SEC Form 20-F filed by OneSmart International Education Group Limited

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, 2022.

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

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

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, 2022, there were 14,611,659,561 ordinary shares outstanding, par value US$0.000001 per share, being the sum of 14,611,659,561 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.

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:

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 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:

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:

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

A. [Reserved]

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

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 

Risks Related to Our Corporate Structure

Risks Related to Doing Business in Hong Kong and Having Clients in Mainland China

Risks Related to Our ADSs

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.

Our business, financial condition and results of operations have been and are likely to continue to be materially and adversely affected by the ongoing effects of COVID-19.

Since the beginning of 2020, there has been an outbreak of COVID-19 in China and other countries. As of the date of this annual report, COVID-19 is still spreading in communities in some parts of the world. In response, the governmental authorities have periodically imposed, and others in the future may impose, significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. Such governmental actions, together with the further development of the COVID-19 pandemic, could materially disrupt our business and operations, slow down the overall economy, and make it difficult to adequately staff our operations.

We currently are unable to predict the duration and severity of the long-term impact of the ongoing COVID-19 on our business and operations, our results of operations, financial condition, cash flows and liquidity, as these depend on rapidly evolving developments, which are highly uncertain and will be a function of factors beyond our control. Such factors include, among others, the continued spread or recurrence of contagion, the implementation of effective preventative and containment measures, the development of effective medical solutions, and the extent to which governmental restrictions on travel, public gatherings, mobility and other activities remain in place or are augmented. The COVID-19 outbreak has to some extent, impacted our results of operations and financial conditions and will likely have a continued adverse impact on our results of operations.

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 336,642,439 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 727,674,893.  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, 2022. We intend to implement a number of measures to address the identified material weakness subsequent to August 31, 2022. 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.

In addition, if we cease to be an “emerging growth company” as such term is defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. 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. For example, in August 2022, we entered into a securities purchase agreement with certain “non-U.S. Persons” pursuant to which we sold an aggregate of 21,404,109,589 units. Each Unit consisted of one Class A ordinary share and a warrant to purchase half of a share with an initial exercise price of $0.001402 per Share, or $1.402 per ADS of the Company at a price of $0.001168 per Unit, or $1.168 per ADS, raising $25 million. The warrants will expire five years from its date of issuance.

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.

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.

PRC laws and regulations related to our current business operations are sometimes vague and uncertain and any changes in such laws and regulations and interpretations of which may impair our ability to operate profitably.

Although we have direct ownership of our operating entity in Hong Kong and have entered a share purchase agreement to sell our VIE structure 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 the value of our ordinary shares or impair our ability to raise money.

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. 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.

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 prospectus, Meta HK has not yet collected any personal or customer or vendor information from mainland China, and it has two customers and one vendor from the U.S.; and (iv) as of the date of this prospectus, 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. We believe, as of the date of this prospectus, Meta HK is not required to obtain any permission or approval from Hong Kong authorities to operate our business. We are also not required to obtain permissions or approvals from Hong Kong authorities nor any PRC authorities for our listing in the U.S. or issuing our ADSs to foreign investors, including the CSRC or the CAC.

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.    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, 2022, the trading price of our ADSs has ranged from US$7. 25 to US$0.  98 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:

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.

We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies, including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we remain an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important.

The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”

We are now a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the New York Stock Exchange, impose various requirements on the corporate governance practices of public companies.

We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

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:

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, 2021 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.”

During the past few years, we pursued several strategic acquisitions of companies in the education industry that are complementary to our business in order to expand and diversify our service offerings. We have integrated and will continue to integrate such acquired business into our operations.

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. As of the date of this annual report, the current total outstanding balance of the loan is US$125 million, after a scheduled repayment in October 2020.

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. 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 and started to have a new business in artificial intelligent education (AIE), artificial intelligent universe (AIU) IAAS and smart ID card services since 2nd quarter of fiscal 2023 (December 2021 to February 2023). The revenue from AIE and AIU for fiscal year ended August 31, 2022 are RMB12.2 million (US$1.9 million) and RMB2.4 million (US$0.4 million), respectively. The revenue from AIE and AIU are 100.0% of the total revenue for the fiscal year ended August 31, 2022.

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 segments 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.

Smart Training System

The Company is actively developing an intelligent training system based on intelligent training platform to provide the maximum immersive experience and the best technical foundation for learning. The company charges users a one-time sign-up fee plus consumption usage/hours one month following the month sales, creating a reoccurring revenue stream. The Company plans to sell the platform to academics and professional training centers. This smart training system known as (the “Metaverse Smart Training Module”) will become a technical service provider in the smart education/training industry.

The services include technical services including simulation teaching modules, 3D teaching modules, VR (virtual reality modules), etc. for smart education business operation service providers. Users will be able to exercise, cook, practice Tai Chi and yoga, learning through smart devices, VR devices, and through the Metaverse Smart Training Module to be developed by the Company. The Company plans to sell its modules in the form of chapters according to the needs of its operators and services providers, collecting an annual fee per module chapter.

The Company has been working closely with several companies and has entered into several strategic cooperation agreements with HK XINRONG Technology Global Limited, Cinda Communication Co., Limited and TT Motor HK Industrial Co., Ltd. to pre-launch in the near-term its smart education training business.

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 is currently in the testing and optimization stage of its Cloud Rendering Public Service Platform, a self-built platform, providing technical support such as batch data calculation for users (engineering, scientific research project data calculation and accuracy checking), film and television special effects, three-dimensional animation, advertising/effect of drawing and rendering.

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

Due to the impact of Double Reduction policy on education from Chinese’s central government, the Company suspended its legacy business operation and is transforming itself into a different sector in Metaverse business in fiscal 2022. As of August 31, 2020, 2021 and 2022, we had a total of 12,667, 13,497 and 13 employees, respectively. Almost all of our employees are located in China.  

The following table sets forth the numbers of our employees, categorized by function, as of August 31, 2022:

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.

As required by PRC regulations, we participate in various government statutory employee benefit plans, including social insurance funds, namely a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan, a maternity insurance plan, and a housing provident fund. We are required by PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.

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:

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 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 year ended August 31, 2022, we generated our revenue primarily from artificial intelligent education (AIE) service and artificial intelligent universe (AIU) IAA 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.

Impact of COVID-19

The outbreak of COVID-19 pandemic around the globe has had and is expected to continue to have an impact on our operations and financial performance.

The COVID-19 outbreak may continue to affect our business operations and its financial condition and operating results for the fiscal year 2023, including but not limited to negative impact to our total revenues, fair value adjustments or impairment to our long-term investments.

Key Components of Results of Operations

Net Revenues

On September 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (“Topic 606”), applying the modified retrospective method to all contracts that were not completed as of September 1, 2018. Results for the year ended August 31, 2020, 2021 and 2022 are presented under Topic 606, while revenues for the years ended August 31, 2018 are not adjusted and continue to be reported under ASC Topic 605, Revenue Recognition (“Topic 605”). Based on our assessment, the adoption of ASC 606 did not have any material impact on our consolidated financial statements.

Due to the impact of Double Reduction policy on education from Chinese’s central government, we suspended our legacy business operation from 1^st quarter of fiscal 2022 (September 2021 to November 2021) onwards and is transforming us into a different sector in Metaverse business. In 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 the periods presented.

For artificial intelligent universe IAAS and artificial intelligent education services, we provide online training system and applications to academic and professional training centers by charging users one-time sign up fees plus consumption usage/hours one month following the month sales.

Cost of Revenues

In fiscal 2022, 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 PP&E, amortization for software etc. The table below sets forth a breakdown of our cost of revenues for the periods indicated, both in absolute amount and as a percentage of our revenues:

Operating Expenses

Our operating expenses consist of selling and marketing expenses and general and administrative expenses.

Selling and Marketing Expenses

In fiscal 2022, there is 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 consist of (i) compensation to selling personnel, including the salaries, and other benefits, (ii) advertising, marketing and brand promotion expenses, (iii) rental costs for the leases related to the sales and marketing function, and (iv) office supplies in relation to the selling and marketing activities. Our selling and marketing expenses as a percentage of revenues were 23.9%, 27.2% and nil% for the fiscal years of 2020, 2021 and 2022, respectively. Our selling and marketing expenses as a percentage of revenues increased from 2020 to 2022 as a result of our increased sales and marketing activities to support new students enrollment growth and adoption of more effective sales and marketing channels. We expect that our selling and marketing expenses will decrease in absolute amounts as we are planning to restructure our business by selling tutoring services and then focus on smart education services.

General and Administrative Expenses

In fiscal 2022, our general and administrative expenses mainly consist of (i) compensation to the employees at our headquarters, including salaries and benefits, (ii) rental costs for the general and administrative function, (iii) office expenses in relation to the general and administrative activities and others.

On July 24, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council of the PRC jointly issued the “Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education (compulsory education includes primary school education of six years and middle school education of three years, together as the “Compulsory Stage Education”)” (the “Opinion”). The key provisions of the Opinion include, but are not limited to: (i) institutions providing after-school tutoring (the “AST”) services on academic subjects in relation to the Compulsory Stage Education (“Academic AST Institutions”) are required to be registered as non-profit organization, (ii) Academic AST Institutions providing online tutoring services are required to make application to renew their operating permit in order to maintain the internet content provider license (the “ICP License”); (iii) foreign investors shall not control or hold interest in Academic AST Institutions by means of direct investment, merger and acquisition, franchise or contractual arrangements; (iv) certain restrictions on timing and fee of academic AST services.

On September 7, 2021, to implement the Opinion, the Chinese Ministry of Education (“MOE”) published on its website that the MOE, together with two other government authorities, issued a circular requiring all Academic AST ID. All Academic AST Institutions to complete registration as non-profit by the end of 2021, and all Academic AST Institutions shall, before completing such registration, suspend enrollment of students and charging fees. The Opinion and a related series of notice, administrative measures or circular have a material adverse impact on our AST services relating to academic subjects in the PRC’s Compulsory Stage Education. To the extent we are unable to provide AST related services related to this obligation in the future as a result of the Opinion, we may be required to refund any remaining balance in cash to our customers. Additionally, a significant portion of the Company’s long-lived assets related to its AST business. Those assets might be subject to future impairment based on the future steps that the Company will take to comply with the Opinion. We have considered the impact of the Opinion on our current business and the necessary steps that need to be undertaken in order to fully comply with the Opinion. As a result, we recorded impairment losses of RMB 4.4 billion in fiscal 2021.

Our general and administrative expenses decrease in absolute amounts in fiscal 2022 as we start to restructure our business from selling tutoring services into artificial intelligent education and artificial intelligent universe IAAS services from 2^nd quarter of fiscal 2022.

The following table sets forth our operating expenses, both in absolute amount and as a percentage of our expenses, for the periods presented.

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, 2020, 2021 and 2022.

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

On September 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, or Topic 606, applying the modified retrospective method to all contracts that were not completed as of September 1, 2018. Results for the year ended August 31, 2020,2021 and 2022 are presented under Topic 606, while revenues for the years ended August 31, 2018 are not adjusted and continue to be reported under ASC Topic 605, Revenue Recognition, or Topic 605.

Revenue is recognized when control of promised services are 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.

In fiscal 2022, we generated revenues through artificial intelligent education (AIE) and artificial intelligent universe (AIU) IAAS services. The following table presents our revenues disaggregated by revenue sources for the year ended August 31, 2022.

Primary sources of our revenues are as follows:

Leases

We adopted ASU No. 2016-02, Leases (Topic 842), or ASC 842, from September 1, 2019 by using the modified retrospective method and did not restate the comparable periods. We have elected the package of practical expedients, which allows us not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any expired or existing leases as of the adoption date. We also elected the short-term lease exemption for all contracts with lease terms of 12 months or less. We have lease agreements with lease and non-lease components, which are generally accounted for separately.

We determine if an arrangement is a lease or contains a lease at lease inception. For operating leases, we recognize a right-of-use (“ROU”) asset and a lease liability based on the present value of the lease payments over the lease term on the consolidated balance sheets at commencement date. As most of our leases do not provide an implicit rate, we estimate our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The ROU assets also include any lease payments made, net of lease incentives. Lease expense is recorded on a straight-line basis over the lease term. Our leases often include options to extend and lease terms include such extended terms when we are reasonably certain to exercise those options. Lease terms also include periods covered by options to terminate the leases when we are reasonably certain not to exercise those options.

As of August 31, 2021, we recognized ROU assets of RMB1,632.2 million and total lease liabilities (including current and non-current) RMB1,550.9 million for operating leases. There were no ROU assets in fiscal 2022 due to classified as discontinued operations.

We have gradually terminated our after-school tutoring services related to academic subjects business since August 2021, and officially ceased our all business in October 2021. By the end of August 31, 2022, all rental deposits related to those early terminated lease contracts have been expensed as the early termination penalty by the Company.

Income taxes

We follow the liability method of accounting for income taxes in accordance with ASC 740, Income Taxes, or ASC 740. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. We record a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.

We accounted for uncertainties in income taxes in accordance with ASC 740. Interest and penalties related to unrecognized tax benefit recognized in accordance with ASC 740 are classified in the consolidated statements of income as income tax expense.

Business combination

We account for our business combinations using the purchase method of accounting in accordance with ASC 805, Business Combinations, or ASC 805. The purchase method of accounting requires that the consideration transferred to be allocated to the assets, including separately identifiable assets and liabilities we acquired, based on their estimated fair values. The consideration transferred in an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total of cost of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the businesses acquired, the difference is recognized directly in earnings.

In a business combination achieved in stages, we remeasure the previously held equity interest in the acquiree immediately before obtaining control at its acquisition-date fair value and the remeasurement gain or loss, if any, is recognized in the consolidated statements of income.

The determination and allocation of fair values to the identifiable assets acquired, liabilities assumed and non-controlling interests is based on various assumptions and valuation methodologies requiring considerable judgment from management. The most significant variables in these valuations are discount rates, terminal values, the number of years on which the cash flow projections are based, as well as the assumptions and estimates used to determine the cash inflows and outflows. We determine discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of assets, forecasted life cycle and forecasted cash flows over that period.

Goodwill

We assess goodwill for impairment in accordance with ASC 350-20, Intangibles-Goodwill and Other: Goodwill, or ASC 350-20, which requires that goodwill be tested for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain events, as defined by ASC 350-20.

We determined that we have five reporting units. Goodwill was allocated to five reporting units as of 2020 and 2021. We have the option to assess qualitative factors first to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. In the qualitative assessment, we consider primary factors such as industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations. Based on the qualitative assessment, if it is more likely than not that the fair value of each reporting unit is less than the carrying amount, the quantitative impairment test is performed.

Specifically, the quantitative impairment test is determined using a two-step process. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of the affected reporting unit’s goodwill to the carrying value of that goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. Estimating fair value is performed by utilizing various valuation techniques, with the primary technique being a discounted cash flow.

Affected by the Opinion and a related series of notice, administrative measures or circular, all subsidiaries acquired by the Company also terminated their education programs and learning centers from August 2021 gradually. In fiscal 2021, we recognized an impairment loss with amount of RMB 1.08 billion (US$166.6 million) for goodwill.

Long-term investments

Our long-term investments consist of equity securities without readily determinable fair value, investment in debt securities accounted for at fair value and equity method investments.

We adopted ASC Topic 321, Investments-Equity Securities, or ASC 321, from September 1, 2018. Pursuant to ASC 321, for equity securities measured at fair value with changes in fair value record in earnings, we do not assess whether those investments are impaired. For those equity securities that we select to use the measurement alternative, we use the measurement alternative to measure those investments at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. We make a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment indicates that the investment is impaired, we have to estimate the investment’s fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, (“ASC 820”). If the fair value is less than the investment’s carrying value, we recognize an impairment loss in net income equal to the difference between the carrying value and fair value.

Investments in equity investees represent investments in entities in which we can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC 323-10, Investments-Equity Method and Joint Ventures: Overall, or ASC 323-10. Under the equity method, we initially record our investment at cost and prospectively recognize our proportionate share of each equity investee’s net profit or loss into its consolidated statements of income. The difference between the cost of the equity investee and the amount of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill included in equity method investments on the consolidated balance sheets. We evaluate our equity method investment for impairment under ASC 323-10. An impairment loss on the equity method investment is recognized in the consolidated statements of income when the decline in value is determined to be other-than-temporary.

Investment in debt securities accounted for at fair value with original maturities of greater than twelve months are classified as long-term investments. As investment in debt securities classified as available for sale in accordance with ASC 320 are reported at fair value. Any unrealized gains and losses on available-for-sale investments are included in other comprehensive income. Interest income are recognized in earnings. When a decline in value is determined to be other-than-temporary, the impairment loss on the long-term available-for-sale investments would be recognized in the consolidated statements of comprehensive income.

In 2020, 2021 and 2022, we evaluated our investments, taking into consideration, including, but not limited to, the duration, degree and causes of the decline in financial results, its intent and ability to hold the investment and the invested companies’ financial performance and near-term prospects. Based on the evaluation, we recorded impairment loss of RMB161.6 million, RMB1.7 billion and RMB nil million (US$ nil million) for the years ended August 31, 2020, 2021 and 2022, respectively. The impairment loss accrued for the long-term investment is mainly driven by the Opinion and a related series of notice, administrative measures or circular, which affected on the business of all of our invested companies.

Measurement of Share-based Compensation

Amended and Restated 2015 Plan

In connection with the Reorganization on September 17, 2017, we adopted the Amended and Restated 2015 Plan to replace the 2015 Plan which was cancelled concurrently. Under the Amended and Restated 2015 Plan, the board of directors is authorized to grant share options or other equity incentives to employees, directors or consultants to purchase up to an aggregate of 336,642,439 Class A ordinary shares. The employees generally received 102.10 options for each fully vested share that was outstanding as of September 17, 2017, totaling 63,880,024 fully vested options. The employees also received 16,442,655 and 49,634,837 share options at the same exchange ratio to replace the restricted shares that were vested or vesting on December 1, 2017 and 2018, respectively, as issued under the 2015 Plan. All of the share options contain a performance condition whereby no share options are exercisable until the consummation of a qualified initial public offering. The share options expire 10 years from the date of grant. We accounted for the termination of the shares under the 2015 Plan and the concurrent issuance of options as replacement awards as a Type II modification in accordance with ASC 718, under which, we deferred the recognition of the incremental share-based compensation expense until the qualified initial public offering occurred. Upon the completion date of our initial public offering, we recognized incremental share-based compensation amounting to RMB39.9 million (US$6.2 million).

From November 2017 to immediately before the initial public offering, we granted 164,865,010 share options under the Amended and Restated 2015 Plan. Whereas some of the share options carry requisite service periods of four years with: (i) 50%, 25% and 25% of the share options vesting on the second, third and fourth anniversary of the vesting commencement date, respectively; or (ii) 50% and 50% of the share options vesting on the second and fourth anniversary of the vesting commencement date, respectively, all of the share options contain the same IPO performance condition described in the paragraph above.

In February 2018, our board of directors approved an evergreen term of the Amended and Restated 2015 Plan which permits an annual 2.0% increase of the total number of ordinary shares outstanding on August 31 of our preceding calendar year on the first day of each the following nine fiscal years commencing on September 1, 2018.

During the year ended August 31, 2018, subsequent to the completion of the initial public offering, we granted 9,172,674 share options under the Amended and Restated 2015 Plan. Vesting terms included (i) immediate vesting of 100% of the share options on date of grant; (ii) vesting periods of 2 years, with immediate vesting of 1/3 of the share options on date of grant, first and second anniversary of the vesting commencement date, respectively; (iii) a vesting period of 4 years, with 50% and 50% of the share options vesting on the second and fourth anniversary of the vesting commencement date, respectively; or (iv) vesting periods of 4 years, with 25% of the share options vesting on each anniversary of the vesting commencement date.

During the year ended August 31, 2019, we granted 141,997,178 share options under the Amended and Restated 2015 Plan. Vesting terms included (i) immediate vesting of 100% of the share options on date of grant; (ii) vesting periods of 3 years, with immediate vesting of 25% of the share options on date of grant, 1/48 of the share options in the each month 1 year after the vesting commencement date, respectively; (iii) vesting periods of 3 years, with 1/3 of the share options vesting on each anniversary of the vesting commencement date; (iv) vesting periods of 4 years, with 50% and 50% of the share options vesting on the second and fourth anniversary of the vesting commencement date, respectively; or (v) vesting periods of 4 years, with 25% of the share options vesting on each anniversary of the vesting commencement date. During the year, we also granted to an executive 39,669,960 options under the Amended and Restated 2015 Plan with market conditions tied to our market capitalization for specified periods while he remains employed by us. In addition, certain share options were modified to become fully invested immediately prior to an employee’s termination.

During the year ended August 31, 2019, the Group granted 14,556,320 restricted Class A ordinary shares (“Restricted Shares”) under the Amended and Restated 2015 Plan. Vesting terms included i) immediate vesting of 100% of the Restricted Shares after one year of the vesting commencement date, ii) vesting periods of 4 years, with 25% of the Restricted Shares vesting on each anniversary of the vesting commencement date.

During the fiscal year ended August 31, 2020, we granted 93,574,240 share options under the Amended and Restated 2015 Plan. Vesting terms included i) immediate vesting of 100% of the share options on date of grant, ii) vesting periods of 4 years, with 50% and 50% of the share options vesting on the second and fourth anniversary of the vesting commencement date, or iii) vesting periods of 4 years, with 25% of the share options vesting on each anniversary of the vesting commencement date, respectively.

During the year ended August 31, 2020, we granted 39,821,200 restricted Class A ordinary shares under the Amended and Restated 2015 Plan. Vesting terms included vesting periods of 4 years, with 25% of the Restricted Shares vesting on each anniversary of the vesting commencement date.

During the fiscal year ended August 31, 2021, we granted 120,744,240 share options under the Amended and Restated 2015 Plan. Vesting terms included i) immediate vesting of 100% of the share options on date of grant, ii) vesting periods of 4 years, with 50% and 50% of the share options vesting on the second and fourth anniversary of the vesting commencement date, or iii) vesting periods of 4 years, with 25% of the share options vesting on each anniversary of the vesting commencement date, respectively.

During the year ended August 31, 2021, we granted 5,502,840 restricted Class A ordinary shares under the Amended and Restated 2015 Plan. Vesting terms included vesting periods of 4 years, with 25% of the Restricted Shares vesting on each anniversary of the vesting commencement date.

All the outstanding employee stock options were cancellation in fiscal 2022.

The fair value of the share options under the Amended and Restated 2015 Plan were determined on the grant dates using the binomial option pricing model with assistance from an independent valuation firm. Prior to our initial public offering, we determined the fair value of our ordinary shares using the income approach based on key assumptions including WACC and DLOM. The income approach involved applying appropriate discount rates to estimated cash flows that were based on earnings forecasts. The growth rates of our revenues, as well as major milestones that we achieved, contributed to the fair value of the ordinary shares. Subsequently to our initial public offering, fair value of the ordinary shares is the price of our publicly traded shares. The assumptions adopted to estimate the fair value of share options granted were as follows:

Domestic Plan

In March 2017, one of our subsidiaries approved an employee share incentive scheme under which, incentives are provided by certain of Shanghai OneSmart’s subsidiaries to their regional management and staff, or the Domestic Plan. According to the scheme, the subsidiaries may grant to their employees options with independent annual performance conditions specified for each tranche of options, in four tranches, as well as an additional performance condition at the end of the fourth year based on the cumulative result of the business over the term of the four years. When vested, the options are exercisable into the subsidiaries’ equity interests. The share options expire 4 years from the date of grant.

On May 2, 2017, 120,000 options were granted to employees, accounting for 8% of the total equity interests in the subsidiaries. The exercise price ranged from RMB40 to RMB160 per option. The options are equity awards measured at their fair values on May 2, 2017, the grant date. Given only the achievement of the performance conditions of the first two tranches of the options were determined to be probable, each of the first two tranches of the options was accounted for as a separate award with its own service inception date and requisite service period. On March 31, 2019, we modified the annual performance condition for the fourth tranche of the options granted on May 2, 2017, however, the achievement of the third and fourth traches as well as the final cumulative result of the business over the term of four years continued to improbable. Thus, no incremental costs were incurred as a result of the modification. As of August 31, 2019 and 2020, 60,000 and nil options did not meet the performance conditions and were forfeited. The remaining 70,000 options were vested and exercised as of August 31, 2020.

On March 31, 2019, 10,000 options were granted to a certain employee, accounting for 1% of the total equity interests in a certain subsidiary. The exercise price is RMB80 per option. The options are equity awards measured at their fair values on March 31, 2019, the grant date, immediate vesting of 100% of the share options on date of grant.

We calculated the estimated fair value of the share options under the Domestic Plan on the grant date using the binomial option pricing model with assistance from an independent valuation firm. Assumptions used to determine the fair value of the share options granted under the Domestic Plan is summarized in the following table:

Restricted shares issued to the founding shareholders of Shanghai Yimi

On February 1, 2020, we granted 9,677,288 restricted shares to the founding shareholders of Shanghai Yimi in connection with Yimi transactions. The vesting of the restricted shares is subject to the achievement of certain online tutoring business from Yimi Cayman and Shanghai Yimi. If performance target is achieved, 50% of the restricted shares shall vest on January 1, 2021 and remaining 50% shall vest on January 1, 2022. The restricted shares are measured at their fair values on February 1, 2020, the grant date. Given the achievement of the performance conditions were determined to be probable, each of the two tranches was accounted for as a separate award with its own service inception date and requisite service period.

We calculated the estimated fair value of the restricted shares on the grant date using the binomial option pricing model with assistance from an independent valuation firm. Assumptions used to determine the fair value of the restricted shares is summarized in the following table:

A summary of the share option activities under the Amended and Restated 2015 Plan is as follows: 

A summary of the Restricted Shares activities under the Amended and Restated 2015 Plan is as follows:

A summary of the activities under the Domestic Plan is as follows:

The aggregate intrinsic value is calculated as the difference between the exercise price of the awards and the fair value of the underlying ordinary shares at each reporting date, for those awards that had exercise price below the estimated fair value of the relevant ordinary shares.

We recognized total share-based compensation expenses of RMB138.0 million, RMB42.9 million and nil for the years ended August 31, 2020, 2021 and 2022, respectively.

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. Due to the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education issued by the General Office of the CPC Central Committee and the General Office of the State Council in July 24, 2021, the company suspended all education programs and learning centers and the services relating to premium K-12 after-school education and premium young children education services and classified as discontinued operations in October 2021.

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.

Note:

Fiscal Year Ended August 31, 2022 compared to Fiscal Year Ended August 31, 2021

Net Revenues. Due to the Double Reduction policy aforementioned, in 1^st 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 net revenues changed dramatically from nil in the fiscal year 2021 to RMB14.6 million (US$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 RMB12.8 million (US$1.9 million) in the fiscal year 2022 which was in line with the decrease in revenues as we shut down all education programs and learning centers in China and classified as discontinued operations in October, 2021 (1^st quarter of fiscal year 2022) in order to comply with the above Alleviating Burden Opinion.

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 RMB1.8 million (US$0.3 million) in fiscal year 2022.

Selling and Marketing Expenses. Our selling and marketing expenses decreased by 100.0% from RMB0.11 million (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 489.1% from RMB62.5 million (US$9.6 million) in fiscal 2021 to RMB368.1 million (US$53.4 million) in fiscal 2022 was mainly attributable to the one-time expenses in RMB306.8 million (US$44.5 million) recognized to the vested outstanding stock options issued to the terminated staff due to Double Reduction policy.

Operating Loss. As a result of the factors set out above, we had RMB62.6 million (US$9.6 million) operating loss in fiscal 2021 and RMB366.3 million (US$53.2 million) operating loss in fiscal 2022.

Loss from Continuing Operations

As a result of the foregoing, loss from continuing operations increased by 329.4% from RMB109.9 million (US$16.9 million) in fiscal 2021 to RMB362.7 million (US$52.6 million) in fiscal 2022.

Loss per Share

Basic and diluted loss per share from continuing operations was RMB0.0377(US$0.0055) in fiscal 2022 as compared to a loss of RMB0.0166(US$0.0025) in fiscal 2021. Basic and diluted income per share attributable to discontinued operations was RMB0.0673(US$0.0098) in fiscal 2022 as compared to a loss of RMB0.7377(US$0.1131) in fiscal 2021. 

Fiscal Year Ended August 31, 2021 compared to Fiscal Year Ended August 31, 2020

Net Revenues. Our net revenues maintained from RMB3.4 billion in the fiscal year 2020 to RMB3.4 billion (US$529.9 million) in the fiscal year 2021. Our average monthly enrollment decreased from 170,995 for the fiscal year 2020 to 170,854 for the fiscal year 2021. Our total number of consumed class units maintained from 20.1 million for the fiscal year 2020 to 20.1 million for the fiscal year 2021.

Net revenues from Unsmart VIP business: The increase of the revenues was primarily due to the increase in student enrollments in our premium tutoring programs and OneSmart International Education.

Revenues from OneSmart Young Children Education business: The decrease of the revenues was primarily due to the decrease of the student attendance to class as a result of COVID-19.

Revenues from OneSmart Online: The decrease of the revenues was primarily due to the offline class units consumed which offset the online courses in the second half of fiscal year 2021.

Revenues from other: The decrease of the revenues was primarily due to the decrease of student attendance to class during COVID-19 period.

Cost of Revenues. Our cost of revenues decreased by 3.5% from RMB2.2 billion in the fiscal year 2020 to RMB2.1 billion (US$324.1 million) in the fiscal year 2021, primarily due to operating efficiency of our learning centers and program offerings.

Gross Profit and Gross Margin. As a result of the factors set out above, our gross profit increased by 4.8% from RMB1.27 billion in the fiscal year 2020 to RMB1.33 billion (US$205.8 million) in the fiscal year 2021 as revenue was mainly fixed while the costs were decreased by continued internal cost control and operating efficiency of our learning centers and program offering.

Selling and Marketing Expenses. Our selling and marketing expenses increased by 13.3% from RMB820.9 million in the fiscal year 2020 to RMB930.1 million (US$144.0 million) in the fiscal year 2021. This increase was primarily due to the increase in (i) the selling and marketing personnel and staff related costs, and (ii) sales and marketing activities to support new student enrollments growth and adoption of more effective sales and marketing channel during COVID 19 pandemic period.

General and Administrative Expenses. Our general and administrative expenses increased by 548.9% from RMB810.9 million in the fiscal year 2020 to RMB5.3 billion (US$814.5 million) in the fiscal year 2021. This increase was primarily due to impairment loss accrued with amount of RMB4.4 billion (US$ 677.1 million) according to the Opinion and a related series of notice, administrative measures or circular and the compliance measures taken by the Company.

Operating Loss. As a result of the factors set out above, we had RMB362.7 million operating loss in the fiscal year 2020 and RMB4.9 billion (US$752.7 million) operating loss in the fiscal year 2021.

Interest Income. We had interest income of RMB37.4 million and RMB9.4 million (US$1.5 million) in the fiscal year 2020 and 2021, respectively, which consisted primarily of interest earned from our cash and cash equivalents and short-term investments.

Other Income. We recorded other income of RMB93.9 million and RMB99.3 million (US$15.4 million) in the fiscal year 2020 and 2021, respectively. Other income in the fiscal year 2021 was mainly attributable to government subsidies in the form of cash and taxation award during COVID 19 pandemic period, and gains from disposals of investment. However, government subsidies in the form of cash and taxation award are discretionary in nature and we do not believe that the increase in government subsidies during the referenced period is reflective of a known trend.

Other Expense. We recorded other expense of RMB453.4 million and RMB135.2 million (US$20.9 million) in the fiscal year 2020 and 2021, respectively. The decrease was primarily due to more operating efficiency of our learning centers and program offerings.

Income Tax (Expenses)/Benefit. Our income tax benefit was RMB37.8 million in the fiscal year 2020, our income tax expenses was RMB30.9 million (US$4.8 million) in the fiscal year 2021.

Net Loss. As a result of the foregoing, we had net loss of RMB768.6 million in the fiscal year 2020 and net loss of RMB5.0 billion (US$777.9 million) in the fiscal year 2021.

Recent Accounting Pronouncements

A list of recently issued accounting pronouncements that are relevant to us is included in “Summary of Significant Accounting Policies-(ae) Recent accounting pronouncements” of our audited consolidated financial statements included elsewhere in this annual report.

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, IPO proceeds, equity or convertible securities financing activities and commercial bank loan.

Our management has considered whether there is substantial doubt about our ability to continue as a going concern due to (1) loss from continuing operations of approximately RMB0.4 billion (US$60.6 million) for the year ended August 31, 2022, (2) accumulated deficit of approximately RMB11.2 billion (US$1.6 billion); (3) the working capital deficit of approximately RMB5.1 billion (US$746.5 million) as of August 31, 2022; (4) net operating cash used of approximately RMB287.6 million (US$41.8 million) for the year ended August 31, 2022; and the cash and cash equivalents were RMB202.4 million (US$29.4 million) for the year ended August 31, 2022. Cash and cash equivalents primarily consist 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 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, (2) increasing cash generated from new business model operations, and (3) Debt divestiture, to meet our anticipated working capital requirements for at least the next 12 months. 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.

We entered into certain securities purchase agreement on January 24, 2022 (the “SPA”) with certain non-affiliated and accredited “non-U.S. Persons”, (the “Purchasers”) as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to which the Company agreed to sell 8,000,000,000 Class A ordinary shares, (the “Shares”) par value $0.000001 per share, at a per share purchase price $0.0035625 (the “Offering”), which is 90% of the average NYSE official closing price of the ADS divided by 1,000, the current conversion ratio of ADS, for the three trading days immediately preceding the execution of the SPA. On February 11, 2022, the Offering closed as all the conditions of the SPA have been satisfied and we issued the Shares to the Purchasers. The gross proceeds to the Company from the Offering were $28.5 million.

We plan to restructure our business by selling tutoring services and then focus on smart education services. The sale of the tutoring services has not been determined as of the date of the issuance of these financial statements. 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. As of May 2022, we have signed a series of strategic cooperation agreements with six non-affiliated companies to pre-launch smart education training business.

Although we consolidate the results of our consolidated VIEs and their subsidiaries, we only have access to the assets or earnings of our VIEs and their subsidiaries through our contractual arrangements with our VIEs and their shareholders. See “Item 4. Information on the Company-C. Organizational Structure-Contractual Arrangements with Shanghai OneSmart, Rui Si and their respective shareholders” and “-Contractual Arrangements with Xiangyuan and its shareholders.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources-Holding Company Structure.”

Substantially all of our future revenues are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiary is allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, current PRC regulations permit our PRC subsidiary to pay dividends to us only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Our PRC subsidiary is required to set aside at least 10% of its after-tax profits after making up previous years’ accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Furthermore, capital account transactions, which include foreign direct investment and loans, must be approved by and/or registered with SAFE and its local branches. See “Item 3. Key Information-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.”

The following table sets forth a summary of our cash flows for the periods presented:

Operating Activities

Net cash generated from operating activities in the fiscal year ended August 31, 2022 was RMB301.9 million (US$41.8 million). The difference between our net loss of RMB1.2 million (US$174.2 million) and the net cash generated from operating activities was primarily due to (i) share-based compensation of RMB307.0 million (US$44.5 million), (ii) and was partially offset by a decrease of accrued expenses and other current liabilities of RMB58.3 million (US$8.5 million).

Net cash generated from operating activities in the fiscal year ended August 31, 2021 was RMB138.3 million (US$21.4 million). The difference between our net loss of RMB5,025.5 million (US$777.9 million) and the net cash generated from operating activities was primarily due to (i) an adjustment of RMB4,590.2 million (US$710.5 million) in non-cash items, which mainly consisted of depreciation and amortization of RMB173.3 million (US$26.8 million), share-based compensation of RMB42.9 million (US$6.6 million), impairments of long-lived assets and goodwill of RMB4,374.0 million (US$677.1 million), (ii) a decrease of prepayments and other current assets of RMB281.9 million (US$43.6 million), and (iii) an increase of prepayments from customers of RMB210.9 million (US$32.7 million), and was partially offset by a decrease of accrued expenses and other current liabilities of RMB24.6 million (US$3.8 million).

Net cash generated from operating activities in the fiscal year ended August 31, 2020 was RMB240.7 million (US$37.3 million). The difference between our net loss of RMB768.6 million (US$119 million) and the net cash generated from operating activities was primarily due to (i) an adjustment of RMB717.0 million (US$111 million) in non-cash items, which mainly consisted of depreciation and amortization of RMB248.0 million (US$38.4 million), share-based compensation of RMB138.0 million (US$21.4 million), impairments of long-term investments and losses on extinguishment of a debt security RMB314.7 million (US$48.7 million), (ii) a decrease of prepayments and other current assets of RMB166.3 million (US$25.7 million), and (iii) an increase of prepayments from customers of RMB239.6 million (US$37.1 million), and was partially offset by a decrease of accrued expenses and other current liabilities of RMB85.3 million (US$13.2 million).

Investing Activities

Net cash used in investing activities was RMB79.7 million (US$11.6million) in the fiscal year ended August 31, 2022, primarily due to (i) purchase of short-term investments of RMB59.0 million (US$8.6 million).

Net cash used in investing activities was RMB147.9 million (US$140.4 million) in the fiscal year ended August 31, 2021, primarily due to (i) purchase of long-term investments of RMB89.0 million (US$13.8 million), (ii) purchase of short-term investments of RMB104.0 million (US$16.1 million), (iii) purchase of property and equipment of RMB20.5 million (US$3.2 million) as we expanded our existing learning centers and opened new learning centers, partially offset by the proceeds from sales of short-term investments of RMB65.0 million (US$10.1 million).

Net cash used in investing activities was RMB906.9 million (US$140.4 million) in the fiscal year ended August 31, 2020, primarily due to (i) purchase of long-term investments of RMB181.0 million (US$28 million), (ii) purchase of short-term investments of RMB582.6 million (US$90.2 million), (iii) purchase of property and equipment of RMB193.2 million (US$29.9 million) as we expanded our existing learning centers and opened new learning centers, (iv) due from third parties of RMB284.6 million (US$44.1 million), and (v) acquisition and disposal of subsidiaries of RMB75.9 million (US$11.7 million), partially offset by the proceeds from sales of short-term investments of RMB404.9 million (US$62.7 million).

Financing Activities

Net cash used in financing activities in the fiscal year ended August 31, 2022 was RMB156.3 million (US$22.7 million), primarily due to (i) an increase in the proceeds from the issuance of common stock, net of issuance costs of RMB196.4 million (US$28.5 million), partially offset by repayments of third-party of RMB15.8 million (US$2.3 million).

Net cash used in financing activities in the fiscal year ended August 31, 2021 was RMB935.2 million (US$144.8 million), primarily due to (i) an increase in the proceeds from bank loan of RMB498.6 million (US$77.2 million), partially offset by repayments of bank loans of RMB1,440.0 million (US$222.9 million).

Net cash provided by financing activities in the fiscal year ended August 31, 2020 was RMB648.8 million (US$100.4 million), primarily due to (i) an increase in the proceeds from bank loan of RMB803.8 million (US$124.4 million), and (ii) an increase in the proceeds from convertible senior notes, net of issuance costs of RMB246.1 million (US$38.1 million), partially offset by share repurchases of RMB70.9 million (US$11.0 million), repayments of bank loans of RMB322.4 million (US$49.9 million).

Capital Expenditures

We made capital expenditures of RMB193.2 million, RMB20.5 million and nil in the fiscal year 2020, 2021 and 2022, 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, 2022 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.

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.

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.

Mr. Xiaoming Li, aged 40, 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.

Mr. Shengcong Ma served as the vice president of Aier Medical Investment Group CO., Ltd. from March 2017 to March 2021. From October 2016 to March 2021, he served as the general manager of Aier Health Insurance Co., Ltd. Mr. Ma was a member of the Technology Committee of Anbang Insurance Group and also the general manager of its Community Finance Business Department from October 2014 to March 2017. From October 2010 to October 2014, Mr. Ma served as the deputy general manager of the Shandong Banking Insurance Division of Centennial Life Corporation. Mr. Ma received his bachelor’s degree in Industrial and Foreign Trade from the Beijing Technology and Business University, an MBA from The Open University of Hong Kong, and an Executive MBA from Peking University National Development Research Institute.

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.

Board Diversity

The table below provides certain information regarding the diversity of our board of directors as of the date of this annual report.

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, 2022, we paid an aggregate of RMB2.2 million (US$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. 

Amended and Restated 2015 Plan

To attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of our business, we, through our predecessor Cayman Islands company, initially adopted an employee stock incentive plan in March 2013, which was subsequently replaced by a domestic share incentive plan of Shanghai OneSmart approved in February 2015. As part of the 2017 Restructuring, we adopted an amended and restated 2015 Share Incentive Plan in April 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 336,642,439 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 on the first day of each the following nine fiscal years of the Company commencing on September 1, 2018. As of the date of this annual report, the maximum aggregate number of shares which may be issued pursuant to all awards under the Amended and Restated 2015 Plan is 727,674,893 and options to purchase 581,844,440 Class A ordinary shares have been granted and outstanding, excluding awards that were forfeited or cancelled after the relevant grant dates.

The following paragraphs describe the principal terms of the Amended and Restated 2015 Plan.

Types of Awards. The Amended and Restated 2015 Plan permits the awards of options, restricted share purchase rights or any other type of awards approved by the committee or the board of directors.

Plan Administration. Our board of directors or a committee appointed by our board will administer the Amended and Restated 2015 Plan. The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant.

Award Agreement. Awards granted under the Amended and Restated 2015 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award, which may include the number of shares subject to the award, the exercise price or the purchase price, the provisions applicable in the event of the grantee’s employment or service terminates (if applicable). The plan administrator may amend the terms of any award, provided that no such amendment may impair the rights of any grantee without his or her consent.

Eligibility. We may grant awards to our employees, directors, consultants and qualified former employees. However, we may grant options that are intended to qualify as incentive share options only to our employees.

Acceleration of Awards upon Change in Control. If a change in control of our company occurs, each outstanding awards shall be assumed and substituted by or assigned to the successor or its parent or subsidiary. If the outstanding awards are not assumed by the successor, all the awards shall become fully vested and exercisable immediately and each participant has the right to exercise the vested awards during a specific period of time.

Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.

Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. No option shall become exercisable unless we have consummated the initial public offering. The vested portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the maximum exercisable term is the tenth anniversary after the date of a grant.

Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution, except as otherwise provided by the plan administrator.

Termination of the Amended and Restated 2015 Plan. Unless terminated earlier, the Amended and Restated 2015 Plan will terminate automatically in April, 2027. Our board of directors has the authority to amend or terminate the plan subject to shareholder approval to the extent necessary and desirable to comply with applicable law, but no amendment or termination shall be made if such amendment or termination would materially impair the rights of a grantee with respect to an outstanding award without such grantee’s consent.

As of the date of this annual report, all the outstanding options unvested has been cancelled as the grantees’ service contracts were terminated due to the impact of Double Reduction policy on education from Chinese’s central government in 2021.

As of the date of this annual report, other employees, including certain former employees, as a group held outstanding options awarded to purchase 343,088,045 Class A ordinary shares of our company, with exercise price of US$0.0003 - 0.2225 per share.

Restricted shares issued to the founding shareholders of Shanghai Yimi

On February 1, 2020, we granted 9,677,288 restricted shares to the founding shareholders of Shanghai Yimi in connection with Yimi transactions. The vesting of the restricted shares is subject to the achievement of certain online tutoring business from Yimi Cayman and Shanghai Yimi. If performance target is achieved, 50% of the restricted shares shall vest on January 1, 2021 and remaining 50% shall vest on January 1, 2022. All the outstanding restricted shares have been cancelled due to the impact of Double Reduction policy on education from Chinese’s central government in 2021.

The restricted shares are measured at their fair values on February 1, 2020, the grant date. Given the achievement of the performance conditions were determined to be probable, each of the two tranches was accounted for as a separate award with its own service inception date and requisite service period.

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:

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:

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:

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.