to vote the underlying Class A ordinary shares represented by your ADSs. In addition, the depositary
and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions.
This means that you may not be able to exercise your right to direct how the shares underlying your ADSs are voted, and you may have
no legal remedy if the shares underlying your ADSs are not voted as you requested.
You may experience dilution of your holdings
due to the inability to participate in rights offerings.
We may, from time to time, distribute rights
to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to
holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration
under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary
may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be
unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement
with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly,
holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.
You may be subject to limitations on the
transfer of your ADSs.
Your ADSs are transferable on the books of the
depositary. However, the depositary may close its books at any time or from time to time when it deems it expedient in connection with
the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection
with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on
its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary
may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are
closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government
or governmental body, or under any provision of the deposit agreement, or for any other reason.
As a company incorporated in the Cayman
Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly
from the New York Stock Exchange corporate governance listing standards; these practices may afford less protection to shareholders than
they would enjoy if we complied fully with the NYSE corporate governance listing standards.
As a Cayman Islands company listed on the New
York Stock Exchange, we are subject to the New York Stock Exchange corporate governance listing standards. However, New York Stock Exchange
rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance
practices in the Cayman Islands, which is our home country, may differ significantly from the New York Stock Exchange corporate governance
listing standards. As we have chosen, and may from time to time to choose, to follow home country practice exemptions with respect to
certain corporate matters, such as the requirement of shareholders’ approval for adoption of an equity incentive plan or composition
of our committees of board of directors, our shareholders may be afforded less protection under Cayman Islands law than they would under
the NYSE rules applicable to U.S. domestic issuers. See “Item 16G. Corporate Governance.”
We are a foreign private issuer within
the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public
companies.
Because we qualify as a foreign private issuer
under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable
to U.S. domestic issuers, including:
| ● | the
rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form
10-Q or current reports on Form 8-K; |
| ● | the
sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations
in respect of a security registered under the Exchange Act; |
| ● | the
sections of the Exchange Act requiring insiders to file public reports of their stock ownership
and trading activities and liability for insiders who profit from trades made in a short
period of time; |
| ● | the
selective disclosure rules by issuers of material nonpublic information under Regulation
FD; and |
| ● | certain
audit committee independence requirements in Rule 10A-3 of the Exchange Act. |
There can be no assurance that we will
not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in
adverse U.S. federal income tax consequences to U.S. holders of our ADSs or Class A ordinary shares.
A non-U.S. corporation will be a passive foreign
investment company, or PFIC, for any taxable year if either (1) at least 75% of its gross income for such year consists of certain types
of “passive” income; or (2) at least 50% of the value of its assets (generally determined on the basis of a quarterly average)
during such year is attributable to assets that produce passive income or are held for the production of passive income (the “asset
test”). We do not believe that we were a PFIC for the taxable year ended August 31, 2023 and do not anticipate becoming a PFIC
for the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become
a PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition of our income and assets. Fluctuations
in the market price of our ADSs may cause us to become a PFIC for the current or subsequent taxable years because the value of our assets
for the purpose of the asset test may be determined by reference to the market price of our ADSs from time to time (which may be volatile).
The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets.
If we were to be or become a PFIC for any taxable
year during which a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income
Tax Considerations”) holds our ADSs or Class A ordinary shares, certain adverse U.S. federal income tax consequences could
apply to such U.S. Holder. See “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations—Passive
Foreign Investment Company Rules.”
ITEM 4. INFORMATION
ON THE COMPANY
A. History and Development of the Company
Corporate History and Structure
We established Shanghai OneSmart Education and
Training Co., Ltd. (formerly known as Shanghai OneSmart Education Information Consulting Co., Ltd.), or Shanghai OneSmart, a domestic
company in China, in 2007. In January 2008, we opened our first learning center in Shanghai to provide premium K-12 after-school education
services.
In June 2009, we established Shanghai Rui Si
Technology Information Consulting Co., Ltd., or Rui Si, to provide tutoring services that are currently covered under our premium young
children education program.
In September 2011, we established Shanghai Jing
Xue Rui Information and Technology Co., Ltd., or the WFOE.
In October 2015, we established Shanghai Jing
Yu Investment Co., Ltd., or Jing Yu, which is a wholly owned subsidiary of Shanghai OneSmart in the PRC. Currently, it operates the learning
centers for our premium tutoring programs outside of Shanghai.
In March 2017, we incorporated Meta Data Limited
(formerly known as OneSmart International Education Group Limited), or Meta Data, an exempted company incorporated under the laws of
the Cayman Islands, as our offshore holding company to facilitate financing and offshore listing. In connection with our initial public
offering, we subsequently undertook a series of corporate restructuring, or 2017 Restructuring. In March 2017, OneSmart Education acquired
OneSmart Edu Inc., or OneSmart BVI, a company incorporated in the British Virgin Islands, as our intermediary holding company, which
holds 100% of the share capital of OneSmart Edu (HK) Limited, or OneSmart HK. In September 2017, OneSmart HK acquired all of the equity
interests in the WFOE, which entered into a series of contractual arrangements with Shanghai OneSmart and its then shareholders. Subsequent
to that, we also entered into a series of contractual arrangements with Rui Si and its then shareholders. In January 2018, the WFOE entered
into another series of contractual arrangements with Shanghai OneSmart and its then shareholders, replacing the original set. As a result
of the foregoing transactions, OneSmart Education became the entity that consolidates Shanghai OneSmart and Rui Si. The 2017 Restructuring
was completed under the common control of Xi Zhang, our founder. See also “Item 4. Information on the Company-C. Organizational
Structure-Contractual Arrangements with Shanghai OneSmart, Rui Si and their respective shareholders.”
In September 2018, we acquired 100% equity interest
in Tianjin Huaying Education Co., Ltd., one of the largest K-12 after-school education service provider based in Tianjin, China, for
cash consideration of RMB240.0 million.
In October 2018, we made a strategic investment
by acquiring 30% minority equity stake in Beijing Tus-Juren Education Technology Co., Ltd., or Tus-Juren, a leading K-12 after-school
education company in China, for consideration of RMB239.4 million. In March 2019, we disposed 12% of equity stake in Tus-Juren.
During the fiscal year 2019, we extended a series
of five-year convertible loan in an aggregate amount of RMB668.7 million to Tus-Juren, or the 2019 Tus-Juren Convertible Loan. Such convertible
loan bears a 10% annual coupon and we have the option to convert the principal and any unpaid interests of such convertible loan into
new equity interest of Tus-Juren at a pre-determined valuation at any time after either the third or fourth anniversary from the borrowing
date, as applicable. During the fiscal year 2020, we extended another series of five-year convertible loan in an aggregate amount of
RMB51.2 million to Tus-Juren, or the 2020 Tus-Juren Convertible Loan, with terms substantially similar to the 2019 Tus-Juren Convertible
Loan. In February 2020, the annual coupon rate of these convertible loans was adjusted to nil, applicable to the outstanding loan period
starting from December 1, 2019. As a part of the Yutang transactions in December 2020, we have the option to convert the principal and
any unpaid interests of the convertible loans to Tus-Juren into new equity interests of Yutang Inc. at any time within five years starting
from December 15, 2020. During the fiscal year 2020, we made a series of 12-month loan available to Tus-Juren and its subsidiaries in
an aggregate amount of RMB170.9 million. A majority of such loans bear a 4.35% annual interest rate.
In March 2019, we entered into a US$139 million
term facility agreement with a group of arrangers led by UBS AG, Singapore Branch. Pursuant to the agreement, we were provided an interest-bearing
secured term facility of up to US$139 million. The term facility has a three-year term from the initial drawdown date and should be repaid
in installments. We drew down the US$139 million term facility in full in April 2019. The proceeds from this term facility were used
for our working capital, capital expenditure, and other general corporate purposes.
In February 2020, we entered into a share swap
agreement and an asset and business transfer agreement with Yimi Education Technology Inc., or Yimi Cayman, its affiliated companies
and VIE, Shanghai Yimi Education Technology Co., Ltd., or Shanghai Yimi to acquire certain technologies and business as part of Company’s
continuing efforts to enhance the quality and customer experience on OneSmart Online, the online platform of the Company, for a total
consideration of approximately RMB311.1 million. The foregoing transactions are collectively referred to as the “Yimi transactions.”
In connection with the Yimi transactions, in December 2019, we established OneSmart Online Edu Inc., an exempted company duly incorporated
and validly existing under the laws of the Cayman Islands, which is 100% owned by OneSmart BVI before the share swap occurs. Immediately
after the share swap, we, through OneSmart BVI, hold 90% share capital of OneSmart Online Edu Inc., which in turns hold 100% share capital
of Yimi Cayman. Yimi Education Technology (HK) Limited, or Yimi HK, which was established by Yimi Cayman under the laws of Hong Kong
and was wholly owned by Yimi Cayman, holds 100% share capital Yimi Education Technology (Shanghai) Co., Ltd., or Yimi Shanghai, a WFOE
under the laws of the PRC. In December 2019, we established Xiangyuan (Shanghai) Education Technology Co., Ltd., or Xiangyuan, which
entered into a series of contractual agreements with its shareholders and Yimi Shanghai. As a result of the Yimi transactions, OneSmart
Education became the entity that consolidates Xiangyuan. See also “Item 4. Information on the Company-C. Organizational Structure-Contractual
Arrangements with Xiangyuan and its shareholders.”
In September 2019, we acquired 15% equity interest
in Shanghai Yousheng Education and Technology Co., Ltd., or Yousheng, a company providing online English tutoring services to young children
in China. In June 2020, we step-acquired 85% equity interest in Yousheng for a total consideration of approximately RMB145.4 million,
and we held in aggregate 100% of its equity interest.
In August 2020, we acquired the business from
Beijing Ruiyipeiyou Education and Technology Co., Ltd., or Ruiyipeiyou, a company providing online math tutoring services to young children
in China, for a total consideration of approximately RMB131.3 million.
In December 2020, we entered into certain agreements
to establish a sizable and stronger small-class business by merging a number of small-class K-12 after-school education businesses that
OneSmart has invested in for a few years into Yutang Inc., or Yutang. The foregoing transactions are collectively referred to as the
“Yutang transactions.” In connection with Yutang transactions, we entered into a share sale and purchase agreement with Yutang,
Tus-Juren related parties, pursuant to which, Yutang has agreed to issue 100,340,631 ordinary shares of Yutang to us as share consideration
in exchange for all the equity interest of JUREN Education & Technology Group Inc. held by us. We also entered into a share subscription
agreement with Yutang Inc. and its shareholder, Tus-Juren related parties and Tianjin Huaying Education Consulting Co., Ltd. to acquire
certain equity interest in Yutang. Pursuant to which, Yutang has agreed to (i) issue 36,762,505 ordinary shares of Yutang to us at a
purchase price of US$0.0001 per share as consideration to acquire all the equity interests of Tianjin Huaying Education Consulting Co.,
Ltd. indirectly held by us through VIE contractual arrangement, and (ii) issue 2,188,244 ordinary shares to us at a purchase price of
US$0.0001 per share as consideration to acquire our equity interest in Tus-Juren online business. After the Yutang transactions, we became
a minority shareholder of Yutang.
On March 28, 2018, our ADSs commenced trading
on the NYSE under the symbol “ONE.” We raised approximately US$162.7 million in net proceeds from the issuance of new shares
from the initial public offering after deducting underwriting commissions and the offering expenses payable by us.
In December 2021, Metaverse Information Technology
Limited, or Meta BVI was incorporated in British Virgin Islands. In January 2022, Metaverse Information Technology Limited, or Meta HK
was incorporated in Hong Kong as a wholly owned subsidiary of Meta BVI.
On January 11, 2022, Metaverse Digital Technology
Co., Ltd. was formed in Wyoming, USA.
On April 28, 2022, our shareholders approved
the change of the Company’s name from OneSmart International Education Group Limited to Meta Data Limited at the Company’s
annual general meeting. In connection with the change of name, we changed our ticker symbol from “ONE” to “AIU.”
On October 28, 2022, we, OneSmart BVI, and Muckle
Capital Investment Co., Ltd. (“Muckle Capital”) entered into a certain share purchase agreement, pursuant to which Muckle
Capital agreed to purchase OneSmart BVI in cash consideration of $1,000,000. On November 25, 2022, we completed the Disposition after
the satisfaction or waiver of all closing conditions, and Muckle Capital became the sole shareholder of OneSmart BVI and as a result,
assumed all assets and liabilities of all the subsidiaries and VIE entities owned or controlled by OneSmart BVI.
The chart below illustrates our corporate legal
structure as of the date of this annual report:
Corporate Information
Our principal executive offices are located at
Flat H 3/F, Haribest Industrial Building, 45-47 Au Pui Wan Street, Sha Tin New Territories, Hong Kong. Our telephone number is +86-13655939932.
Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House,
Grand Cayman, KY1-1104, Cayman Islands. We maintain a corporate website at www.aiumeta.com.
See “Item 5. Operating and Financial Review
and Prospects-B. Liquidity and Capital Resources-Capital Expenditures” for a discussion of our capital expenditures.
B. Business Overview
Historically, the Company operated as one the
leading providers of K-12 after-school education services in China which developed a comprehensive K-12 after-school education platform
that primarily focused on young children mathematics training services and FasTrack English services through a nationwide network of
480 learning centers across 40 cities in China.
On July 24, 2021, the
General Office of Central Committee of the Communist Party of China and the General Office of the State Council jointly released Opinions
on what they termed “Further Reducing the Burden of Homework and Off-campus Tutoring for Compulsory Education Students,”
(the “Double Reduction Policy”), which basically requires suspension of all subject-based off-campus tutoring business targeting
pre-school kids and K12 students. As a result, on October 12, 2021, the Company suspended all education programs and learning centers
in China. As of August 31, 2022, the Company incurred net loss of $113,614 due to the cessation of these education centers and learning
centers. As advised by our PRC counsel, Hebei Changjun Law Firm, as of the date of this annual report, our new business line in AIE,
AIU and smart ID card services is not restricted by the PRC regulations regarding K-12 education. However, there are no guarantees that
there will be no additional regulations enforced by the PRC government in the future which may restrict our operations. See “ –
D. Risk Factors – Risks Related to Our Business – Regulatory scrutiny of privacy, data protection, and the collection, storage,
use, and sharing of personal data is increasing around the world. There is uncertainty associated with the legal and regulatory environment
relating to privacy and data protection laws, which continue to develop in ways the Company cannot predict, including with respect to
evolving technologies such as artificial intelligence.” on page 16 of this annual report.
We started to have a
new business in artificial intelligent education (AIE) and artificial intelligent universe (AIU) IAAS services since 2nd quarter of
fiscal 2023 (December 2021 to February 2023).
On October 28, 2022, the Company, OneSmart BVI,
and Muckle Capital entered into a certain share purchase agreement, pursuant to which Muckle Capital agreed to purchase OneSmart BVI
in cash consideration of $1,000,000. On November 25, 2022, the transaction closed, and Muckle Capita became the sole shareholder of OneSmart
BVI.
The Company has been actively implementing its
new business model, using the original channels to carry out quality education and technology output, including 5G technology, smart
campus system, and virtual training systems based on the Metaverse. The new business model is based on using the six core technologies
of Metaverse and artificial intelligence blockchain network computing, interaction, game technology, and the Internet of Things (“IoT”)
as core technologies, building a new type of blockchain smart student card and global smart employment quality educational virtual world
(a new type of artificial intelligence employment training), a combination of virtual and real prediction world (digital education, risk
prediction, computing power output), VR shopping world (new e-commerce) and other products to provide global customers with a new digital
world experience.
Our Business Model
The new business model takes many of the components
not affected by the suspension and expands with new initiatives. The model consists of the following services but will not include providing
subject-based off-campus training and tutoring to pre-school kids or K-12 students in China. As such, the new business will not be adversely
affected by the Double Reduction Policy.
| 1. | Artificial
Intelligent Education (AIE). The Company has started building a smart training system
incorporating virtual reality, artificial intelligence, blockchain and other technologies
in order to facilitate the teaching and training process. If successfully developed and implemented,
the smart training system is expected to enhance the immersion and interactivity of virtual
reality and is suitable for many education and training scenarios. |
| 2. | Artificial
Intelligent Universe (AIU) IAAS. The Company provides software & hardware infrastructure
(IAAS) to Metaverse business operators or individual users. The IAAS package is targeted
to improve the accessibility of rendering modes through cloud computing and edge computing
algorithms and computing power to improve the virtual world. Use of spatial localization
algorithm, virtual scene fitting, real-time network transmission, GPU server, and edge computing
to reduce cost and network congestion. |
AI Computing Power Output, Software/Hardware
Services
The Company provides software & hardware
infrastructure (IAAS) to Metaverse business operators or individual users. The IAAS package is targeted to improve the accessibility
of rendering modes through cloud computing and edge computing algorithms and computing power to improve the virtual world. Use of spatial
localization algorithm, virtual scene fitting, real-time network transmission, GPU server, and edge computing to reduce cost and network
congestion. It allows the operator to reduce the performance threshold requirements for terminal equipment and improve the immersive
user experience. There are two key drivers of revenue growth for this segment, number of customers/contracts and unit price. According
to Mordor Intelligence, the global gaming market was valued at over $170 billion in 2020, and it is expected to reach over $300 billion
by 2026 (CAGR of 9.64%). Management believes that GameFi will continue to be one of the hottest trends to emerge from the crypto industry.
The Company has entered into a strategic cooperation
agreement with Sesame Technology Corporation and Spirtas Worldwide to provide them with AI Computing.
Intellectual Property
AIU currently owns the Internet domain name of
http://www.aiumeta.com/.
The Company’s cloud rendering public service
platform is oriented to architectural design, VR/AR, interactive games, film and television. Animation, industrial design and other fields
of three-dimensional content production to provide cloud rendering services to help users quickly complete. Rendering calculation of
3D content, animation and renderings to avoid problems caused by insufficient local computer configuration. Greatly improves work efficiency,
reduce the cost of fixed assets investment for users. Cloud rendering service for flexible, efficient and unlimited expansion of massive
nodes. Meet the needs of graphics and image industry, the professional needs of users, and support users in the cloud to achieve global
collaboration, so that users get rid of the heavy invest in IT and computing facilities, put more energy and resources on content creation
and operation, and greatly improve high industry production collaboration efficiency, reduce costs, thus promoting the rapid development
of the entire industry.
Competition
We believe we also have a competitive advantage.
Most Metaverse companies focus on gaming platforms, virtual reality products, back-end technologies etc. For example, Unity Software
- a top Metaverse technology and software company, Coinbase - Great Metaverse stock for direct exposure to cryptocurrency, Nike - Best
Metaverse stock in the retail industry, Match Group - a dating service software provider, Roblox Corporation - an avatar community and
gaming platform, Fastly Inc. - a leading RT3D software and hardware supplier to enhance digital experience, and Matterport - a leading
the digitization and datafication of the built world. All peers have incurred substantial losses due to heavy investment in research
& development (“R&D”). Having been historically a technology-based company, we believe that our foundation will allow
us to more easily enter these markets with expected lower R&D expenses.
Employees
As of August 31, 2023, we had a total of 26 employees,
respectively.
The following table sets forth the numbers of
our employees, categorized by function, as of August 31, 2023:
Functions: | |
Number
of
Employees | |
Sales and marketing | |
| 4 | |
Research Technology Center | |
| 7 | |
General and administrative | |
| 15 | |
Total | |
| 26 | |
We believe we offer our employees competitive
compensation packages and a merit-based work environment and, as a result, we have generally been able to attract and retain qualified
personnel.
We enter into standard labor agreements with
our employees; in addition, we enter into confidentiality and intellectual property rights agreements with our key employees. We believe
that we have maintained a good working relationship with our employees, and we have not experienced any major labor disputes.
Insurance
We do not maintain business interruption insurance
or general third-party liability insurance, nor do we maintain directors and officers liability insurance or key-man insurance. We consider
our insurance coverage to be in line with that of other companies in the same industry of similar size.
Property, Plant and Equipment
Our principal executive offices are located at
Flat H 3/F, Haribest Industrial Building, 45-47 Au Pui Wan Street, Sha Tin New Territories, Hong Kong. We believe that the offices that
we currently lease are adequate to meet our needs for the immediate future.
Regulations
Regulations Related to our Business Operation
in Hong Kong
Business registration requirement
The Business Registration Ordinance (Chapter
310 of the Laws of Hong Kong) requires every person carrying on any business to make an application to the Commissioner of Inland Revenue
in the prescribed manner for the registration of that business. The Commissioner of Inland Revenue must register each business for which
a business registration application is made and as soon as practicable after the prescribed business registration fee and levy are paid
and issue a business registration certificate or branch registration certificate for the relevant business or the relevant branch, as
the case may be.
Regulations related to employment and labor
protection
Employment Ordinance (Chapter 57 of the Laws
of Hong Kong)
The Employment Ordinance (Chapter 57 of the Laws
of Hong Kong), or the EO, is an ordinance enacted for, amongst other things, the protection of the wages of employees and the regulation
of the general conditions of employment and employment agencies. Under the EO, an employee is generally entitled to, amongst other things,
notice of termination of his or her employment contract; payment in lieu of notice; maternity protection in the case of a pregnant employee;
not less than one rest day in every period of seven days; severance payments or long service payments; sickness allowance; statutory
holidays or alternative holidays; and paid annual leave of up to 14 days depending on the period of employment.
Employees’ Compensation Ordinance (Chapter
282 of the Laws of Hong Kong)
The Employees’ Compensation Ordinance (Chapter
282 of the Laws of Hong Kong), or the ECO, is an ordinance enacted for the purpose of providing for the payment of compensation to employees
injured in the course of employment. As stipulated by the ECO, no employer shall employ any employee in any employment unless there is
in force in relation to such employee a policy of insurance issued by an insurer for an amount not less than the applicable amount specified
in the Fourth Schedule of the ECO in respect of the liability of the employer. According to the Fourth Schedule of the ECO, the insured
amount shall be not less than HKD100,000,000 per event if a company has no more than 200 employees. Any employer who contravenes this
requirement commits a criminal offence and is liable on conviction to a fine and imprisonment. An employer who has taken out an insurance
policy under the ECO is required to display a prescribed notice of insurance in a conspicuous place on each of its premises where any
employee is employed.
Mandatory Provident Fund Schemes Ordinance
(Chapter 485 of the Laws of Hong Kong)
The Mandatory Provident Fund Schemes Ordinance
(Chapter 485 of the Laws of Hong Kong), or the MPFSO, is an ordinance enacted for the purposes of providing for the establishment of
non-governmental mandatory provident fund schemes, or the MPF Schemes. The MPFSO requires every employer of an employee of 18 years of
age or above but under 65 years of age to take all practical steps to ensure the employee becomes a member of a registered MPF Scheme.
Subject to the minimum and maximum relevant income levels, it is mandatory for both employers and their employees to contribute 5% of
the employee’s relevant income to the MPF Scheme. Any employer who contravenes this requirement commits a criminal offence and
is liable on conviction to a fine and imprisonment. As of the date of this prospectus, the Company believes it has made all contributions
required of ALECS under the MPFSO.
Regulations related to Hong Kong Taxation
Inland Revenue Ordinance (Chapter 112 of the
Laws of Hong Kong)
Under the Inland Revenue Ordinance (Chapter 112
of the Laws of Hong Kong), where an employer commences to employ in Hong Kong an individual who is or is likely to be chargeable to tax,
or any married person, the employer shall give a written notice to the Commissioner of Inland Revenue not later than three months after
the date of commencement of such employment. Where an employer ceases or is about to cease to employ in Hong Kong an individual who is
or is likely to be chargeable to tax, or any married person, the employer shall give a written notice to the Commissioner of Inland Revenue
not later than one month before such individual ceases to be employed in Hong Kong.
Tax on dividends
Under the current practice of the Inland Revenue
Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by the Company.
Capital gains and profit tax
No tax is imposed in Hong Kong in respect of
capital gains from the sale of shares. However, trading gains from the sale of shares by persons carrying on a trade, profession or business
in Hong Kong, where such gains are derived from or arise in Hong Kong, will be subject to Hong Kong profits tax which is imposed at the
rates of 8.25% on assessable profits up to HKD2,000,000 and 16.5% on any part of assessable profits over HKD2,000,000 on corporations
from the year of assessment commencing on or after 1 April 2018. Certain categories of taxpayers (for example, financial institutions,
insurance companies and securities dealers) are likely to be regarded as deriving trading gains rather than capital gains unless these
taxpayers can prove that the investment securities are held for long-term investment purposes.
Stamp Duty Ordinance (Chapter 117 of the Laws
of Hong Kong)
Under the Stamp Duty Ordinance (Chapter 117 of
the Laws of Hong Kong), the Hong Kong stamp duty currently charged at the ad valorem rate of 0.1% on the higher of the consideration
for or the market value of the shares, will be payable by the purchaser on every purchase and by the seller on every sale of Hong Kong
shares (in other words, a total of 0.2% is currently payable on a typical sale and purchase transaction of Hong Kong shares). In addition,
a fixed duty of HKD5 is currently payable on any instrument of transfer of Hong Kong shares. Where one of the parties is a resident outside
Hong Kong and does not pay the ad valorem duty due by it, the duty not paid will be assessed on the instrument of transfer (if any) and
will be payable by the transferee. If no stamp duty is paid on or before the due date, a penalty of up to ten times the duty payable
may be imposed.
Estate duty
Hong Kong estate duty was abolished effective
from 11 February 2006. No Hong Kong estate duty is payable by shareholders in relation to the shares owned by them upon death.
Regulations related to anti-money laundering
and counter-terrorist financing
Anti-Money Laundering and Counter-Terrorist
Financing Ordinance (Chapter 615 of the Laws of Hong Kong)
The Anti-Money Laundering and Counter-Terrorist
Financing Ordinance (Chapter 615 of the Laws of Hong Kong), or the AMLO, imposes requirements relating to client due diligence and record-keeping
and provides regulatory authorities with the powers to supervise compliance with the requirements under the AMLO. In addition, the regulatory
authorities are empowered to (i) ensure that proper safeguards exist to prevent contravention of specified provisions in the AMLO; and
(ii) mitigate money laundering and terrorist financing risks.
Drug Trafficking (Recovery of Proceeds) Ordinance
(Chapter 405 of the Laws of Hong Kong)
The Drug Trafficking (Recovery of Proceeds) Ordinance
(Chapter 405 of the Laws of Hong Kong), or the DTROP, contains provisions for the investigation of assets suspected to be derived from
drug trafficking activities, the freezing of assets on arrest and the confiscation of the proceeds from drug trafficking activities.
It is an offence under the DTROP if a person deals with any property knowing, or having reasonable grounds to believe, it to be the proceeds
from drug trafficking. The DTROP requires a person to report to an authorized officer if he/she knows or suspects that any property (directly
or indirectly) is the proceeds from drug trafficking or is intended to be used or was used in connection with drug trafficking, and failure
to make such disclosure constitutes an offence under the DTROP.
Organized and Serious Crimes Ordinance (Chapter
455 of the Laws of Hong Kong)
The Organized and Serious Crimes Ordinance (Chapter
455 of the Laws of Hong Kong), or the OSCO, empowers officers of the Hong Kong Police Force and the Hong Kong Customs and Excise Department
to investigate organized crime and triad activities, and it gives the Hong Kong courts jurisdiction to confiscate the proceeds from organized
and serious crimes, to issue restraint orders and charging orders in relation to the property of defendants of specified offences. The
OSCO extends the money laundering offence to cover the proceeds of all indictable offences in addition to drug trafficking.
United Nations (Anti-Terrorism Measures) Ordinance
(Chapter 575 of the Laws of Hong Kong)
The United Nations (Anti-Terrorism Measures)
Ordinance (Chapter 575 of the Laws of Hong Kong), or the UNATMO, provides that it is a criminal offence to: (i) provide or collect funds
(by any means, directly or indirectly) with the intention or knowledge that the funds will be used to commit, in whole or in part, one
or more terrorist acts; or (ii) make any funds or financial (or related) services available, directly or indirectly, to or for the benefit
of a person knowing that, or being reckless as to whether, such person is a terrorist or terrorist associate. The UNATMO also requires
a person to report his knowledge or suspicion of terrorist property to an authorized officer, and failure to make such disclosure constitutes
an offence under the UNATMO.
Guidelines issued by the SFC
Licensed corporations are required to comply
with the applicable anti-money laundering and counter-terrorist financing laws and regulations in Hong Kong as well as the Guideline
on Anti-Money Laundering and Counter-Financing of Terrorism, or the AML & CFT Guideline, issued by the SFC on 1 November 2018, and
the Prevention of Money Laundering and Terrorist Financing Guideline issued by the Securities and Futures Commission for Associated Entities
issued by the SFC on 1 November 2018.
The AML & CFT Guideline sets out the anti-money
laundering and counter-financing of terrorism statutory and regulatory requirements, and the anti-money laundering and counter-financing
of terrorism standards which licensed corporations should meet in order to comply with the statutory requirements under the AMLO. The
AML & CTF Guideline provides practical guidance to licensed corporations and their senior management in designing and implementing
their own anti-money laundering and counter-terrorist financing policies, procedures and controls in order to meet the relevant legal
and regulatory requirements in Hong Kong. Licensed corporations are required to ensure that proper safeguards exist to prevent contravention
of specified provisions in the AML & CFT Guideline and mitigate money laundering and terrorist financing risks. Pursuant to the AML&
CTF Guideline, licensed corporations should, among other things, assess the risks of any new products, new business practices, and use
of new or developing technologies before they are offered to the market, identify the client and verify the client’s identity,
conduct on-going monitoring of activities of the clients, maintain a database of names and particulars of terrorist suspects and designated
parties and conduct on-going monitoring for identification of suspicious transactions.
Personal Data (Privacy) Ordinance (Chapter
486 of the Laws of Hong Kong)
The Personal Data (Privacy) Ordinance (Chapter
486 of the Laws of Hong Kong), or the PDPO, imposes a statutory duty on data users to comply with the requirements of the six data protection
principles (the “Data Protection Principles”) contained in Schedule 1 to the PDPO. The PDPO provides that a data user shall
not do an act, or engage in a practice, that contravenes a Data Protection Principle unless the act or practice, as the case may be,
is required or permitted under the PDPO. The six Data Protection Principles are:
| ● | Principle
1 — purpose and manner of collection of personal data; |
| ● | Principle
2 — accuracy and duration of retention of personal data; |
| ● | Principle
3 — use of personal data; |
| ● | Principle
4 — security of personal data; |
| ● | Principle
5 — information to be generally available; and |
| ● | Principle
6 — access to personal data. |
Non-compliance with a Data Protection Principle
may lead to a complaint to the Privacy Commissioner for Personal Data (the “Privacy Commissioner”). The Privacy Commissioner
may serve an enforcement notice to direct the data user to remedy the contravention and/ or instigate prosecution actions. A data user
who contravenes an enforcement notice commits an offense which may lead to a fine and imprisonment.
The PDPO also gives data subjects certain rights,
inter alia:
| ● | the
right to be informed by a data user whether the data user holds personal data of which the
individual is the data subject; |
| ● | if
the data user holds such data, to be supplied with a copy of such data; and |
| ● | the
right to request correction of any data they consider to be inaccurate. |
The PDPO criminalizes, including but not limited
to, the misuse or inappropriate use of personal data in direct marketing activities, non-compliance with a data access request and the
unauthorized disclosure of personal data obtained without the relevant data user’s consent. An individual who suffers damage, including
injured feelings, by reason of a contravention of the PDPO in relation to his or her personal data may seek compensation from the data
user concerned.
C. Organizational Structure
See “—A. History and Development
of the Company.”
D. Property, Plant and Equipment
See “—B. Business overview—Property,
Plant and Equipment.”
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND
FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion together
with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion
contains forward-looking statements that involve risks and uncertainties about our business and operations. Our actual results may differ
materially from those we currently anticipate as a result of various factors, including those we describe under “Item 3. Key Information-D.
Risk Factors” and elsewhere in this annual report on Form 20-F. See “Forward-Looking Statements.”
A. Operating Results
Overview
For the fiscal years ended August 31, 2022 and
2023, we generated our revenue primarily from artificial intelligent education (AIE) service and artificial intelligent universe (AIU)
IAAS service.
AIE is based on intelligent training plat-form,
so as to provide the maximum immersive experience to users, this enables all users no longer bound to physical world with improved digital
life experience
AIU provides software & hardware infrastructure
(IAAS) to Metaverse business operator or individual users. It improves the accessibility of rendering modes through cloud computing and
edge computing algorithms and computing power to improve the virtual world. Use of spatial localization algorithm, virtual scene fitting,
real-time network transmission, GPU server, and edge computing to reduce cost and network congestion. Reduce the performance threshold
requirements for terminal equipment, and improve the immersive user experience.
As we sold our after-school tutoring service
segment on November 25, 2022, the financial position and operating results of OneSmart Edu Inc. (BVI) have been classified as discontinued
operations within the accompanying consolidated financial statements of the Company.
Key Components of Results of Operations
Revenues
Due to the impact of Double Reduction policy
on education from Chinese’s central government, we suspended our legacy business operation from 1st quarter of fiscal
2022 (September 2021 to November 2021) onwards and is transforming us into a different sector in Metaverse business. Since fiscal 2022,
all of our revenues were generated from artificial intelligent education (AIE) and artificial intelligent universe (AIU) IAAS services.
The following table sets forth the breakdown, both in absolute amount and as a percentage of our net revenues for continuing operations,
for the periods presented.
| |
Year Ended August 31, | |
| |
| | |
% of | | |
| | |
% of | | |
| | |
% of | |
| |
2021 | | |
revenue | | |
2022 | | |
revenue | | |
2023 | | |
revenue | |
| |
(in thousands, except for percentages) | |
Revenues | |
| | |
| | |
| | |
| | |
| | |
| |
Artificial Intelligent Education | |
| - | | |
| - | | |
$ | 1,770 | | |
| 83.5 | | |
$ | 25,699 | | |
| 79.3 | |
Artificial Intelligent Universe IAAS | |
| - | | |
| - | | |
| 350 | | |
| 16.5 | | |
| 6,727 | | |
| 20.7 | |
Total revenues | |
| - | | |
| - | | |
$ | 2,120 | | |
| 100.0 | | |
$ | 32,426 | | |
| 100.0 | |
For artificial intelligent universe IAAS and
artificial intelligent education services, we provide modular technical services (such as simulation teaching module, three dimensions
teaching module, virtual reality module) to academic and professional training centers and provide computing resources for data calculation
services (such as engineering and scientific research project data calculation and accuracy verification) and for commercial services
(such as film and television special effects, 3D animation, advertisement rendering and visualization) to our customers. Service contracts
are primarily on a fixed price basis. Upon delivery of services, service confirmation letter and customer acceptance are generally required.
Revenue is recognized at a point in time upon completion of the performance obligation is satisfied and accepted by the customers.
Cost of Revenues
In fiscal 2022 and 2023, our cost of revenues
primarily includes the delivery of service or performance of service of AIE and AIU, including salaries and wages for technical support
employees, related payroll deductions, staff benefits, share-based compensations, i-cloud rental expenses, depreciation for property,
plant and equipment, amortization for software etc. The table below sets forth a breakdown of our cost of revenues for continuing operations
for the periods indicated, both in absolute amount and as a percentage of our revenues:
| |
Year Ended August 31, | |
| |
| | |
% of | | |
| | |
% of | | |
| | |
% of | |
| |
2021 | | |
revenue | | |
2022 | | |
revenue | | |
2023 | | |
revenue | |
| |
(in thousands, except for percentages) | |
Cost of revenues | |
| | |
| | |
| | |
| | |
| | |
| |
Artificial intelligent education service | |
| - | | |
| - | | |
$ | (1,566 | ) | |
| (73.9 | ) | |
$ | (13,860 | ) | |
| (42.7 | ) |
Artificial intelligent universe
IAAS service | |
| - | | |
| - | | |
| (290 | ) | |
| (13.7 | ) | |
| (3,145 | ) | |
| (9.7 | ) |
Total cost of revenues | |
| - | | |
| - | | |
$ | (1,856 | ) | |
| (87.5 | ) | |
$ | (17,005 | ) | |
| (52.4 | ) |
Operating Expenses
Our operating expenses consist of selling and
marketing expenses and general and administrative expenses.
Selling and Marketing Expenses
In fiscal 2023, selling and marketing expenses
primarily consisted of marketing staff salaries.
In fiscal 2022, there was no selling and marketing
expenses incurred due to classification of our legacy education business as discontinued operations.
In fiscal 2021, selling and marketing expenses
primarily consisted of share-based compensation.
Our selling and marketing expenses as a percentage
of revenues were nil, nil and 0.1% for the fiscal years of 2021, 2022 and 2023, respectively. We expect that our selling and marketing
expenses will be minimal as we focus on smart education services.
General and Administrative Expenses
The following table sets forth our operating
expenses for continuing operations, both in absolute amount and as a percentage of our revenue, for the periods presented.
| |
Year Ended August 31, | |
| |
| | |
% of | |
| | |
% of | | |
| | |
% of | |
| |
2021 | | |
revenue | |
2022 | | |
revenue | | |
2023 | | |
revenue | |
| |
(in thousands, except for percentages) | |
Operating expenses | |
| | |
| |
| | |
| | |
| | |
| |
Selling and marketing expenses | |
$ | (17 | ) | |
NM | |
| - | | |
| - | | |
$ | (59 | ) | |
| (0.2 | ) |
General and administrative expenses | |
| (9,673 | ) | |
NM | |
| (53,435 | ) | |
| (2,520.5 | ) | |
| (1,762 | ) | |
| (5.4 | ) |
Total operating expenses | |
$ | (9,690 | ) | |
NM | |
$ | (53,435 | ) | |
| (2,520.5 | ) | |
$ | (1,821 | ) | |
| (5.6 | ) |
NM – Not meaningful.
Taxation
Cayman Islands
We are incorporated in the Cayman Islands. The
Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax. The Cayman
Islands does not impose a withholding tax on payments of dividends to shareholders.
British Virgin Islands
Meta BVI, our wholly-owned subsidiary incorporated
in the British Virgin Islands, is not subject to tax on income or capital gains in the British Virgin Islands. In addition, upon payments
of dividends by Meta BVI to us, no British Virgin Islands withholding tax will be imposed.
Hong Kong
Meta HK, our subsidiary in Hong Kong, are subject
to Hong Kong profits tax of 16.5% on its activities conducted in Hong Kong. No provision for Hong Kong profits tax has been made as it
has no assessable income for the fiscal years ended August 31, 2021, 2022 and 2023.
Critical Accounting Policies
We prepare our financial statements in accordance
with U.S. GAAP, which requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate these judgments and estimates
based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding
the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making
judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the
financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree
of judgment than others in their application.
The selection of critical accounting policies,
the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions
and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies
involve the most significant judgments and estimates used in the preparation of our financial statements. You should read the following
description of critical accounting policies, judgments and estimates in conjunction with our consolidated financial statements and other
disclosures included with this annual report.
Revenue recognition
Revenue is recognized when control of promised
services is transferred to our customers in amounts of consideration to which we expect to be entitled to in exchange for those services.
We follow the five steps approach for revenue recognition under Topic 606: (i) identify the contract with a customer, (ii) identify the
performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance
obligations in the contract, and (v) recognize revenue as we satisfy a performance obligation.
Primary sources of our revenues are as follows:
| (1) | Artificial Intelligent
Education (AIE) service provide modular technical services (such as simulation teaching module,
three dimensions teaching module, virtual reality module) to academic and professional training
centers. |
| (2) | AIU (Artificial Intelligent
Universe) IAAS service provides computing resources for data calculation services (such as
engineering and scientific research project data calculation and accuracy verification) and
for commercial services (such as film and television special effects, 3D animation, advertisement
rendering and visualization) to our customers. |
Service contracts are primarily on a fixed price
basis. Upon delivery of services, project completion inspection and customer acceptance are generally required. Revenue is recognized
at a point in time upon completion of the performance obligation is satisfied and accepted by the customers.
Discontinued Operations
On November 25, 2022, Meta Data Limited (the
“Seller”) completed the transfer of its ownership of OneSmart Edu Inc. (“OneSmart BVI”) to Muckle Capital Investment
Co., Ltd. (the “Buyer”), an unrelated third party for a total price of US$ 1 million, pursuant to a Share Transfer Agreement
entered into by the Seller and the Buyer on October 28, 2022 and approved by the Board of Directors on July 11, 2022. As the Company
believed that no continued cash flow would be generated by the sold component, in accordance with ASC 205-20, the Company presented the
operating results from OneSmart BVI has been presented as discontinued operations within the accompanying consolidated financial
statements of the Company.
Segment Information Reclassification
Historically, the Company operated as one the
leading providers of K-12 after-school education services in China which developed a comprehensive K-12 after-school education platform
that primarily focused on young children mathematics training services and FasTrack English services through a nationwide network of
480 learning centers across 40 cities in China. The Company had three primary segments, i. e. OneSmart VIP, OneSmart Young Children Education
and One Smart Online.
On July 24, 2021, the General Office of Central
Committee of the Communist Party of China and the General Office of the State Council jointly released Opinions on what they termed “Further
Reducing the Burden of Homework and Off-campus Tutoring for Compulsory Education Students,” (the “Double Reduction Policy”),
which basically requires suspension of all subject-based off-campus tutoring business targeting pre-school kids and K12 students. As
a result, on October 12, 2021, the Company suspended all education programs and learning centers in China. The Company classified the
education related operation into discontinued operation in fiscal 2022. In accordance with the Company’s new business strategy,
the Company classified business segment into Artificial Intelligent Education (AIE) service and Artificial Intelligent Universe (AIU)
IAAS service.
Liquidity
In assessing the Company’s liquidity and
substantial doubt about its ability to continue as a going concern, the Company monitors and analyzes cash on-hand and operating expenditure
commitments. The Company’s liquidity needs are to meet working capital requirements and operating expense obligations. To date,
the Company financed its operations primarily through cash generated by operating activities, IPO proceeds, equity or convertible securities
financing activities and commercial bank loan.
The accompanying financial statements do not include
any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. The accompanying
financial statements have been prepared on a basis, which contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The Company recorded income from continuing operations of $10.5 million for the year ended August 31, 2023,
is in default of its debt obligations as of August 31, 2023, while having net assets and shareholders’ surplus position of $4.8
million. The above matters raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty. As shown in the accompanying
financial statements as of August 31, 2023, the Company had net cash increased of $91.7 million for the year ended August 31, 2023. As
of August 31, 2023, the Company had cash balance of $121.1 million.
In evaluating if there is substantial doubt about
the ability to continue as a going concern, the Group is trying to alleviate the going concern risk through (1) equity or debt financing,
and (2) increasing cash generated from new business model in artificial intelligent education service and artificial intelligent universe
IAAS service, to meet our anticipated working capital requirements for at least the next 12 months. The Group may, however, need additional
capital in the future to fund our further expansion. If the Group determines that its cash requirements exceed the amount of cash and
cash equivalents it has on hand at the time, the Group may seek to issue equity or debt securities or obtain credit facilities. The issuance
and sale of additional equity would result in further dilution to shareholders of the Group.
During the year ended August 31, 2023, the Company
issued 42,808,219 ordinary shares at $0.584 per ordinary share for a gross proceed of $25 million in September 2022, 41,806,020 ordinary
shares at $0.7475 per ordinary share for a gross proceed of $25 million in May 2023, and 40,109,096 ordinary shares at $0.7791 per ordinary
share for a gross proceed of $25 million in July 2023.
The Company restructured its business by selling
tutoring services and then focus on smart education services. The sale of the tutoring services was completed on November 25,2022. The
Company has carried out product iterations on our original business: shifting from education and training to education and technology,
using the original channels to carry out quality education and technology output, including 5G technology, smart campus system, virtual
training system based on Metaverse, etc. The new business is using the six core technologies of Metaverse and artificial intelligence,
blockchain, network computing, interaction, game technology, and the Internet of Things as the company’s core technologies, building
a new type of blockchain smart student card and global smart employment quality Educational virtual world (new type of artificial intelligence
employment training), combination of virtual and real prediction world (digital education, risk prediction, computing power output), VR
shopping world (new e-commerce) and other products provide global customers with a new digital world experience.
The Company have recruited a global management
team and technology research and development team to develop new products and new business directions that combine education and technology.
In order to diversify the negative impact from local regulation, the Company has also decided to expend its business outside China.
As a result, the Company prepared the consolidated
financial statements assuming the Company will continue as a going concern. However, there is no assurance that the measures above can
be achieved as planned. The consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Change of reporting currency
Starting from September 1, 2022, the Company changed
its reporting currency from Renminbi to U.S. dollar since almost all of the Company’s revenue, expenses, assets, liabilities and
shareholders’ equity are now denominated in U.S. dollar. The alignment of the reporting currency with the underlying operations
will better illustrate the Company’s results of operations for each fiscal period. The Company has applied the change of reporting
currency retrospectively to its historical results of operations and financial statements. All prior periods' comparative financial information
has been restated as if the Company always used U.S. dollar as its reporting currency.
Results of Operations
The following table sets forth a summary of our
consolidated results of operations for the periods presented, both in absolute amount and as a percentage of our revenues for the periods
presented.
This information should be read together with
our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in any period
are not necessarily indicative of our future trends.
Fiscal Year Ended August 31, 2023 compared
to Fiscal Year Ended August 31, 2022
| |
For the years ended August 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
| | |
| |
| |
| | |
As | | |
| | |
As | | |
Amount | | |
Percentage | |
| |
| | |
% of | | |
| | |
% of | | |
increase | | |
increase | |
| |
Amount | | |
revenue | | |
Amount | | |
revenue | | |
(decrease) | | |
(decrease) | |
(in thousands, except for percentages) |
Revenues | |
$ | 32,426 | | |
| 100.0 | % | |
$ | 2,120 | | |
| 100.0 | % | |
$ | 30,306 | | |
| 1,429.5 | % |
Cost of revenues | |
| (17,005 | ) | |
| (52.4 | )% | |
| (1,856 | ) | |
| (87.5 | )% | |
| (15,149 | ) | |
| 816.2 | % |
Gross profit | |
| 15,421 | | |
| 47.6 | % | |
| 264 | | |
| 12.5 | % | |
| 15,157 | | |
| 5,741.3 | % |
Selling and marketing expenses | |
| (59 | ) | |
| (0.2 | )% | |
| - | | |
| - | | |
| 59 | | |
| 100.0 | % |
General and administrative expenses | |
| (1,762 | ) | |
| (5.4 | )% | |
| (53,435 | ) | |
| (2,520.5 | )% | |
| (51,673 | ) | |
| (96.7 | )% |
Income (loss) from operations | |
| 13,600 | | |
| 41.9 | % | |
| (53,171 | ) | |
| (2,508.1 | )% | |
| 66,771 | | |
| 125.6 | % |
Interest income | |
| 756 | | |
| 2.3 | % | |
| 1 | | |
| - | | |
| 755 | | |
| 75,500.0 | % |
Interest expense | |
| (3,818 | ) | |
| (11.8 | )% | |
| (7,408 | ) | |
| (349.4 | )% | |
| (3,590 | ) | |
| (48.5 | )% |
Other (expenses) income | |
| (4 | ) | |
| - | | |
| 3 | | |
| 0.00 | | |
| (7 | ) | |
| (233.3 | )% |
Income (loss) from continuing operations | |
| 10,534 | | |
| 32.5 | % | |
| (60,575 | ) | |
| (2,857.3 | )% | |
| 71,109 | | |
| 117.4 | % |
Income (loss) from discontinued operations | |
| 683,961 | | |
| 2,109.3 | % | |
| (113,614 | ) | |
| (5,359.2 | )% | |
| 797,575 | | |
| 802.0 | % |
Net income (loss) | |
| 694,495 | | |
| 2,141.8 | % | |
| (174,189 | ) | |
| (8,216.5 | )% | |
| 868,684 | | |
| 598.7 | % |
Add: Net loss attributable to non-controlling interests | |
| - | | |
| - | | |
| 5,286 | | |
| 249.3 | % | |
| (5,286 | ) | |
| (100.0 | )% |
Net income (loss) attributable to Meta Data Limited's shareholders | |
$ | 694,495 | | |
| 2,141.8 | % | |
$ | (168,903 | ) | |
| (7,967.1 | )% | |
$ | 863,398 | | |
| 611.2 | % |
Revenues
Revenues increased by $30.3 million, or 1,429.5%,
to $32.4 million for the year ended August 31, 2023 from $2.1 million for the same period of last year. The increase was mainly attributed
to full year contribution of revenue derived from artificial intelligent education and artificial intelligent universe IAAS services
as compared to two months of revenue in fiscal 2022 as these two services were commenced operations in July 2022.
Cost of revenues
Cost of revenues increased by $15.1 million,
or 816.2%, to $17.0 million for the year ended August 31, 2023 from $1.9 million for the same period of last year. The increase was mainly
in line with the increase in revenue.
Gross profit and gross margin.
As a result of the factors set out above, gross
profit increased by $15.2 million, or 5,741.3%, to $15.4 million for the year ended August 31, 2023 from $0.3 million for the same period
of last year. Gross margin increased from 12.5% for fiscal 2022 to 47.6% for fiscal 2023. The increase in gross margin was mainly attributable
to the increase in efficiency in completing the services to customers which reduced time spent and costs in completing tasks.
Selling and marketing expenses
Selling and marketing expenses increased by $0.06
million, or 100.0%, to $0.05 million for the year ended August 31, 2023 from nil for the same period of last year. The increase was mainly
attributable to sales and marketing staff salaries for the artificial intelligent education and artificial intelligent universe IAAS
services which we employed in fiscal 2023.
General and administrative expenses
General and administrative expenses decreased
by $51.7 million, or 96.8%, to $1.7 million for the year ended August 31, 2023 from $53.4 million for the same period of last year. In
fiscal year 2023, general and administrative expenses was mainly related to staff salaries, audit fees and other professional fees. In
fiscal 2022, general and administrative expenses was mainly attributable to one-time share-based compensation expenses of $44.5 million
as the Company cancelled all the stock options and restricted shares with no replacement agreements because all the grantees’ service
contracts were terminated due to the impact of Double Reduction Policy on education from China’s central government.
Interest income
Interest income increased by $0.8 million, or
75,500%, to $0.8 million for the year ended August 31, 2023 from $1,000 for the same period of last year. The increase in interest income
was mainly attributable to the increase in bank balances as well as the increase in interest rates.
Interest expenses
Interest expenses decreased by $3.6 million,
or 48.5%, to $3.8 million for the year ended August 31, 2023 from $7.4 million for the same period of last year. The interest expenses
were mainly due to lower average interest rates on loans in fiscal 2023 as compared to fiscal 2022.
Income (loss) from continuing operations
As a result of the factors set out above, we
had $10.5 million net income from continuing operations in fiscal 2023 as compared to loss from continuing operations of $60.6 million
in fiscal 2022.
Income from discontinued operations
Income from discontinued operations increased
by $0.8 billion, or 802.0%, to income of $0.7 billion for the year ended August 31, 2023 from loss of $0.1 billion for same period of
last year. The increase in income from discontinued operations was mainly attributable to the Company completed the disposition of its
wholly owned subsidiary, OneSmart Edu Inc., to the purchaser, Muckle Capital Investment Co., Ltd on November 25, 2022.
Net income
As a result of foregoing factors, the net income
was $0.7 billion for the year ended August 31, 2023 as compared to net loss of $174.2 million for the same period of last year.
Fiscal Year Ended August 31, 2022 compared
to Fiscal Year Ended August 31, 2021
| |
For the years ended August 31, | |
| | |
| |
| |
2022 | | |
2021 | |
| | |
| |
| |
| | |
As | | |
| | |
As | |
Amount | | |
Percentage | |
| |
| | |
% of | | |
| | |
% of | |
increase | | |
increase | |
| |
Amount | | |
revenue | | |
Amount | | |
revenue | |
(decrease) | | |
(decrease) | |
| |
(in thousands, except for percentages) | |
Revenues | |
$ | 2,120 | | |
| 100.0 | % | |
| - | | |
| |
$ | 2,120 | | |
| 100.0 | % |
Cost of revenues | |
| (1,856 | ) | |
| (87.5 | )% | |
| - | | |
| |
| (1,856 | ) | |
| 100.0 | % |
Gross profit | |
| 264 | | |
| 12.5 | % | |
| - | | |
| |
| 264 | | |
| 100.0 | % |
Selling and marketing expenses | |
| - | | |
| - | | |
| (17 | ) | |
NM | |
| - | | |
| (100.0 | )% |
General and administrative expenses | |
| (53,435 | ) | |
| (2,520.5 | )% | |
| (9,673 | ) | |
NM | |
| 43,762 | | |
| 452.4 | % |
Loss from operations | |
| (53,171 | ) | |
| (2,508.1 | )% | |
| (9,690 | ) | |
NM | |
| 43,481 | | |
| 448.7 | % |
Interest income | |
| 1 | | |
| - | | |
| 879 | | |
NM | |
| (878 | ) | |
| (99.9 | )% |
Interest expense | |
| (7,408 | ) | |
| (349.4 | )% | |
| (7,946 | ) | |
NM | |
| (538 | ) | |
| (6.8 | )% |
Other income (expenses) | |
| 3 | | |
| - | | |
| (256 | ) | |
NM | |
| 259 | | |
| 101.2 | % |
Loss from continuing operations | |
| (60,575 | ) | |
| (2,857.5 | )% | |
| (17,013 | ) | |
NM | |
| (43,562 | ) | |
| (456.1 | )% |
Loss from discontinued operations | |
| (113,614 | ) | |
| (5,359.2 | )% | |
| (760,879 | ) | |
NM | |
| (647,265 | ) | |
| (114.9 | )% |
Net loss | |
| (174,189 | ) | |
| (8,216.6 | )% | |
| (777,892 | ) | |
NM | |
| (603,703 | ) | |
| (122.4 | )% |
Add: Net loss attributable to non-controlling interests | |
| 5,286 | | |
| 249.3 | % | |
| 5,871 | | |
NM | |
| (585 | ) | |
| (10.0 | )% |
Net loss attributable to Meta Data Limited's shareholders | |
$ | (168,903 | ) | |
| (7,967.3 | )% | |
$ | (772,021 | ) | |
NM | |
$ | (603,118 | ) | |
| (78.1 | )% |
NM – Not meaningful.
Revenues. Due to the Double Reduction
policy aforementioned, in 1st quarter of fiscal year 2022, we suspended our after-school tutoring service segment where the
revenues accounted for a majority of our total revenues in fiscal year 2021 and classified as discontinued operations.
The above Alleviating Burden Opinion provides
that (i) Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization
activities; (ii) foreign capital is prohibited from controlling or participating in any Academic AST Institutions through mergers
and acquisitions, entrusted operation, joining franchise or variable interest entities; (iii) online tutoring for preschool-age
children is prohibited, and offline academic subjects (including foreign language) tutoring services for preschool-age children is also
strictly prohibited. The Alleviating Burden Opinion provides that any violation of the foregoing shall be rectified. The Alleviating
Burden Opinion further states that the administration and supervision over academic subjects tutoring institutions for students on grade
ten to twelve shall be implemented by reference to the relevant provisions of the Alleviating Burden Opinion.
In order to comply with the above applicable
rules and regulations, we shut down all the education programs and learning centers in China and began to transform ourself into a different
sector in Metaverse business. In fiscal year 2022, all our revenues derived from artificial intelligent education and artificial intelligent
universe IAAS. Accordingly, our revenues changed dramatically from nil in the fiscal year 2021 to $2.1 million in the fiscal year 2022
due to the classification of the education related revenue to the discontinued operations in fiscal year 2022.
Cost of revenues. Our cost of revenues
increased by 100% from nil in fiscal year 2021 to $1.9 million in the fiscal year 2022 which was in line with the increase in revenues.
Gross profit and gross margin.
As a result of the factors set out above, our gross profit increased by 100% from nil in fiscal 2021 to $0.3 million in fiscal year
2022.
Selling and marketing expenses. Our
selling and marketing expenses decreased by 100.0% from US$0.02 million in fiscal 2021 to nil in fiscal 2022 mainly attributable to a
decrease in sales and marketing expenses from the discontinued operation.
General and administrative expenses.
Our general and administrative expenses increased by $43.6 million, or 453.9%, from $9.6 million in fiscal 2021 to $53.4 million
in fiscal 2022 was mainly attributable to one-time share-based compensation expenses of $44.5 million as the Company cancelled all the
stock options and restricted shares with no replacement agreements because all the grantees’ service contracts were terminated
due to the impact of Double Reduction Policy on education from China’s central government.
Operating loss. As a result of
the factors set out above, we had $9.6 million operating loss in fiscal 2021 and $53.2 million operating loss in fiscal 2022.
Loss from continuing operations
As a result of the foregoing, loss from continuing operations increased
by $43.6 million, or 456.1%, from $17.0 million in fiscal 2021 to $60.6 million in fiscal 2022.
B. Liquidity and Capital Resources
Cash Flows and Working Capital
In assessing our liquidity and substantial doubt
about our ability to continue as a going concern, we monitor and analyze cash on-hand and operating expenditure commitments. Our liquidity
needs are to meet working capital requirements and operating expense obligations. To date, we financed our operations primarily through
cash generated by operating activities, equity or convertible securities financing activities.
Our management has considered whether there is
substantial doubt about our ability to continue as a going concern due to (1) income from continuing operations of $10.5 million for the
year ended August 31, 2023; (2) accumulated deficits of approximately $0.9 billion as of August 31, 2023; (3) the working capital surplus
of $6.0 million as of August 31, 2023; (4) net cash provided by operating activities from continuing operations of $13.3 million for the
year ended August 31, 2023; and (5) the cash of $121.1 million as of August 31, 2023. Cash primarily consists of cash in bank. Based on
the above considerations, the Company’s management is of the opinion that we will probably not having sufficient funds to meet our
working capital requirements and debt obligations as they become due starting from one year from the date of this report. As a result,
the Company’s management has determined there is no substantial doubt about our ability to continue as a going concern. In evaluating
if there is substantial doubt about the ability to continue as a going concern, we are trying to alleviate the going concern risk through
(1) equity or debt financing and (2) increasing cash generated from new business model operations. We may, however, need additional capital
in the future to fund our operation. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have
on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity
would result in further dilution to our shareholders.
During the year ended August 31, 2023, the Company
issued 42,808,219 ordinary shares at $0.584 per ordinary share for a gross proceed of $25 million in September 2022, 41,806,020 ordinary
shares at $0.7475 per ordinary share for a gross proceed of $25 million in May 2023, and 40,109,096 ordinary shares at $0.7791 per ordinary
share for a gross proceed of $25 million in July 2023.
We have carried out product iterations on our
original business: shifting from education and training to education and technology, using the original channels to carry out quality
education and technology output, including 5G technology, smart campus system, virtual training system based on Metaverse, etc. The Company’s
new business is using the six core technologies of Metaverse and artificial intelligence, blockchain, network computing, interaction,
game technology, and the Internet of Things as the company’s core technologies, building a new type of blockchain smart student
card and global smart employment quality Educational virtual world (new type of artificial intelligence employment training), combination
of virtual and real prediction world (digital education, risk prediction, computing power output), VR shopping world (new e-commerce)
and other products provide global customers with a new digital world experience.
The following table sets forth a summary of our
cash flows from continuing operations for the periods presented:
| |
For the years ended August 31, | |
| |
2023 | | |
2022 | | |
2021 | |
Net cash provided by (used in) operating activities
from continuing operations | |
$ | 13,355 | | |
$ | (7,566 | ) | |
$ | (8,364 | ) |
Net cash provided by investing activities from continuing
operations | |
| 1,000 | | |
| 8,559 | | |
| 33,900 | |
Net cash provided by (used in) financing activities from
continuing operations | |
| 77,375 | | |
| 30,681 | | |
| (74,912 | ) |
Effect of exchange rate change on cash | |
| - | | |
| (8,360 | ) | |
| 1,634 | |
Net increase (decrease) in cash | |
| 91,730 | | |
| 23,314 | | |
| (47,742 | ) |
Cash, beginning of year | |
| 29,382 | | |
| 6,068 | | |
| 41,674 | |
Cash, end of year | |
$ | 121,112 | | |
$ | 29,382 | | |
$ | 6,068 | |
Operating Activities
Net cash provided by operating activities from
continuing operations for the year ended August 31, 2023 was $13.4 million. The net cash provided by operating activities was primarily
due to (i) net income of $10.5 million and (ii) accrual of interest payable of $3.8 million.
Net cash used in operating activities for the
fiscal year ended August 31, 2022 was $7.6 million. The difference between our net loss of $174.2 million and the net cash used in operating
activities was primarily due to (i) net loss of $113.6 million arising from discontinued operations, and (ii) net loss of $60.6 million
arising from continuing operations, and was partially offset by share-based compensation of $44.5 million and an increase of accrued
expenses and other current liabilities of $8.5 million.
Net cash generated from operating activities
for the fiscal year ended August 31, 2021 was $21.4 million. The difference between our net loss of $777.9 million and the net cash generated
from operating activities was primarily due to (i) net loss of $760.9 million arising from discontinued operations, and (ii) net loss
of $17.0 million arising from continuing operations; and was partially offset by share-based compensation of $6.6 million and an increase
of accrued expenses and other current liabilities of $2.0 million.
Investing Activities
Net cash provided by investing activities was
$1.0 million for the year ended August 31, 2023, primarily due to proceeds of $1.0 million from disposal of subsidiaries.
Net cash provided by investing activities was
$11.6 million in the fiscal year ended August 31, 2022, primarily due to (i) proceeds from disposal of short-term investments of $8.6
million and (ii) net cash of $3.0 million provided by discontinued operations.
Net cash used in investing activities was $22.9
million in the fiscal year ended August 31, 2021, primarily due to net cash of $56.8 million used by discontinued operations, and was
partially offset by the proceeds from sales of short-term investments of $33.9 million.
Financing Activities
Net cash provided by financing activities was
$77.4 million for the year ended August 31, 2023, primarily due to the proceeds of $75.0 million from issuance of ordinary shares and
pre-funded warrants at private placement, net of issuance cost of $30,000 and proceeds of $2.4 million from third-party loans.
Net cash provided by financing activities in
the fiscal year ended August 31, 2022 was $22.7 million, primarily due to the proceeds of $28.5 million from the issuance of ordinary
shares and proceeds of $2.3 million from third-party loans, partially offset by net cash of $8.0 million used by discontinued operations.
Net cash used in financing activities in the
fiscal year ended August 31, 2021 was $144.8 million, primarily due to repayment of convertible note of $76.1 million and net cash of
$69.8 million used by discontinued operations.
Capital Expenditures
We made capital expenditures of $3.2 million,
nil and nil in the fiscal year 2021, 2022 and 2023, respectively. The decrease of capital expenditures in the fiscal year 2022 was mainly
due to the shut-down of learning centers due to the Double Reduction Policy in July 2021. Our capital expenditures have been primarily
funded by cash generated from our operations.
C. Research and Development, Patents and Licenses,
etc.
See “Item 4. Information on the Company-B.
Business Overview-Intellectual Property.”
D. Trend Information
Other than as disclosed elsewhere in this annual
report, we are not aware of any trends, uncertainties, demands, commitments or events for the fiscal year ended August 31, 2023 that
are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that would
cause the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.
E. Critical Accounting Estimates and Policies
Management’s discussion and analysis of
our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance
with U.S. GAAP. Our financial statements reflect the selection and application of accounting policies, which require management to make
significant estimates and judgments. Management bases its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We believe that the following reflects the more critical accounting policies that currently affect our financial condition and results
of operations.
Revenue recognition
Revenue is recognized when control of promised
services is transferred to our customers in amounts of consideration to which we expect to be entitled to in exchange for those services.
We follow the five steps approach for revenue recognition under Topic 606: (i) identify the contract with a customer, (ii) identify the
performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance
obligations in the contract, and (v) recognize revenue as we satisfy a performance obligation.
Primary sources of our revenues are as follows:
| (1) | Artificial Intelligent Education (AIE) service provide modular
technical services (such as simulation teaching module, three dimensions teaching module, virtual reality module) to academic and professional
training centers. |
| (2) | AIU (Artificial Intelligent Universe) IAAS service provides
computing resources for data calculation services (such as engineering and scientific research project data calculation and accuracy
verification) and for commercial services (such as film and television special effects, 3D animation, advertisement rendering and visualization)
to our customers. |
Service contracts are primarily on a fixed price
basis. Upon delivery of services, project completion inspection and customer acceptance are generally required. Revenue is recognized
at a point in time upon completion of the performance obligation is satisfied and accepted by the customers.
Discontinued Operations
On November 25, 2022, Meta Data Limited (the
“Seller”) completed the transfer of its ownership of OneSmart Edu Inc. (“OneSmart BVI”) to Muckle Capital Investment
Co., Ltd. (the “Buyer”), an unrelated third party for a total price of US$ 1 million, pursuant to a Share Transfer Agreement
entered into by the Seller and the Buyer on October 28, 2022 and approved by the Board of Directors on July 11, 2022. As the Company
believed that no continued cash flow would be generated by the sold component, in accordance with ASC 205-20, the Company presented the
operating results from OneSmart BVI has been presented as discontinued operations within the accompanying consolidated financial
statements of the Company.
Segment Information Reclassification
Historically, the Company operated as one the
leading providers of K-12 after-school education services in China which developed a comprehensive K-12 after-school education platform
that primarily focused on young children mathematics training services and FasTrack English services through a nationwide network of
480 learning centers across 40 cities in China. The Company had three primary segments, i. e. OneSmart VIP, OneSmart Young Children Education
and One Smart Online.
On July 24, 2021, the General Office of Central
Committee of the Communist Party of China and the General Office of the State Council jointly released Opinions on what they termed “Further
Reducing the Burden of Homework and Off-campus Tutoring for Compulsory Education Students,” (the “Double Reduction Policy”),
which basically requires suspension of all subject-based off-campus tutoring business targeting pre-school kids and K12 students. As
a result, on October 12, 2021, the Company suspended all education programs and learning centers in China. The Company classified the
education related operation into discontinued operation in fiscal 2022. In accordance with the Company’s new business strategy,
the Company classified business segment into Artificial Intelligent Education (AIE) service and Artificial Intelligent Universe (AIU)
IAAS service.
Liquidity
In assessing the Company’s liquidity and
substantial doubt about its ability to continue as a going concern, the Company monitors and analyzes cash on-hand and operating expenditure
commitments. The Company’s liquidity needs are to meet working capital requirements and operating expense obligations. To date,
the Company financed its operations primarily through cash generated by operating activities, IPO proceeds, equity or convertible securities
financing activities and commercial bank loan.
The accompanying financial statements do not
include any adjustments or classifications that may result from the possible inability of the Company to continue as a going
concern. The accompanying financial statements have been prepared on a basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company recorded income from continuing operations of $10.5
million for the year ended August 31, 2023, is in default of its debt obligations as of August 31, 2023, while having net assets
and shareholders’ surplus position of $4.8 million. The above matters raise substantial doubt about the Company’s
ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty. As shown in the accompanying financial statements as of August 31, 2023, the Company had net cash
increased of $91.7 million for the year ended August 31, 2023. As of August 31, 2023, the Company had cash balance of $121.1
million.
In evaluating if there is substantial doubt about
the ability to continue as a going concern, the Group is trying to alleviate the going concern risk through (1) equity or debt financing,
and (2) increasing cash generated from new business model in artificial intelligent education service and artificial intelligent universe
IAAS service, to meet our anticipated working capital requirements for at least the next 12 months. The Group may, however, need additional
capital in the future to fund our further expansion. If the Group determines that its cash requirements exceed the amount of cash and
cash equivalents it has on hand at the time, the Group may seek to issue equity or debt securities or obtain credit facilities. The issuance
and sale of additional equity would result in further dilution to shareholders of the Group.
During the year ended August 31, 2023, the Company
issued 42,808,219 ordinary shares at $0.584 per ordinary share for a gross proceed of $25 million in September 2022, 41,806,020 ordinary
shares at $0.7475 per ordinary share for a gross proceed of $25 million in May 2023, and 40,109,096 ordinary shares at $0.7791 per ordinary
share for a gross proceed of $25 million in July 2023.
The Company restructured its business by selling
tutoring services and then focus on smart education services. The sale of the tutoring services was completed on November 25,2022. The
Company has carried out product iterations on our original business: shifting from education and training to education and technology,
using the original channels to carry out quality education and technology output, including 5G technology, smart campus system, virtual
training system based on Metaverse, etc. The new business is using the six core technologies of Metaverse and artificial intelligence,
blockchain, network computing, interaction, game technology, and the Internet of Things as the company’s core technologies, building
a new type of blockchain smart student card and global smart employment quality Educational virtual world (new type of artificial intelligence
employment training), combination of virtual and real prediction world (digital education, risk prediction, computing power output), VR
shopping world (new e-commerce) and other products provide global customers with a new digital world experience.
The Company have recruited a global management
team and technology research and development team to develop new products and new business directions that combine education and technology.
In order to diversify the negative impact from local regulation, the Company has also decided to expend its business outside China.
As a result, the Company prepared the consolidated
financial statements assuming the Company will continue as a going concern. However, there is no assurance that the measures above can
be achieved as planned. The consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Change of reporting currency
Starting from September 1, 2022, the Company changed
its reporting currency from Renminbi to U.S. dollar since almost all of the Company’s revenue, expenses, assets, liabilities and
shareholders’ equity are now denominated in U.S. dollar. The alignment of the reporting currency with the underlying operations
will better illustrate the Company’s results of operations for each fiscal period. The Company has applied the change of reporting
currency retrospectively to its historical results of operations and financial statements. All prior periods' comparative financial information
has been restated as if the Company always used U.S. dollar as its reporting currency.
ITEM 6. DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth information regarding
our directors and executive officers as of the date of this annual report.
Directors
and Executive Officers |
|
Age |
|
Position/Title |
Xiaoming Li |
|
41 |
|
Chairman and Chief Executive Officer |
Chee Jiong Ng |
|
52 |
|
Chief Financial Officer |
Dr. Robert Angell |
|
62 |
|
Independent Director |
Dr. Mengchu Zhou |
|
60 |
|
Independent Director |
Yanyi Tang |
|
39 |
|
Independent Director |
Abbie Li |
|
29 |
|
Independent Director |
Mr. Xiaoming Li, aged 41, has served
as the CEO of Henan Shenglong Culture Communication Co., Ltd. since December 2019. From December 2016 to May 2019, he served as the chief
technical officer of Shenzhen Aladdin Technology Development Co., Ltd. Mr. Li served as a professor at Henan Agricultural University’s
enterprise, Henan Big Feed Technology Co., Ltd., where he taught in the teaching and research department, as well as actively researching
the development and direction of contemporary education and new educational technology systems. Mr. Li graduated from Henan University
of Economics and Law, China, with a bachelor’s degree in software engineering with a concentration in IT and education.
Mr. Chee Jiong Ng, served as chief
financial officer of Dunxin Financial Holdings Ltd (NYSE: DXF) from June 2010 to May 2021. Mr. Ng has more than 20 years of experience
in the finance sector and has served in various management roles at several companies before joining the Company. Mr. Ng has been qualified
as a Certified Public Accountant of the Australian Society of Certified Public Accountants since 1999. Mr. Ng received his bachelor’s
degree in Economics from the University of Sydney, Australia and his master’s degree in Commerce from the University of New South
Wales, Australia.
Ms. Yanyi Tang has served as Project
Manager at Shanghai Jiaan Certified Public Accountants since December 2010. From January 2007 to November 2010, she served as Assistant
Manager at KPMG Huazhen Accounting Firm. Ms. Tang received her bachelor’s degree in Economics and Business from Shanghai University,
China and University of Technology, Sydney, respectively. Ms. Tang is a certified public accountant in China (CICPA) and also a certified
public accountant in the United States (AICPA) in the State of Texas.
Dr. Mengchu Zhou has been the Distinguished
Professor of electrical and computer engineering in the Helen and John C. Hartmann Dept. of Electrical and Computer Engineering at New
Jersey Institute of Technology (NJIT) since 2013. He is a Fellow of the Institute of Electrical and Electronics Engineers (IEEE), a Fellow
of the International Federation of Automatic Control (IFAC), a Fellow of the American Association for the Advancement of Science (AAAS)
and a Fellow of the Chinese Association of Automation (CAA). Zhou is the Founding Editor-in-Chief of the IEEE/Wiley Book Series on Systems
Science and Engineering and the Editor-in-Chief of the IEEE/CAA Journal of Automatica Sinica. In 2015, he received the Norbert Wiener
Award for “fundamental contributions to the area of Petri net theory and applications to discrete event systems,” from the
IEEE Systems, Man, and Cybernetics Society which also awarded him the Franklin V. Taylor Memorial Award for Best Paper award in 2010.
Dr, Zhou earned his Ph.D. in Computer & Systems Engineering, Rensselaer Polytechnic Institute in 1990. He completed his M. S. in
Automatic Control, Beijing Institute of Technology in, 1986 following the completion of his B. S. in Control Engineering, Nanjing University
of Science & Technology in 1983.
Dr. Robert Angell is an expert
in healthcare AI, predictive analytics, temporal medicine, and data science. Since May 2019, he has been the principal and founder of
Applied Data Sciences, LLC, a data science company, and CoMorbus, a public health provider. Dr. Angell was a data scientist at the division
of cardiovascular genetics in University of Utah, where he provided support to all data science activities from 2014 to 2018. Dr. Angell
was an adjunct faculty at Salt Lake Community College from 2009 to 2014, where he taught computer science related courses. Dr. Angell
received her Ph.D. degree in biomedical informatics and Bachelor’s degree in industrial engineering from University of Utah.
Abbie Li is the co-founder of X DAO since
January 2023. From January 2021 to December 2021, Ms. Li served as an associate of Investment Banking Division at CICC. From January
2020 to December 2020, Ms. Li served as a partner of Coldharbour Capital. From October 2020 to August 2021, Ms. Li served as the managing
director of Faith-Group Co. Ltd. From September 2019 to October 2020, Ms. Li served as an associate of Investment Banking Division at
JP Morgan. Ms. Li obtained her bachelor’s degree in Mathematics from New York University in 2018.
Board Diversity
The table below provides certain information
regarding the diversity of our board of directors as of the date of this annual report.
Board
Diversity Matrix |
Country
of Principal Executive Offices: |
Hong
Kong |
Foreign
Private Issuer |
Yes |
Disclosure
Prohibited under Home Country Law |
No |
Total
Number of Directors |
5 |
|
Female |
Male |
Non-Binary |
Did
Not Disclose Gender |
Part I:
Gender Identity |
|
Directors |
2 |
3 |
0 |
0 |
Part II:
Demographic Background |
|
Underrepresented
Individual in Home Country Jurisdiction |
0 |
LGBTQ+ |
0 |
Did
Not Disclose Demographic Background |
0 |
Family Relationships
None of our directors or executive officers has
a family relationship as defined in Item 401 of Regulation S-K.
B. Compensation
For the fiscal year ended August 31, 2023, we
paid an aggregate of $0.3 million in cash to our directors and officers. We have not set aside or accrued any amount to provide pension,
retirement or other similar benefits to our executive officers and directors.
C. Board Practices
Board of Directors
Our board of directors consists of five directors.
A director is not required to hold any shares in our company to qualify to serve as a director. A director who is in any way, whether
directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of his interest
at a meeting of our directors. A director may vote in respect of any contract, proposed contract, or arrangement notwithstanding that
he may be interested therein, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors
at which any such contract or proposed contract or arrangement is considered. The directors may exercise all the powers of the company
to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or other securities whenever money is
borrowed or as security for any obligation of the company or of any third party. None of our non-executive directors has a service contract
with us that provides for benefits upon termination of service.
Committees of the Board of Directors
We have established three committees under the
board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted
a charter for each of the three committees. Each committee’s members and functions are described below.
Audit Committee. Our audit
committee consists of Dr. Robert Angell, Dr. Mengchu Zhou and Ms. Yanyi Tang. Ms. Yanyi Tang is the chairwoman of our audit committee.
We have determined that Dr. Robert Angell, Dr. Mengchu Zhou and Ms. Yanyi Tang satisfy the “independence” requirements of
Section 303A of the Corporate Governance Rules of the New York Stock Exchange and Rule 10A-3 under the Exchange Act. We have determined
that Ms. Yanyi Tang qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial
reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
|
● |
appointing the independent
auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; |
|
● |
reviewing with the independent
auditors any audit problems or difficulties and management’s response; |
|
● |
discussing the annual audited
financial statements with management and the independent auditors; |
|
● |
reviewing the adequacy
and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major
financial risk exposures; |
|
● |
reviewing and approving
all proposed related party transactions; |
|
● |
meeting separately and
periodically with management and the independent auditors; and |
|
● |
monitoring compliance with
our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
Compensation Committee. Our compensation
committee consists of Dr. Robert Angell, Dr. Mengchu Zhou and Ms. Yanyi Tang. Dr. Mengchu Zhou is the chairman of our compensation committee.
We have determined that Dr. Robert Angell, Dr. Mengchu Zhou and Ms. Yanyi Tang satisfy the “independence” requirements of
Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The compensation committee assists the board in reviewing
and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our
chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee
is responsible for, among other things:
|
● |
reviewing and approving,
or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; |
|
● |
reviewing and recommending
to the board for determination with respect to the compensation of our non-employee directors; |
|
● |
reviewing periodically
and approving any incentive compensation or equity plans, programs or similar arrangements; and |
|
● |
selecting compensation
consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence
from management. |
Nominating and Corporate Governance Committee.
Our nominating and corporate governance committee consists of Dr. Robert Angell, Dr. Mengchu Zhou and Ms. Yanyi Tang. Dr. Robert
Angell is the chairman of our nominating and corporate governance committee. We have determined that Dr. Robert Angell, Dr. Mengchu Zhou
and Ms. Yanyi Tang satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York
Stock Exchange. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to
become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee
is responsible for, among other things:
|
● |
selecting and recommending
to the board nominees for election by the shareholders or appointment by the board; |
|
● |
reviewing annually with
the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience
and diversity; |
|
● |
making recommendations
on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and |
|
● |
advising the board periodically
with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable
laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to
be taken. |
Duties of Directors
Under Cayman Islands law, our directors owe fiduciary
duties to our company, including a duty to act honestly, and a duty to act in what they consider in good faith to be in our best interests.
Our directors must also exercise their powers only for a proper purpose. Our directors also have a duty to act with skills they actually
possess and exercise the care and diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously
acknowledged that a director does not need to act with skills greater than those expected to be processed by a reasonable person. However,
English and Commonwealth courts have moved towards an objective standard with regard to the required skills and care and these authorities
are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our
sixth amended and restated memorandum and articles of association, as amended and restated from time to time, and the class rights vested
thereunder in the holders of the shares. Our directors owe their fiduciary duties to our company and not to our company’s individual
shareholders, and our company has the right to seek damages if a duty owed by our directors is breached. In certain limited exceptional
circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.
Our board of directors has all the powers necessary
for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among
others:
|
● |
convening shareholders’
annual and extraordinary general meetings and reporting its work to shareholders at such meetings; |
|
● |
declaring dividends and
distributions; |
|
● |
appointing officers and
determining the term of office of the officers; |
|
● |
exercising the borrowing
powers of our company and mortgaging the property of our company; and |
|
● |
approving the transfer
of shares in our company, including the registration of such shares in our share register. |
Terms of Directors and Officers
Our directors may be elected by a resolution
of our board of directors, or by an ordinary resolution of our shareholders. Our directors are not subject to a term of office and hold
office until such time as they are removed from office by ordinary resolution of the shareholders. A director will be removed from office
automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii)
is found by our company to be or becomes of unsound mind; (iii) resigns his office by notice in writing to the company; or (iv) without
special leave of absence from our board, is absent from three consecutive board meetings and our directors resolve that his office be
vacated. Our officers are elected by and serve at the discretion of the board of directors.
Employment Agreements and Indemnification
Agreements
We have entered into employment agreements with
each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may
terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such
as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or
misconduct or a failure to perform agreed duties. We may also terminate an executive officer’s employment without cause upon three-month
advance written notice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required
by applicable law of the jurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month
advance written notice.
Each executive officer has agreed to hold, both
during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required
in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information
or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary
information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed
to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the
executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and
enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.
In addition, each executive officer has agreed
to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year
following the last date of employment. Specifically, each executive officer has agreed not to (i) approach our suppliers, clients, customers
or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the
purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii)
assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise,
any of our competitors, without our express consent; or (iii) seek directly or indirectly, to solicit the services of any of our employees
who is employed by us on or after the date of the executive officer’s termination, or in the year preceding such termination, without
our express consent.
We have also entered into indemnification agreements
with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers
against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director
or officer of our company.
D. Employees
See “Item 4. Information on the Company—B.
Business Overview—Employees.”
E. Share Ownership
Except
as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary shares as of
December 26, 2023 by:
|
● |
each of our directors and
executive officers; and |
|
● |
each person known to us
owning beneficially 5% or more of our ordinary shares. |
The
calculations in the table below are based on 153,948,323 ordinary shares outstanding as of December 26, 2023, including (i) 153,948,323
Class A ordinary shares, and (ii) nil Class B ordinary shares.
Beneficial ownership is determined in accordance
with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership
of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any
option, warrant or other right or the conversion of any other security, subject to certain conditions. These shares, however, are not
included in the computation of the percentage ownership of any other person.
| |
Class A ordinary | | |
Class B ordinary | | |
Total ordinary shares on an as converted | | |
| | |
% of aggregate voting | |
| |
shares | | |
shares | | |
basis | | |
% | | |
power | |
Directors and Executive Officers**: | |
| | |
| | |
| | |
| | |
| |
Xiaoming Li | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Chee Jiong Ng | |
| 340 | | |
| - | | |
| 340 | | |
| * | | |
| * | |
Dr. Robert Angell | |
| 337 | | |
| - | | |
| 337 | | |
| * | | |
| * | |
Dr. Mengchu Zhou | |
| 337 | | |
| - | | |
| 337 | | |
| * | | |
| * | |
Yanyi Tang | |
| 329 | | |
| - | | |
| 329 | | |
| * | | |
| * | |
Shengcong Ma | |
| 327 | | |
| - | | |
| 327 | | |
| * | | |
| * | |
All Directors and Executive Officers as a Group | |
| 1,669 | | |
| - | | |
| 1,669 | | |
| * | | |
| * | |
Principal Shareholders: | |
| | | |
| | | |
| | | |
| | | |
| | |
Metaverse Digital Investment Co., Limited (1) | |
| 4,580,860 | | |
| - | | |
| 4,580,860 | | |
| 3.0 | | |
| 3.0 | |
* |
Less than 1% of our total
outstanding shares. |
** |
Except as otherwise indicated
below, the business address of our directors and executive officers is Flat H 3/F, Haribest Industrial Building, 45-47 Au Pui Wan
Street, Sha Tin New Territories, Hong Kong |
(1) |
Represents 4,580,860 Class
A ordinary shares held by Metaverse Digital Investment Co., Limited, a Hong Kong corporation. The registered address of Metaverse
Digital Investment Co., Limited is Rm 517, New City Centre, 2 Lei Yue Mun Road, Kwun Tong, Kowloon, Hong Kong SAR. |
To our knowledge, as of August 31, 2023, 6,058,538
of our ordinary shares were held by record holder in the United States, which was Deutsche Bank Trust Company Americas, the depositary
of our ADS program. The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record
holders of our ordinary shares in the United States.
We are not aware of any arrangement that may,
at a subsequent date, result in a change of control of our company.
ITEM 7. MAJOR SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Please refer to “Item 6. Directors, Senior
Management and Employees-E. Share Ownership.”
B. Related Party Transactions
Not applicable.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial
Information
We have appended consolidated financial statements
filed as part of this annual report. See “Item 18. Financial Statements.”
Legal Proceedings
We are currently not a party to any material
legal or administrative proceedings. We may from time to time be subject to various legal or administrative claims and proceedings arising
in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely
to result in substantial cost and diversion of our resources, including our management’s time and attention.
Dividend Policy
Our board of directors has discretion on whether
to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution
declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject
to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and
provided always that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as
they fall due in the ordinary course of business. Even if we decide to pay dividends, the form, frequency and amount will depend upon
our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other
factors that the board of directors may deem relevant.
We do not have any present plan to pay any cash
dividends on our Class A ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available
funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the
Cayman Islands. We may rely on dividends from our subsidiaries in Hong Kong and Wyoming, U.S. for our cash requirements, including any
payment of dividends to our shareholders. See “Item 4. Information on the Company-B. Business Overview-Regulation-Regulations Related
to Our Business Operation in Hong Kong-Regulations related to Hong Kong Taxation.”
If we pay any dividends on our Class A ordinary
shares, we will pay those dividends which are payable in respect of the Class A ordinary shares underlying our ADSs to the depositary,
as the registered holder of such Class A ordinary shares, and the depositary then will pay such amounts to our ADS holders in proportion
to Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the
fees and expenses payable thereunder. Cash dividends on our Class A ordinary shares, if any, will be paid in U.S. dollars.
B. Significant Changes
Except as otherwise disclosed in this report,
we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual
report.
ITEM 9. THE OFFER AND
LISTING
A. Offering and Listing Details
Our ADSs, each representing two Class A ordinary
shares, have been listed on the NYSE since March 28, 2018. Our ADSs trade under the symbol “AIU.”
B. Plan of Distribution
Not applicable.
C. Markets
Our ADSs, each representing two Class A ordinary
shares, have been listed on the NYSE since March 28, 2018. Our ADSs trade under the symbol “AIU.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL
INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
We have adopted a sixth amended and restated
memorandum and articles of association. The following are summaries of material provisions of the amended and restated memorandum and
articles of association that we adopt and of the Companies Act, insofar as they relate to the material terms of our ordinary shares.
Objects of Our Company
Under our sixth amended and restated memorandum
and articles of association, the objects of our company are unrestricted and we have the full power and authority to carry out any object
not prohibited by the law of the Cayman Islands.
Ordinary Shares
On May 11, 2023, the shareholders of the Company
approved the consolidation of its ordinary share at a ratio of one-for-five hundred (the “share consolidation”), effective
on May 15, 2023. Upon effective of the share consolidation, the ratio for each ADS was changed to one (1) ADS to two (2) Class A ordinary
shares. Immediately following the share consolidation, the authorized share capital of the Company, as approved by the shareholders, were
changed from US$50,000 divided into 100,000,000 shares of a par value of US$0.0005 each, comprising of (i) 75,406,315 Class A Ordinary
Shares of a par value of US$0.0005 each, (ii) 4,593,684 Class B Ordinary Shares of a par value of US$0.0005 each, and (iii) 20,000,000
shares of a par value of US$0.0005 each to be designated by the board of directors, to US$100,000 divided into 200,000,000 shares of a
par value of US$0.0005 each, comprising of (i) 140,000,000 Class A ordinary shares of a par value of US$0.0005 each, (ii) 20,000,000 Class
B ordinary shares of a par value of US$0.0005 each, and (iii) 40,000,000 shares of a par value of US$0.0005 each to be designated by the
board of directors (the “increase of authorized shares”).
Our current authorized share capital is
US$100,000 consisting of 200,000,000 shares comprising of (i) 140,000,000 Class A ordinary shares of a par value of US$0.0005 each,
(ii) 20,000,000 Class B ordinary shares of a par value of US$0.0005 each and (iii) 40,000,000 shares of a par value of US$0.0005
each of such class or classes (however designated) as our board of directors may determine in accordance with our sixth amended and
restated memorandum and articles of association. All of our issued and outstanding ordinary shares are fully paid and
non-assessable. Our ordinary shares are issued in registered form, and are issued when registered in our register of members. Our
shareholders who are non-residents of the Cayman Islands may freely hold and vote their ordinary shares. Under our sixth amended and
restated memorandum and articles of association, our company may not issue bearer shares.
Dividends
The holders of our ordinary shares are entitled
to such dividends as may be declared by our board of directors. Dividends may be declared and paid out of our profits, share premium
account or any other fund or account which can be authorized for this purpose in accordance with the Companies Act. Under the laws of
the Cayman Islands, our company may pay a dividend out of either profit or share premium account, provided that in no circumstances may
a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.
Voting Rights
Voting at any shareholders’ meeting is
by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any shareholder present in person
or by proxy at the meeting.
An ordinary resolution to be passed at a meeting
by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting,
while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding ordinary
shares at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our sixth
amended and restated memorandum and articles of association. Holders of our ordinary shares may effect certain changes by ordinary resolution,
including increasing the amount of our authorized share capital, consolidating all or any of our share capital into shares of larger
amount than our existing shares, sub-dividing our shares or any of them into shares of an amount smaller than that fixed by our memorandum,
and cancelling any unissued shares. Both ordinary resolution and special resolution may also be passed by an unanimous written resolution
signed by all the shareholders of our company, as permitted by the Companies Act and our sixth amended and restated memorandum and articles
of association.
Appointment and Removal of Directors
Our board of directors may, by the affirmative
vote of a simple majority of the directors present and voting at a board meeting, appoint any person as a director, to fill a casual
vacancy on the board or as an addition to the existing board. Directors may be removed by ordinary resolution of our shareholders.
General Meetings of Shareholders
As a Cayman Islands exempted company, we are
not obliged by the Companies Act to call shareholders’ annual general meetings. Our sixth amended and restated memorandum and articles
of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which
case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place
as may be determined by our directors.
Shareholders’ general meetings may be convened
by the chairman of board of directors or a majority of our board of directors. Advance notice of at least ten days is required for the
convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. A quorum required
for any general meeting of shareholders consists of at least one shareholder present or by proxy, representing not less than one-third
of all votes attaching to all of our shares in issue and entitled to vote.
The Companies Act provides shareholders with
only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general
meeting. However, these rights may be provided in a company’s articles of association. Our sixth amended and restated memorandum
and articles of association provide that upon the requisition of shareholders representing in aggregate not less than one-third of the
votes attaching to the outstanding shares of our company entitled to vote at general meetings, our board will convene an extraordinary
general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our sixth amended and restated memorandum
and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary
general meetings not called by such shareholders.
Transfer of Ordinary Shares
Subject to the restrictions set out below, any
of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or
any other form approved by our board of directors.
Our board of directors may, in its absolute discretion,
decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors
may also decline to register any transfer of any ordinary share unless:
|
● |
the instrument of transfer
is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board
of directors may reasonably require to show the right of the transferor to make the transfer; |
|
● |
the instrument of transfer
is in respect of only one class of ordinary shares; |
|
● |
the instrument of transfer
is properly stamped, if required; |
|
● |
in the case of a transfer
to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and |
|
● |
a fee of such maximum sum
as the New York Stock Exchange may determine to be payable or such lesser sum as our directors may from time to time require is paid
to us in respect thereof. |
If our directors refuse to register a transfer
they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the
transferee notice of such refusal.
The registration of transfers may, after compliance
with any notice required of the New York Stock Exchange, be suspended and the register closed at such times and for such periods as our
board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor
the register closed for more than 30 days in any year as our board may determine.
Liquidation
On the winding up of our company, if the assets
available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement
of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them
at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies
payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up
capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares
held by them.
Calls on Shares and Forfeiture of Shares
Our board of directors may from time to time
make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to
the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Shares
We may issue shares on terms that such shares
are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be
determined by our board of directors or by the shareholders by special resolution. Our Company may also repurchase any of our shares
on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under
the Companies Act, the redemption or repurchase of any share may be paid out of our Company’s profits or out of the proceeds of
a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital
redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of
business. In addition, under the Companies Act no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such
redemption or repurchase would result in there being no shares outstanding or (c) if the company has commenced liquidation. In addition,
our company may accept the surrender of any fully paid share for no consideration.
Variations of Rights of Shares
If at any time, out share capital is divided
into different classes or series of shares, the rights attached to any class or series of shares (unless otherwise provided by the terms
of issue of the shares of that class or series), whether or not our company is being wound-up, may be varied with the consent in writing
of the holders of two-thirds of the issued shares of that class or series or with the sanction of a resolution passed by a two-thirds
majority of the votes cast at a separate meeting of the holders of the shares of the class or series. The rights conferred upon the holders
of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be
deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.
Issuance of Additional Shares
Our amended and restated amended and restated
memorandum of association authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors
shall determine, to the extent of available authorized but unissued shares.
Our amended and restated amended and restated
memorandum of association also authorizes our board of directors to establish from time to time one or more series of preference shares
and to determine, with respect to any series of preference shares, the terms and rights of that series, including:
|
● |
the designation of the
series; |
|
● |
the number of shares of
the series; |
|
● |
the dividend rights, dividend
rates, conversion rights, voting rights; and |
|
● |
the rights and terms of
redemption and liquidation preferences. |
Our board of directors may issue preference shares
without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders
of ordinary shares.
Inspection of Books and Records
Holders of our ordinary shares will have no general
right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records (other than copies of
our memorandum and articles of association, our register of mortgage and charges, and any special resolution passed by our shareholders).
However, we will provide our shareholders with annual audited financial statements.
Changes in Capital
Our shareholders may from time to time by ordinary
resolution to:
|
● |
increase our share capital
by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe; |
|
● |
consolidate and divide
all or any of our share capital into shares of a larger amount than our existing shares; |
|
● |
sub-divide our existing
shares, or any of them into shares of a smaller amount, provided that in the subdivision the proportion between the amount paid and
the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is
derived; or |
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cancel any shares that,
at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of
our share capital by the amount of the shares so cancelled. |
Our shareholders may, by special resolution and
subject to confirmation by the Grand Court of the Cayman Islands on an application by our company for an order confirming such reduction,
reduce our share capital and any capital redemption reserve in any manner authorized by law.
Anti-Takeover Provisions
Some provisions of our sixth amended and restated
memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders
may consider favorable, including provisions that:
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authorize our board of
directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions
of such preference shares without any further vote or action by our shareholders; and |
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● |
limit the ability of shareholders
to requisition and convene general meetings of shareholders. |
However, under Cayman Islands law, our directors
may only exercise the rights and powers granted to them under our sixth amended and restated memorandum and articles of association for
a proper purpose and for what they believe in good faith to be in the best interests of our company.
Exempted Company
We are an exempted company with limited liability
under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that
is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted
company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:
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does not have to file an
annual return of its shareholders with the Registrar of Companies; |
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is not required to open
its register of members for inspection; |
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does not have to hold an
annual general meeting; |
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may issue negotiable or
bearer shares or shares with no par value; |
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may obtain an undertaking
against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); |
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may register by way of
continuation in another jurisdiction and be deregistered in the Cayman Islands; |
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may register as a limited
duration company; and |
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may register as a segregated
portfolio company. |
“Limited liability” means that the
liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional
circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances
in which a court may be prepared to pierce or lift the corporate veil).
Differences Between the Law of Different Jurisdictions
The Companies Act is modeled after that of England
but does not follow recent English statutory enactments and differs from laws applicable to U.S. corporations and their shareholders.
Set forth below is a summary of the significant differences between the provisions of the Companies Act applicable to us and the laws
applicable to companies incorporated in the United States and their shareholders.
Mergers and Similar Arrangements. The
Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman
Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting
of their undertaking, property and liabilities in one of such companies as the surviving company, and (b) a “consolidation”
means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and
liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent
company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders
of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles
of association. The plan must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency
of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a
copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification
of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation
which is effected in compliance with these statutory procedures.
A merger between a Cayman parent company and
its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy
of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose
a company is a “parent” of a subsidiary if it holds issued shares that together represent at least ninety percent (90%) of
the votes at a general meeting of the subsidiary.
The consent of each holder of a fixed or floating
security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Save in certain limited circumstances, a shareholder
of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares
(which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the merger or consolidation,
provide the dissenting shareholder complies strictly with the procedures set out in the Companies Act. The exercise of dissenter rights
will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue
of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
Separate from the statutory provisions relating
to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate the reconstruction and amalgamation
of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in number of each class of shareholders
and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of
shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened
for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman
Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved,
the court can be expected to approve the arrangement if it determines that:
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● |
the statutory provisions
as to the required majority vote have been met; |
|
● |
the shareholders have been
fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to
promote interests adverse to those of the class; |
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● |
the arrangement is such
that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and |
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the arrangement is not
one that would more properly be sanctioned under some other provision of the Companies Act. |
The Companies Act also contains a statutory power
of compulsory acquisition which may facilitate the “squeeze out” of dissentient minority shareholder upon a tender offer.
When a tender offer is made and accepted by holders of 90% of the shares affected within four months, the offeror may, within a two-month
period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such shares to
the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed
in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is thus
approved, or if a tender offer is made and accepted, a dissenting shareholder would have no rights comparable to appraisal rights, save
that objectors to a takeover offer may apply to the Grand Court of the Cayman Islands for various orders that the Grand Court of the
Cayman Islands has a broad discretion to make, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations,
providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders’ Suits. In principle,
we will normally be the proper plaintiff to sue for a wrong done to us as a company and as a general rule, a derivative action may not
be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority
in the Cayman Islands, there are exceptions to the foregoing principle which permit a minority shareholder to commence a class action
against, or derivative actions in the name of, a company, including when:
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a company acts or proposes
to act illegally or ultra vires; |
|
● |
the act complained of,
although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained;
and |
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those who control the company
are perpetrating a “fraud on the minority.” |
Indemnification of Directors and Executive
Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company’s memorandum and articles
of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the
Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of
committing a crime. Our sixth amended and restated memorandum and articles of association permit indemnification of officers and directors
for losses, damages, cost and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty or fraud
of such directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law
for a Delaware corporation.
In addition, we have entered into indemnification
agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in
our sixth amended and restated memorandum and articles of association.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have
been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is
therefore unenforceable.
Anti-Takeover Provisions in the Memorandum
and Articles of Association. Some provisions of our current memorandum and articles of association may discourage, delay or prevent
a change in control of our company or management that shareholders may consider favorable, including provisions that authorize our board
of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions
of such preferred shares without any further vote or action by our shareholders.
However, under Cayman Islands law, our directors
may only exercise the rights and powers granted to them under our sixth amended and restated memorandum and articles of association,
as amended and restated from time to time, for a proper purpose and for what they believe in good faith to be in the best interests of
our company.
Directors’ Fiduciary Duties. Under
Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty
has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care
that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of and
disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires
that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate
position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation
and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by
the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and
in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by
evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director
must prove the procedural fairness of the transaction and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director
of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes
the following duties to the company - a duty to act bona fide in the best interests of the company, a duty not to make a profit based
on his position as director (unless the company permits him to do so) and a duty not to put himself in a position where the interests
of the company conflict with his personal interest or his duty to a third party. A director of a Cayman Islands company owes to the company
a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater
degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts
have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in
the Cayman Islands.
Shareholder Action by Written Consent.
Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment
to its certificate of incorporation. Our sixth amended and restated memorandum and articles of association do not allow our shareholders
to approve matters to be determined at shareholders’ meetings by way of written resolutions without a meeting.
Shareholder Proposals. Under the Delaware
General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies
with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person
authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
The Companies Act provides shareholders with
only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general
meeting. However, these rights may be provided in a company’s articles of association. Our sixth amended and restated memorandum
and articles of association do not allow our shareholders to requisition an extraordinary general meeting of our shareholders and do
not provide our shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings.
As a Cayman Islands exempted company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting. Under the Delaware
General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of
incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on
a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single
director, which increases the shareholder’s voting power with respect to electing such director. While there is nothing under the
laws of the Cayman Islands which specifically prohibits or restricts the creation of cumulative voting rights for the election of directors
of our company, it is not a concept that is accepted as a common practice in the Cayman Islands, and our company has made no provisions
in our sixth amended and restated memorandum and articles of association to allow cumulative voting for such elections. As a result,
our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors. Under the Delaware
General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority
of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our sixth amended and restated
memorandum and articles of association, a director may be removed by a special resolution of our shareholders.
Transactions with Interested Shareholders.
The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless
the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited
from engaging in certain business combinations with an “interested shareholder” for three years following the date that such
person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or
more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential
acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if,
among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either
the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential
acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute.
As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However,
although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such
transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the
minority shareholders.
Dissolution; Winding up. Under the Delaware
General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders
holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved
by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate
of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.
Under Cayman Islands law, a company may be wound
up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay
its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified
circumstances including where it is, in the opinion of the court, just and equitable to do so.
Variation of Rights of Shares. Under the
Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding
shares of such class, unless the certificate of incorporation provides otherwise. Under our sixth amended and restated memorandum and
articles of association, all or any of the special rights for the time being attached to the shares or any class of shares may, unless
otherwise provided by the terms of issue of the shares of that class, from time to time be varied, modified or abrogated by a special
resolution passed at a separate general meeting of the holders of the shares of that class. The special rights conferred upon the holders
of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such
shares, be deemed to be varied, modified or abrogated by the creation or issue of further shares ranking pari passu with such
existing class of shares.
Amendment
of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with
the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As
permitted by Cayman Islands law and our sixth amended and restated memorandum and articles of association, our sixth amended and restated
memorandum and articles of association may only be amended with a special resolution of our shareholders.
Rights
of Non-resident or Foreign Shareholders. There are no limitations imposed by our sixth amended and restated memorandum and articles
of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there
are no provisions in our sixth amended and restated memorandum and articles of association which require our company to disclose shareholder
ownership above any particular ownership threshold.
Exempted
Company. The Companies Act in the Cayman Islands distinguishes between ordinary resident companies and exempted companies. Any company
that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an
exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions
and privileges listed below:
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an
exempted company does not have to file an annual return of its shareholders with the Registrar of Companies; |
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an
exempted company’s register of members is not required to be open to inspection; |
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an
exempted company does not have to hold an annual general meeting; |
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an
exempted company may issue no par value shares; |
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an
exempted company may obtain an undertaking against the imposition of taxation on profits, capital gains or inheritance (such undertakings
are usually given for 20 years in the first instance); |
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an
exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
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an
exempted company may register as a limited duration company; and |
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an
exempted company may register as a segregated portfolio company. |
“Limited
liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on that shareholder’s
shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an
illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
C.
Material Contracts
We
have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item
4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions,” or elsewhere in this annual
report on Form 20-F.
D.
Exchange Controls
The
Cayman Islands, British Virgin Islands and Hong Kong currently have no exchange control regulations or currency restrictions.
E.
Taxation
The
following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs or ordinary
shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject
to change. This summary does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such
as the tax consequences under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the
People’s Republic of China and the United States.
Cayman
Islands Taxation
According
to Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel, the Cayman Islands currently levies no taxes on individuals or corporations
based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are
no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable
on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party
to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or
currency restrictions in the Cayman Islands.
Payments
of dividends and capital in respect of our ordinary shares and ADSs will not be subject to taxation in the Cayman Islands and no withholding
will be required on the payment of a dividend or capital to any holder of our ordinary shares or ADSs, nor will gains derived from the
disposal of our ordinary shares or ADSs be subject to Cayman Islands income or corporation tax.
Hong
Kong Taxation
The
following summary of certain relevant taxation provisions under the laws of Hong Kong is based on current law and practice and is subject
to changes therein. This summary does not purport to address all possible tax consequences relating to purchasing, holding or selling
our ADSs, and does not take into account the specific circumstances of any particular investors, some of whom may be subject to special
rules. Accordingly, holders or prospective purchasers (particularly those subject to special tax rules, such as banks, dealers, insurance
companies and tax-exempt entities) should consult their own tax advisers regarding the tax consequences of purchasing, holding or selling
our ADSs. Under the current laws of Hong Kong:
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No
profit tax is imposed in Hong Kong in respect of capital gains from the sale of the ADSs. |
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Revenues
gains from the sale of our ADSs by persons carrying on a trade, profession or business in Hong Kong where the gains are derived from
or arise in Hong Kong from the trade, profession or business will be chargeable to Hong Kong profits tax, which is currently imposed
at the rate of 16.5% on corporations and at a maximum rate of 15% on individuals and unincorporated businesses. |
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Gains
arising from the sale of ADSs, where the purchases and sales of the ADSs are effected outside of Hong Kong such as, for example,
on Cayman Islands, should not be subject to Hong Kong profits tax. |
According
to the current tax practice of the Hong Kong Inland Revenue Department, dividends paid on the ordinary shares would not be subject to
any Hong Kong tax.
No
Hong Kong stamp duty is payable on the purchase and sale of the ADSs.
United
States Federal Income Tax Considerations
The
following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of
our ADSs or Class A ordinary shares by a U.S. Holder (as defined below) and holds our ADSs or Class A ordinary shares as “capital
assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion
is based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect.
There can be no assurance that the IRS or a court will not take a contrary position. This discussion, moreover, does not address the
U.S. federal estate, gift, Medicare net investment income and alternative minimum tax considerations, or any state, local and non-U.S.
tax considerations, relating to the ownership or disposition of our ADSs or Class A ordinary shares. The following summary does not address
all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances
or to persons in special tax situations such as:
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banks
and other financial institutions; |
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regulated
investment companies; |
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real
estate investment trusts; |
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traders
that elect to use a mark-to-market method of accounting; |
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certain
former U.S. citizens or long-term residents; |
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tax-exempt
entities (including private foundations); |
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persons
liable for alternative minimum tax; |
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holders
who acquire their ADSs or Class A ordinary shares pursuant to any employee share option or otherwise as compensation; |
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investors
that will hold their ADSs or Class A ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated
transaction for U.S. federal income tax purposes; |
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investors
that have a functional currency other than the U.S. dollar; |
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● |
persons
that actually or constructively own 10% or more of our stock by vote or value; or |
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partnerships
or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding ADSs or Class A ordinary shares
through such entities. |
All
of such persons in special tax situations may be subject to tax rules that differ significantly from those discussed below.
Each
U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular circumstances, and
the state, local, non-U.S. and other tax considerations of the ownership and disposition of our ADSs or Class A ordinary shares.
General
For
purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or Class A ordinary shares that is, for U.S.
federal income tax purposes:
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an
individual who is a citizen or resident of the United States; |
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● |
a
corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the law
of the United States or any state thereof or the District of Columbia; |
|
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an
estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or |
|
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a
trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons
who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated
as a U.S. person under the Code. |
If
a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ADSs or Class
A ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities
of the partnership. Partnerships holding our ADSs or Class A ordinary shares and their partners are urged to consult their tax advisors
regarding an investment in our ADSs or Class A ordinary shares.
For
U.S. federal income tax purposes, it is generally expected that a U.S. Holder of ADSs will be treated as the beneficial owner of the
underlying shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in
this manner. Accordingly, deposits or withdrawals of Class A ordinary shares for ADSs will generally not be subject to U.S. federal income
tax.
Passive
Foreign Investment Company Considerations
A
non-U.S. corporation, such as our company, will be classified as a PFIC, for U.S. federal income tax purposes for any taxable year, if
either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more
of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that
produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized
as a passive asset and the company’s goodwill and other unbooked intangibles are taken into account. Passive income generally includes,
among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning
a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly
or indirectly, at least 25% (by value) of the stock.
We
do not believe that we were a PFIC for the taxable year ended August 31, 2023 and do not anticipate becoming a PFIC for the foreseeable
future. While we do not anticipate becoming a PFIC in the foreseeable future, no assurance can be given in this regard because the determination
of whether we will be or become a PFIC is a factual determination made annually that will depend, in part, upon the composition of our
income and assets. Fluctuations in the market price of our ADSs may cause us to be classified as a PFIC for the current or future taxable
years because the value of our assets for purposes of the asset test, may be determined by reference to the market price of our ADSs
from time to time (which may be volatile). If our market capitalization subsequently declines, we may be or become classified as a PFIC
for the current taxable year or future taxable years. Furthermore, the composition of our income and assets may also be affected by how,
and how quickly, we use our liquid assets. Under circumstances where our revenue from activities that produce passive income significantly
increases relative to our revenue from activities that produce non-passive income, or where we determine not to deploy significant amounts
of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.
If
we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, the PFIC rules discussed
below under “Passive Foreign Investment Company Rules” generally will apply to such U.S. Holder for such taxable year, and
unless the U.S. Holder makes certain elections, will apply in future years even if we cease to be a PFIC.
The
discussion below under “Dividends” and “Sale or Other Disposition” is written on the basis that we will not be
or become classified as a PFIC for U.S. federal income tax purposes. The U.S. federal income tax rules that apply generally if we are
treated as a PFIC are discussed below under “Passive Foreign Investment Company Rules.”
Dividends
Any
cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or Class A ordinary shares out of our current or accumulated
earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S.
Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of Class A ordinary shares,
or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal
income tax principles, any distribution we pay will generally be treated as a “dividend” for U.S. federal income tax purposes.
Dividends received on our ADSs or Class A ordinary shares will not be eligible for the dividends received deduction allowed to corporations.
A non-corporate U.S. Holder will be subject to tax at the lower capital gain tax rate applicable to “qualified dividend income,”
provided that certain conditions are satisfied, including that (1) the ADSs or ordinary shares on which the dividends are paid are readily
tradable on an established securities market in the United States, or, in the event that we are deemed to be a PRC resident enterprise
under the PRC tax law, we are eligible for the benefit of the United States-PRC income tax treaty, (2) we are neither a PFIC nor treated
as such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend was paid or the preceding taxable
year, and (3) certain holding period requirements are met. Our ADSs are listed on the New York Stock Exchange, which is an established
securities market in the United States, and are expected to be readily tradable. There can be no assurance, however, that our ADSs will
continue to be considered readily tradable on an established securities market in later years.
In
the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law (see “Item 10. Additional
Information-E. Taxation-People’s Republic of China Taxation”), we may be eligible for the benefits of the United States-PRC
income tax treaty. If we are eligible for such benefits, dividends we pay on our Class A ordinary shares, regardless of whether such
shares are represented by the ADSs, would be eligible for the reduced rates of taxation described in the preceding paragraph (subject
to clauses (2) and (3) of such paragraph). U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced
tax rate on dividends in their particular circumstances. Dividends will generally be treated as income from foreign sources for U.S.
foreign tax credit purposes and will generally constitute passive category income. Depending on the U.S. Holder’s individual facts
and circumstances, a U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect
of any non-refundable foreign withholding taxes imposed on dividends received on our ADSs or Class A ordinary shares. A U.S. Holder who
does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction, for U.S. federal income tax purposes,
in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The
rules governing the foreign tax credit are complex and their outcome depends in large part on the U.S. Holder’s individual facts
and circumstances. Accordingly, U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit
under their particular circumstances.
Sale
or Other Disposition
A
U.S. Holder will generally recognize capital gain or loss upon the sale or other disposition of ADSs or Class A ordinary shares in an
amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs
or Class A ordinary shares. Any capital gain or loss will be long-term if the ADSs or Class A ordinary shares have been held for more
than one year and will generally be U.S.-source gain or loss for U.S. foreign tax credit purposes. In the event that gain from the disposition
of the ADSs or Class A ordinary shares is subject to tax in the PRC, a U.S. Holder may elect to treat such gain as PRC source gain under
the United States-PRC income tax treaty (assuming such holder is eligible for benefits under that treaty). If a U.S. Holder does not
make this election, such holder may not be able to credit any PRC tax imposed upon the disposition of the ADSs or Class A ordinary shares
unless such holder has other income from foreign sources in the appropriate category for purposes of the foreign tax credit rules. U.S.
Holders are urged to consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of our ADSs
or Class A ordinary shares, including the availability of the foreign tax credit under their particular circumstances. The deductibility
of a capital loss may be subject to limitations.
Passive
Foreign Investment Company Rules
If
we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares, and unless the
U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i)
any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S.
Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter,
the U.S. Holder’s holding period for the ADSs or Class A ordinary shares), and (ii) any gain realized on the sale or other disposition
of ADSs or Class A ordinary shares. Under the PFIC rules:
|
● |
the
excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or Class A ordinary
shares; |
|
● |
the
amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable
year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income; |
|
● |
the
amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect
for individuals or corporations, as appropriate, for that year; and |
|
● |
the
interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year,
other than a pre-PFIC year. |
If
we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares and any of our subsidiaries,
variable interest entities or any of the subsidiaries of our variable interest entities is also a PFIC, such U.S. Holder would be treated
as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S.
Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries, variable interest
entities or any of the subsidiaries of our variable interest entities.
As
an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with
respect to such stock, provided that such stock is regularly traded. Our ADSs are expected to qualify as being regularly traded, but
no assurances may be given in this regard. If a U.S. Holder makes this election, the holder will generally (i) include as ordinary income
for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over
the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over
the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the
net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the
ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market
election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the holder will not
be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC.
If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs
in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only
be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.
Because
a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC
rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest
in a PFIC for U.S. federal income tax purposes.
We
do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would
result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.
If
a U.S. Holder owns our ADSs or Class A ordinary shares during any taxable year that we are a PFIC, the holder must generally file an
annual IRS Form 8621. You should consult your tax advisors regarding the U.S. federal income tax consequences of owning and disposing
of our ADSs or Class A ordinary shares if we are or become a PFIC.
F.
Dividends and Paying Agents
Not
applicable.
G.
Statement by Experts
Not
applicable.
H.
Documents on Display
We
are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required
to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than four months
after the close of each fiscal year. Copies of reports and other information, when so filed, may be inspected without charge and may
be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington,
D.C. 20549.
The
public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants
that make electronic filings with the SEC using its EDGAR system.
As
a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports
and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic
reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the
Exchange Act. However, we will furnish Deutsche Bank Trust Company Americas, the depositary of our ADSs, with our annual reports, which
will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all
notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The
depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record
holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.
I.
Subsidiary Information
For
a listing of our subsidiaries, see “Item 4. Information on the Company—A. History and Development of the Company.”
ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inflation
Since
our inception, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics
of China, the year-over-year percent changes in the consumer price index for 2020, 2021 and 2022 were increases of 2.5%, 3.1% and 2.0%,
respectively. Although we have not in the past been materially affected by inflation since our inception, we can provide no assurance
that we will not be affected in the future by higher rates of inflation in China.
Market
Risks
Foreign
Exchange Risk
Substantially
all of our revenues and expenses are denominated in U.S. dollars. To date, we have not used any derivative financial instruments to hedge
exposure to such any foreign exchange risk.
Interest
Rate Risk
Our
exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing
bank deposits and bank loans that bear floating interest rates. In March 2019, we entered into a US$139 million term facility agreement
with a group of arrangers led by UBS AG, Singapore Branch. Pursuant to the agreement, we were entitled to borrow US$139 million term
facility with a floating interest rate of LIBOR+2.7%. The interest rate risk may result from many factors, including government monetary
and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control. We
may incur additional loans or other financing facilities in the future. The objective of interest rate risk management is to minimize
financial costs and uncertainties associated with interest rate changes. We strive to effectively manage our interest rate risk by periodic
monitoring and responding to risk factors on a timely basis, improve the structure of long-term and short-term borrowings and maintain
the appropriate balance between loans with floating interest rates and fixed interest rates.
We
are subject to interest rate sensitivity on our outstanding convertible notes and loans. We account for our convertible notes on fair
value basis and convertible loans on an amortized cost basis. Also, because convertible notes and loans we have issued and extended either
bear interest at a fixed rate or bear no interest, we have not incurred financial statement impact resulting from changes in interest
rates. However, changes in market interest rates impact the fair value of the convertible notes and loans along with other variables
such as our credit spreads and the market price and volatility of our ADSs and ordinary shares. Increases in market interest rates would
result in a decrease in the fair value of our outstanding convertible notes and loans and decreases in market interest rates would result
in an increase in the fair value of our outstanding convertible notes and loans. For information on the maturities and other contractual
terms of our convertible notes and loans, see “Item 4. Information on the Company-A. History and Development of the Company”
and “Item 7. Major Shareholders and Related Party Transactions-B. Related Party Transactions-Transaction with Shareholders and
Affiliates.”
With
regard to interest rate sensitivity on our loans, we present the sensitivity analysis below based on the exposure to interest rates for
interest bearing loans with variable interest rates as of August 31, 2022. The analysis is prepared assuming that those balances outstanding
as of August 31, 2022 were outstanding for the whole financial year. A 1.0% increase or decrease which represents the management’s
assessment of the reasonably possible change in interest rates is used. Assuming no change in the outstanding balance of our existing
interest bearing loans balances with floating interest rates as of August 31, 2023, a 1.0% increase or decrease in each applicable interest
rate would add or deduct $1.0 million to our interest expense for the fiscal year ended August 31, 2023.
In
addition, we may from time to time invest in interest-earning instruments. Investments in both fixed rate and floating rate interest-earning
instruments carry certain interest rate risk associated with our investment return. Fixed rate securities may have their fair market
value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest
rates fall.
We
have not been exposed to material risks due to changes in interest rates, and we have not used any derivative financial instruments to
manage our interest risk exposure. However, our future interest income may fall short of expectations due to changes in market interest
rates.
ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.
Debt Securities
Not
applicable.
B.
Warrants and Rights
Not
applicable.
C.
Other Securities
Not
applicable.
D.
American Depositary Shares
Fees
and Charges Our ADS Holders May Have to Pay
As
an ADS holder, you will be required to pay the following service fees to the depositary bank and certain taxes and governmental charges
(in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by
any of your ADSs):
Service |
|
Fees |
To
any person to which ADSs are issued or to any person to which a distribution is made in respect of ADS distributions pursuant to
stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted
to cash) |
|
Up
to US$0.05 per ADS issued |
|
|
|
Cancellation
of ADSs, including the case of termination of the deposit agreement |
|
Up
to US$0.05 per ADS cancelled |
|
|
|
Distribution
of cash dividends |
|
Up
to US$0.05 per ADS held |
|
|
|
Distribution
of cash entitlements (other than cash dividends) and/or cash proceeds from the sale of rights, securities and other entitlements |
|
Up
to US$0.05 per ADS held |
|
|
|
Distribution
of ADSs pursuant to exercise of rights |
|
Up
to US$0.05 per ADS held |
|
|
|
Distribution
of securities other than ADSs or rights to purchase additional ADSs |
|
Up
to US$0.05 per ADS held |
|
|
|
Depositary
services |
|
Up
to US$0.05 per ADS held on the applicable record date(s) established by the depositary bank |
As
an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental
charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented
by any of your ADSs) such as:
|
● |
Fees
for the transfer and registration of Class A ordinary shares charged by the registrar and transfer agent for the Class A ordinary
shares in the Cayman Islands (i.e., upon deposit and withdrawal of Class A ordinary shares). |
|
● |
Expenses
incurred for converting foreign currency into U.S. dollars. |
|
● |
Expenses
for cable, telex and fax transmissions and for delivery of securities. |
|
● |
Taxes
and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes
(i.e., when Class A ordinary shares are deposited or withdrawn from deposit). |
|
● |
Fees
and expenses incurred in connection with the delivery or servicing of Class A ordinary shares on deposit. |
|
● |
Fees
and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable
to Class A ordinary shares, deposited securities, ADSs and ADRs. |
|
● |
Any
applicable fees and penalties thereon. |
The
depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf
of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering
the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in
connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank
to the holders of record of ADSs as of the applicable ADS record date.
The
depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable
property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the
applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor
(whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record date ADS
holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through
the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding
ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’
accounts the amount of the fees paid to the depositary banks.
In
the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested
service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.
The
depositary may make payments to us or reimburse us for certain costs and expenses, by making available a portion of the ADS fees collected
in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time to time.
Fees
and Other Payments Made by the Depositary to US
The
depositary anticipates to make payments to us or reimburse us for certain costs and expenses, by making available a portion of the ADS
fees collected in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time
to time. We did not receive such reimbursement from the depositary in the fiscal year ended August 31, 2023.
PART
II
ITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Material
Modifications to the Rights of Security Holders
See
“Item 10. Additional Information-B. Memorandum and Articles of Association-Ordinary Shares” for a description of the rights
of securities holders, which remain unchanged.
Use
of Proceeds
As of August 31, 2023, we used up the net proceeds from our initial
public offering.
ITEM
15. CONTROLS AND PROCEDURES
Under the supervision and with the participation
of our management, including our chief executive officer and our chief financial officer, we carried out an evaluation of the effectiveness
of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of August 31, 2023. Based upon
that evaluation, our management has concluded that, due to the material weakness identified below, our disclosure controls and procedures
were not effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange
Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated
to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control
over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with Generally
Accepted Accounting Principles (GAAP) in the United States of America and includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations
of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition,
use or disposition of our company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect all potential misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
As
required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange
Commission, our management, including our chief executive officer and chief financial officer, assessed the effectiveness of
internal control over financial reporting as of August 31, 2023 using the criteria set forth in the report “Internal
Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, the management concluded that our internal control over financial reporting was ineffective as of August
31, 2023 because of the material weakness described
below.
A material weakness is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of our company’s annual consolidated financial statements will not be prevented or detected on a timely basis. The material weakness
identified relate to (i) a lack of accounting staff and resources with appropriate knowledge of generally accepted accounting principles
in the United States (“U.S. GAAP”) and SEC reporting and compliance requirements; (ii) a lack of sufficient documented financial
closing policies and procedures; (iii) lack of risk assessment in accordance with the requirement of COSO 2013 framework; (iv) a lack
of an effective review process by the accounting manager which led to material audit adjustments to the financial statements; and (v)
Leaving of many management personnel.
In order to remedy our identified material
weakness subsequent to August 31, 2023, our management plan to undertake steps to improve our ICFR, including (i) enhancing the
oversight function within the corporate governance framework by engaging involvement of directors, officers and other senior
management in both ICFR and overall strategy setting process; (ii) continuing to hire additional headcounts for qualified accounting
staffs with relevant U.S. GAAP and SEC reporting experience and qualifications to improve the financial reporting function; (iii)
providing regular and continuous U.S. GAAP accounting and financial reporting training programs internally & externally to our
accounting and financial reporting team; (iv) setting up an internal audit function as well as engaging an external consulting firm
to assist us with assessment of Sarbanes-Oxley compliance requirements and improvement of overall internal control, (v) hiring more
professionals with management skills to improve overall performance. However, we cannot assure you that we would remediate our
material weaknesses in a timely manner, or at all. See “Item 3. Key Information—Risk Factors—Risks Relating to Our
Business—If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately or
timely report our results of operations or prevent fraud, and investor confidence and the market price of our Ordinary Shares may be
materially and adversely affected.”
Attestation Report of the Registered Public Accounting Firm
This annual report on Form 20-F does not include an attestation report
of our registered public accounting firm due to rules of the SEC where domestic and foreign registrants that are non-accelerated filers,
which we are, are not required to provide the auditor attestation report.
Changes
in Internal Control
Other
than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered
by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM
16. [RESERVED]
ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT
See
“Item 6. Directors, Senior Management and Employees-C. Board Practices.”
ITEM
16B. CODE OF ETHICS
Our
board of directors adopted a code of business conduct and ethics that applies to our directors, officers, employees and advisors in March
2018. We have posted a copy of our code of business conduct and ethics on our website at http://www.aiumeta.com/en/Investors.html
ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered
and billed by OneStop Assurance PAC, our independent registered public accounting firms, for the periods indicated. We did not pay any
other fees to our independent registered public accounting firms during the periods indicated below.
OneStop
Assurance PAC
| |
Year
Ended August 31, | |
| |
2022 | | |
2023 | |
| |
(in
US$ thousands) | |
Audit
fees (1) | |
| 350 | | |
| 360 | |
All
other fees (2) | |
| - | | |
| - | |
Tax
fees (3) | |
| - | | |
| - | |
(1) |
“Audit
fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
auditors for the audit of our annual financial statements, net of out-of-pocket expenses incurred and taxes. |
(2) |
“All
other fees” represents the aggregate fees billed listed for services rendered by our principal auditors associated with certain
due diligence project and review of our financial statements and not reported under “Audit fees” in the fiscal year of
2022 and 2023, respectively, net of out-of-pocket expenses incurred and taxes. |
(3) |
“Tax
fees” represents the aggregate fees billed listed for the professional tax services rendered by our principal auditors. |
ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not
applicable.
ITEM
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not
applicable.
ITEM
16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not
applicable.
ITEM
16G. CORPORATE GOVERNANCE
As
a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate governance listing standards. However, NYSE rules permit
a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices
in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards. Under
the New York Stock Exchange Listed Company Manual, or the NYSE Manual, U.S. domestic listed companies are required to have a majority
independent board, which is not required under the Companies Act of the Cayman Islands. Currently, our board of directors is composed
of five members, three of whom are independent directors. In addition, the NYSE Manual requires U.S. domestic listed companies to have
a compensation committee and a nominating/corporate governance committee, each composed entirely of independent directors, which are
not required under the Companies Act of the Cayman Islands. Currently, our compensation committee is composed of three members, all of
whom are independent directors. Our nominating and corporate governance committee is composed of three members, all of whom are independent
directors. In addition, the NYSE Manual requires shareholder approval for certain matters, including (i) requiring that shareholders
must be given the opportunity to vote on all equity compensation plans and material revisions to those plans, and (ii) requiring that
shareholder approval is required prior to the issuance of common stock, or of securities convertible into or exercisable for common stock
in certain transaction or series of related transactions, which is not required under the Cayman Islands law. We intend to comply with
the requirements of Cayman Islands law only in determining whether shareholder approval is required.
As
a result of our choice to follow home country practice in those matters, our shareholders may be afforded less protection than they otherwise
would under the NYSE corporate governance listing standards applicable to U.S. domestic issuers. See “Item 3. Key Information-D.
Risk Factors- Risks Related to Our ADSs-As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country
practices in relation to corporate governance matters that differ significantly from the New York Stock Exchange corporate governance
listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the NYSE
corporate governance listing standards “and”-We are a foreign private issuer within the meaning of the rules under the Exchange
Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.”
ITEM
16H. MINE SAFETY DISCLOSURE
Not
applicable.
ITEM
16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not
applicable.
PART
III
ITEM
17. FINANCIAL STATEMENTS
We
have elected to provide financial statements pursuant to Item 18.
ITEM
18. FINANCIAL STATEMENTS
The
consolidated financial statements of Meta Data Limited, its subsidiaries and its consolidated affiliated entities are included at the
end of this annual report.
ITEM
19. EXHIBITS
Exhibit
Number |
|
Description
of Document |
1.1 |
|
Sixth
amended and Restated Memorandum and Articles of Association of the Registrant, effective April 28, 2022 (incorporated herein by reference
to Exhibit 1.1 to the annual report on Form 20-F filed with the SEC on May 23, 2022) |
2.1 |
|
Registrant’s
Specimen American Depositary Receipt (included in Exhibit 2.3) (incorporated herein by reference to Exhibit 4.1 to the registration
statement on Form F-1 filed on March 16, 2018 (File No. 333-223406)) |
2.2 |
|
Registrant’s
Specimen Certificate for ordinary shares (incorporated herein by reference to Exhibit 4.2 to the registration statement on Form F-1
filed on March 16, 2018 (File No. 333-223406)) |
2.3 |
|
Form
of Deposit Agreement among the Registrant, the depositary and holder of the American Depositary Receipts (incorporated herein by
reference to Exhibit 4.3 to the registration statement on Form F-1 filed on March 16, 2018 (File No. 333-223406)) |
2.4 |
|
Description
of Securities (incorporated herein by reference to Exhibit 2.4 to the annual report on Form 20-F filed with the SEC on December 31,
2020) |
4.1 |
|
Securities Purchase Agreement, dated June 29, 2023 (incorporated herein by reference to Exhibit 99.1 to the current report on Form 6-K filed with the SEC on July 12, 2023) |
4.2 |
|
Securities Purchase Agreement, dated May 18, 2023 (incorporated herein by reference to Exhibit 99.1 to the current report on Form 6-K filed with the SEC on May 19, 2023) |
4.3 |
|
Director Offer Letter, dated February 23, 2023, by and between Abbie Li and the Company(incorporated herein by reference to the Company’s Current Report on Form 6-K filed on March 3, 2023) |
8.1* |
|
List
of Subsidiaries |
11.1 |
|
Code
of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the registration statement
on Form F-1 filed on March 2, 2018 (File No. 333-223406)) |
12.1* |
|
Certification
by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
12.2* |
|
Certification
by the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
13.1** |
|
Certification
by the Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
15.1* |
|
Consent
of OneStop Assurance PAC, an independent registered public accounting firm |
97.1* |
|
Compensation Recovery Policy |
101.INS* |
|
Inline
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document |
101.SCH* |
|
Inline
XBRL Taxonomy Extension Schema Document |
101.CAL* |
|
Inline
XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
|
Inline
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
|
Inline
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
|
Inline
XBRL Taxonomy Extension Presentation Linkbase Document |
104* |
|
Cover
Page Interactive Data File - the cover page XBRL tags are embedded within the Exhibit 101 Inline XBRL document set |
* |
Filed
with this annual report on Form 20-F |
** |
Furnished
with this annual report on Form 20-F |
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.
|
Meta
Data Limited |
|
|
|
By: |
/s/
Xiaoming Li |
|
|
Name:
|
Xiaoming
Li |
|
|
Title:
|
Chief
Executive Officer |
|
|
Date:
December 26, 2023 |
|
META
DATA LIMITED
Index
to Consolidated Financial Statements
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Meta Data Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Meta Data Limited and its subsidiaries (collectively the “Company”) as of August 31, 2023 and 2022, and
the related consolidated statements of operations and comprehensive income, consolidated statements of changes in shareholders’
equity, and cash flows, for each of the three years in the period ended August 31, 2023, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
consolidated financial position of the Company as of August 31, 2023 and 2022, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended August 31, 2023, in conformity with accounting principles generally accepted
in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. In 2022 and 2023, the Company hasn’t paid the principal
and interests of the long-term loan, and the interests of the convertible senior notes haven’t been paid. Therefore, both of the
afore-mentioned loans are considered in default. These conditions raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide
a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is
matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit
committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions
on the critical audit matter or on the accounts or disclosures to which it relates.