UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ 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: 001-40150

First High-School Education Group Co., Ltd.

(Exact Name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

No. 1-1, Tiyuan Road, Xishan District,

Kunming, Yunnan Province 650228,

People’s Republic of China

(Address of principal executive offices)

Tommy Zhou, Chief Financial Officer

Telephone: +86-10-62555966

E-mail: tommyzhou@dygz.com

No. 1-1, Tiyuan Road, Xishan District,

Kunming, Yunnan Province 650228,

People’s Republic of China

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

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

	None
	(Title of Class)

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

Title of each class		Trading Symbol
American depositary shares, each representing three Class A ordinary shares, par value US$0.00001 per share		FHSEY
Class A ordinary shares, par value US$0.00001 per share^*		N/A

*	Not for trading, but only in connection with the quoting of the American depositary shares on the OTC market.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

	None
	(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Class A ordinary shares, par value US$0.00001 each		54,577,170 were outstanding as of March 31, 2024
Class B ordinary shares, par value US$0.00001 each		32,261,530 were outstanding as of March 31, 2024

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒
		Emerging growth company ☒

If an emerging growth company that prepares 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-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☒

International Financial Reporting Standards as issued by the International Accounting Standards Board ☐

Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐

If 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	ii
FORWARD-LOOKING STATEMENTS	xx
PART I	1
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	1
ITEM 3. KEY INFORMATION	1
ITEM 4. INFORMATION ON THE COMPANY	56
ITEM 4A. UNRESOLVED STAFF COMMENTS	84
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	85
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	108
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	116
ITEM 8. FINANCIAL INFORMATION	120
ITEM 9. THE OFFER AND LISTING	121
ITEM 10. ADDITIONAL INFORMATION	121
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	129
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	130
PART II	132
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	132
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	132
ITEM 15. CONTROLS AND PROCEDURES	132
ITEM 16. [RESERVED]	134
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	134
ITEM 16B. CODE OF ETHICS	134
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	134
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	134
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	135
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	135
ITEM 16G. CORPORATE GOVERNANCE	135
ITEM 16H. MINE SAFETY DISCLOSURE	135
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	135
ITEM 16J INSIDER TRADING POLICIES	135
ITEM 16K CYBERSECURITY	135
PART III	137
ITEM 17. FINANCIAL STATEMENTS	137
ITEM 18. FINANCIAL STATEMENTS	137
ITEM 19.EXHIBITS	137

INTRODUCTION

Unless we indicate otherwise and for the purpose of this annual report only:

●

“ADRs” refers to the American depositary receipts which, if issued, evidence the ADSs;

●

“ADSs” refers to American depositary shares, each of which represents three Class A ordinary shares;

●

“Affected Entities” refers to the middle schools that are affected by the Implementation Rules, and entities holding such middle school institutions or middle school programs, which are listed in “Item 4. Information on the Company—C. Organizational Structure”;

●

“affiliated entities” refers to the entities that First High-School Education Group Co., Ltd. controls and consolidates through contractual arrangements, as the context requires, including, collectively, Long-Spring Education Holding Group Limited, or Long-Spring Education, its subsidiaries and the schools operated by them;

●

“CAGR” refers to compound annual growth rate;

●

“China” or “PRC” refers to the People’s Republic of China, and only in the context of describing the PRC laws, rules, regulations, regulatory authorities, and any PRC entities or citizens under such rules, laws and regulations and other legal or tax matters in this annual report, excludes Taiwan and the special administrative regions of Hong Kong and Macau;

●

“Class A ordinary shares” refers to our Class A ordinary shares, par value US$0.00001 per share;

●

“Class B ordinary shares” refers to our Class B ordinary shares, par value US$0.00001 per share;

●

“Double First Class University Plan” refers to a tertiary education development initiative designed by the PRC government in 2015, which aims to comprehensively develop elite Chinese universities into world-class institutions by the end of 2050 through developing and strengthening their individual faculty departments;

●

“first-tier universities” refers to the first batch of universities that enroll students after Gaokao. First-tier universities generally have stronger comprehensive strengths, such as school facilities, academic resources and research capabilities, among other things, and frequently gain special support from the PRC central and local governments. To be admitted into a first-tier university, interested high school graduates must achieve certain high scores set by the relevant PRC provincial education authorities and select such university in their general university applications;

●

“Gaokao” refers to the university entrance examinations administered in China;

●

“Gaokao repeaters” refers to the high school graduates who fail to achieve satisfying results in Gaokao or be admitted to the universities of their choosing, and elect to repeat the last year of high school and retake Gaokao in the following year;

●

“high school(s)” refers to, for the purpose of this annual report, high school institutions or high school programs provided in the VIE’s schools;

●

“Implementation Rules” refers to the Implementation Rules for Private Education Laws, which was issued by the PRC State Council on May 14, 2021 and became effective on September 1, 2021;

●

“middle school(s)” refer to, for the purpose of this annual report, middle school institutions or middle school programs provided in the VIE’s schools that also provide high school programs;

●

“ordinary shares” refers to our ordinary shares, par value US$0.00001 per share and our Class A ordinary shares and Class B ordinary shares, par value US$0.00001 per share;

●

“RMB” or “Renminbi” refers to the legal currency of China;

●

“tutorial school(s)” refers to, for the purpose of this annual report, tutorial school programs for Gaokao repeaters, unless otherwise specified;

●

“US$,” “U.S. dollars,” “$” or “dollars” refers to the legal currency of the United States of America;

●

“VIE” refers to Long-Spring Education Holding Group Limited, the variable interest entity, whose financial results have been consolidated into our consolidated financial statements based solely on contractual arrangements in accordance with U.S. GAAP. The VIE is a domestic PRC company in which we do not have any equity ownership but whose financial results have been consolidated into our consolidated financial statements based solely on contractual arrangements in accordance with U.S. GAAP;

●

“VIE’s schools” refers to Kunming Xishan Long-Spring Experimental Secondary School (formerly known as Resort District Hengshui Experimental Secondary School), Kunming Chenggong Long-Spring Experimental Secondary School (formerly known as Yunnan Hengshui Chenggong Experimental Secondary School), Yiliang Long-Spring Experimental Secondary School (formerly known as Yunnan Hengshui Yiliang Experimental Secondary School), Yunnan Hengshui Experimental Secondary School—Xishan School, Qujing Hengshui Experimental Secondary School, Yunnan Yuxi Hengshui Experimental Secondary School, Yunnan Long-Spring Foreign Language Secondary School, Xinping Long-Spring Advanced Secondary School (formerly known as Xinping Hengshui Experimental High School), Xishuangbanna Long-Spring Experimental Secondary School (formerly known as Xishuangbanna Hengshui Experimental High School), Qiubei Long-Spring Experimental Secondary School (formerly known as Yunnan Hengshui Qiubei Experimental High School), Wenshan Long-Spring Experimental Secondary School (formerly known as Yunnan Hengshui Wenshan Experimental High School), Zhenxiong Long-Spring Advanced Secondary School (formerly known as Yunnan Hengshui Zhenxiong High School), Mengla Long-Spring Experimental Secondary School (formerly known as Mengla Hengshui Experimental High School), Hengshizhong Education Tutorial School, Shaanxi Hengshi Tutorial School, and Yangling Hengshui Experimental Secondary School, unless otherwise specified, before the deconsolidation of the Affected Entities, and Kunming Xishan Long-Spring Experimental Secondary School, Kunming Chenggong Long-Spring Experimental Secondary School, Yiliang Long-Spring Experimental Secondary School, Yunnan Hengshui Experimental Secondary School—Xishan School, Qujing Hengshui Experimental Secondary School, Yunnan Yuxi Hengshui Experimental Secondary School, Yunnan Long-Spring Foreign Language Secondary School, Xinping Long-Spring Advanced Secondary School, Xishuangbanna Long-Spring Experimental Secondary School, Qiubei Long-Spring Experimental Secondary School, Wenshan Long-Spring Experimental Secondary School, Zhenxiong Long-Spring Advanced Secondary School, Mengla Long-Spring Experimental Secondary School, Hengshizhong Education Tutorial School, Shaanxi Hengshi Tutorial School and Yangling Hengshui Experimental Secondary School, unless otherwise specified, after the deconsolidation of the Affected Entities, as the context requires;

iii

●

“Western China” refers to Sichuan, Guizhou, Yunnan, Shaanxi, Gansu and Qinghai provinces, Inner Mongolia Autonomous Region, Tibet Autonomous Region, Xinjiang Autonomous Region and Ningxia Autonomous Region and Chongqing municipality;

●

“we,” “us,” “our” or “our company” refers to (1) First High-School Education Group Co., Ltd. and its subsidiaries, and (2) in the context of describing our operations and consolidated financial information, the affiliated entities. The affiliated entities include, among others, Long-Spring Education, its subsidiaries and its schools. References to the affiliated entities may include their subsidiaries, depending on the context as appropriate. The affiliated entities are PRC companies conducting operations in the Chinese mainland, and their financial results have been consolidated into our consolidated financial statements under U.S. GAAP for accounting purposes. First High-School Education Group Co., Ltd. is a holding company with no operations of its own. We do not have any equity ownership in the affiliated entities; and

●

“Zhongkao” refers to the high school entrance examinations administered in China.

We have made rounding adjustments to reach some of the figures included in this annual report. Consequently, numerical figures shown as totals in some tables may not be arithmetic aggregations of the figures that precede them.

Our Holding Company Structure and Contractual Arrangements with the VIE

First High-School Education Group Co., Ltd., our ultimate Cayman Islands holding company, does not have any substantive operations other than indirectly controlling Long-Spring Education, the VIE which controls and holds our schools, collectively as the affiliated entities, through certain contractual arrangements. Investors in the ADSs are purchasing equity securities of our ultimate Cayman Islands holding company rather than purchasing equity securities of the affiliated entities. We and the VIE conduct our and the VIE’s business operations through both (1) our subsidiaries and (2) the affiliated entities based on certain contractual arrangements. We, together with the affiliated entities, are subject to PRC laws relating to, among others, restrictions over foreign investments in education services set out in the Negative List (2021 Version) promulgated by the Ministry of Commerce (“MOFCOM”), and the National Development and Reform Commission (“NDRC”). As a result, we have to control over the affiliated entities through contractual arrangements. The VIE structure is used to replicate foreign investment in China-based companies where the PRC law prohibits direct foreign investment in the operating companies. Neither we nor our subsidiaries own any share in the affiliated entities, and investors may never hold equity interests in the Chinese operating companies. Instead, as a result of our direct ownership in Yunnan Century Long-Spring Technology Co., Ltd. (“Yunnan WFOE”) and the contractual agreements with the affiliated entities, we are regarded as the primary beneficiary of the affiliated entities for accounting purposes. Accordingly, we have consolidated the financial results of the affiliated entities in our consolidated financial statements in accordance with U.S. GAAP. Neither First High-School Education Group Co., Ltd. nor its investors have had an equity ownership in, direct foreign investment in, or control, other than as defined under U.S. GAAP, through contractual arrangements with, the VIE. The contractual arrangements are not equivalent to an equity ownership in the business of the VIE and its subsidiaries in China. Because of our corporate structure, we and the VIE are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of private education entities, and regulatory review of oversea listing and offering of securities of PRC companies through a special purpose vehicle, and the validity and enforcement of the contractual agreements. We and the VIE are also subject to the risks of uncertainty about any future actions of the PRC government in this regard. Our contractual agreements may not be effective in providing control over the affiliated entities. We and the VIE may also subject to sanctions imposed by PRC regulatory agencies including Chinese Securities Regulatory Commission if we and the VIE fail to comply with their rules and regulations.

The following diagram illustrates our simplified corporate structure, including our principal subsidiaries and the affiliated entities, as of the date of this annual report:

Shareholders of First High-School Education Group Co., Ltd. include Visionsky Group Limited, Long-Spring Education Management Limited, Long-Spring Education International Limited, Minglin Wu, Brightenwit Group Limited, others and public shareholders. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership” for more details.

(1)

Mr. Shaowei Zhang and Ms. Yu Wu hold 86.76% and 9.64% equity interests in Long-Spring Education, respectively. The remaining 3.6% equity interests of Long-Spring Education are held by five limited partnerships established to hold interests for certain of our employees.

(2)

The 10 schools comprise Kunming Xishan Long-Spring Experimental Secondary School, Kunming Chenggong Long-Spring Experimental Secondary School, Yiliang Long-Spring Experimental Secondary School, Qujing Hengshui Experimental Secondary School, Yunnan Yuxi Hengshui Experimental Secondary School, Yunnan Hengshui Experimental Secondary School—Xishan School, Yunnan Long-Spring Foreign Language Secondary School, Zhenxiong Long-Spring Advanced Secondary School, Qiubei Long-Spring Experimental Secondary School, and Mengla Long-Spring Experimental Secondary School. Long-Spring Education Holding Group Limited is the sole sponsor for each of the ten schools in Yunnan province.

(3)

We have registered Xinping Long-Spring Advanced Secondary School as Xinping Long-Spring Advanced Secondary School Co., Ltd., Xishuangbanna Long-Spring Experimental Secondary School as Xishuangbanna Long-Spring Experimental Secondary School Co., Ltd., and Yangling Hengshui Experimental Secondary School as Yangling Hengshi Secondary School Co., Ltd., all of which were registered as for-profit private schools.

(4)

As the private school operation permit for Hengshizhong Education Tutorial School has been cancelled, we diverted its Gaokao repeater program and extra-curricular services related programs to Yunnan Long-Spring Education Holding Group Hengshui Experimental Middle School Management Co., Ltd. We have registered Shaanxi Hengshi Tutorial School as Shaanxi Hengshi Hengzhong Education Technology Co., Ltd.

(5)

Long-Spring Education Holding Group Limited is the sole sponsor for Wenshan Long-Spring Experimental Secondary School.

We primarily operate in China through the affiliated entities, based on a series of contractual arrangements by and among Yunnan WFOE, the affiliated entities, and the shareholders of Long-Spring Education. Our contractual arrangements with the affiliated entities and the shareholders of Long-Spring Education permit us to (1) exercise effective control over the affiliated entities, (2) receive substantially all of the economic benefits of the affiliated entities, and (3) have an exclusive call option to purchase all or part of the equity interests in the affiliated entities when and to the extent permitted by PRC law. The following is a summary of the material provisions of these contractual arrangements with the affiliated entities and the shareholders of Long-Spring Education executed in December 2018.

Power of Attorney. Pursuant to the school sponsors’ power of attorney, each school sponsor authorized and appointed Yunnan WFOE as its agent to exercise on its behalf a school sponsor’s rights. Pursuant to the directors’ power of attorney, each director of Long-Spring Education authorized and appointed Yunnan WFOE as his/her agent to exercise on his/her behalf a director’s rights. Pursuant to the shareholders’ power of attorney, each shareholder of Long-Spring Education authorized and appointed Yunnan WFOE as his/her/its agent to exercise on his/her/its behalf a shareholder’s rights.

Exclusive Technical Service and Management Consultancy Agreement and Business Cooperation Agreement. Yunnan WFOE provides exclusive technical and management consultancy services to the affiliated entities. Each of the affiliated entities pays Yunnan WFOE a service fee equal to the total amount of surplus of its operation.

Equity Pledge Agreement. Pursuant to the equity pledge agreement, the shareholders of Long-Spring Education unconditionally and irrevocably pledged and granted first priority security interests over all of his/her/its equity interest in the affiliated entities, as well as all related rights, to Yunnan WFOE as security for performance of all the contractual arrangements. They also waived any pre-emptive rights upon enforcement, and Yunnan WFOE can enforce upon default by transferring all or part of the equity interest, selling the pledged equity interest, or disposing of the pledged equity interest in any other way to the extent permitted by PRC laws and regulations.

Spousal Undertaking. Pursuant to the spousal undertaking executed by the spouses of the shareholders of Long-Spring Education, the signing spouses consented to the contractual arrangements with respect to the equity interest in Long-Spring Education. The spouses will not participate in the operation, management, liquidation, or any other matters in relation to the affiliated entities. They authorized the shareholders of Long-Spring Education to exercise their shareholding rights on behalf of them to ensure the interest of Yunnan WFOE.

For a more detailed summary of such contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.”

These contractual arrangements may not be as effective as direct equity ownership in providing us with control over our affiliate entities. If we had direct ownership of Long-Spring Education, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Long-Spring Education, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by the affiliated entities and their shareholders or sponsors of their obligations under the contracts to exercise control over the affiliated entities. The shareholders or sponsors of the affiliated entities may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portion of our business through the contractual arrangements with Long-Spring Education. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system. As a result, uncertainties in the commercial arbitration system or legal system in China could limit our ability to enforce these contractual arrangements. In addition, if the legal structure and the contractual arrangements were found to violate any existing or future PRC laws and regulations, we and the VIE may be subject to fines or other legal or administrative sanctions. If the imposition of government actions causes us to lose our right to direct the activities of the affiliated entities or our right to receive substantially all the economic benefits and residual returns from the affiliated entities and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of the affiliated entities. Furthermore, we are a holding company incorporated in the Cayman Islands. Interim remedies or enforcement orders granted by foreign courts in the United States and the Cayman Islands may not be recognized or enforceable in China. In the event we are unable to enforce our contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our affiliate entities, and our ability to conduct our business may be negatively affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with Long-Spring Education and its shareholders for our business operations in China, which may not be as effective as direct ownership in providing control” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Any failure by the affiliated entities and their shareholders or sponsors to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our and the VIE’s business.”

Our corporate structure has been subject to unique risks associated with the VIE structure. The contractual arrangements with the VIE have not been tested in court. If the PRC government deems that our contractual arrangements with the VIE did not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we and the VIE could be subject to severe penalties. The PRC regulatory authorities could disallow our holding company structure which could lead to a material change in our operations and/or a material change in the value of our ADSs, and could cause the value of our ADSs to significantly decline or become worthless. Our holding company, our PRC subsidiaries, and investors of our Company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the historical contractual arrangements with the VIE and, consequently, may affect the historical financial performance of the VIE and our Company as a whole. For a detailed description of the risks associated with our corporate structure, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that our corporate structure and contractual arrangements does not comply with applicable PRC laws and regulations, we and the VIE could be subject to severe penalties, and our and the VIE’s business may be materially and adversely affected.”

vii

We and the affiliated entities face various legal and operational risks and uncertainties related to being based in and having significant operations in China. The PRC government has recently issued statements and regulatory actions relating to areas such as regulatory approvals of offshore offerings, anti-monopoly regulatory actions, oversight on cybersecurity and data privacy. For example, on February 17, 2023, the China Securities Regulatory Commission (the “CSRC”) promulgated the Trial Measures of the Overseas Securities Offering and Listing by Domestic Companies (the “Overseas Listing Trial Measures”) and the related guidelines, which became effective on March 31, 2023. According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant information. In addition, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified by the Overseas Listing Trial Measures. We have been closely monitoring regulatory developments in China regarding any necessary approvals, filings or reports from the CSRC, and we will take any and all actions necessary to complete the filing with the CSRC if required. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The filing procedure with the CSRC shall be fulfilled and the approval of other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, if required.” In addition, if future regulatory updates mandate clearance of cybersecurity review or other specific actions to be completed by China-based companies listed on foreign stock exchanges or traded in foreign over the counter trading markets, such as us, we face uncertainties as to whether such clearance can be timely obtained, or at all. See “Item 3. Key Information—D. Risk Factors—Risks Related Doing Business in China—Failure to comply with governmental regulations and other legal obligations concerning data protection and cybersecurity may materially and adversely affect our and the VIE’s business, as we and the VIE routinely collect and store data during the business conduct.” Furthermore, the PRC anti-monopoly and competition laws and regulations are evolving, and there remains uncertainties as to how the anti-monopoly laws, regulations and guidelines will impact our business and results of operations. Please refer to “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.” PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies and institutions providing education services at the various school levels. In addition, the PRC government regulates the provision of education services through strict licensing requirements. In order to comply with PRC regulatory requirements, we and the VIE conduct our and the VIE’s business operations in China through both (1) our subsidiaries and (2) the affiliated entities based on certain contractual arrangements. We, together with the affiliated entities, are subject to PRC laws relating to, among others, restrictions over foreign investments in education services set out in the Negative List (2021 Version) promulgated by MOFCOM and the NDRC. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that our corporate structure and contractual arrangements does not comply with applicable PRC laws and regulations, we and the VIE could be subject to severe penalties, and our and the VIE’s business may be materially and adversely affected.” These statements and regulatory actions may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange. Such risks could result in a material change in our operations and/or the value of the ADSs or could significantly limit or completely hinder our ability to offer ADSs and/or other securities to investors and cause the value of such securities to significantly decline or be worthless. The PRC government also has significant discretion over the conduct of the business of us and the affiliated entities and may intervene with or influence our operations or the development of the private education industry as it deems appropriate to further regulatory, political and societal goals. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over overseas securities offerings and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless. For relevant risks, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.” As of the date of this annual report, laws and regulations in Hong Kong and Macau, including regulatory actions related to data security or antimonopoly concerns in Hong Kong and Macau, do not have a material impact on our ability to conduct business, accept foreign investment, or list on a United States or foreign stock exchange.

viii

Financial Information Related to the VIE

The following tables present the condensed consolidating schedules for First High-School Education Group Co., Ltd. (the “Parent”), Yunnan WFOE and its subsidiaries, the VIE and its subsidiaries, and our other subsidiaries (i.e., our subsidiaries in the BVI and Hong Kong) for the periods and as of the dates indicated.

Condensed consolidating statements of operations information

	For the year ended December 31, 2023
	Parent			Other subsidiaries		Yunnan WFOE and its subsidiaries			The VIE and its subsidiaries			Elimination			Consolidated
	(RMB in thousands)
Continuing Operations
Revenues		—			—		63,910			202,340			—			266,250
Cost of revenues		—			—		(31,390	)		(162,954	)		(647	)		(194,991	)
Gross profit		—			—		32,520			39,386			(647	)		71,259
Selling and marketing expenses		—			—		(1,343	)		(1,713	)		—			(3,056	)
General and administrative expenses		(3,757	)		—		(22,551	)		(29,075	)		(2,598	)		(57,981	)
Government grants		—			—		37			370			—			406
Allowance for credit losses		(7,083	)		—		21			(44,974	)		—			(52,035	)
Income from operations		(10,840	)		—		8,684			(36,005	)		(3,254	)		(41,407	)

Other income/(expenses):
Interest income		—			—		556			895			—			1,454
Interest expense		(20	)		—		(230	)		(8,701	)		2,579			(6,373	)
Others, net		—			—		396			1,101			(597	)		900
Investment return		—			—		125			—			(125	)		-
Income before income taxes		(10,860	)		—		9,530			(42,711	)		1,388			(45,426	)
Gain on disposal		—			—		—			2,731			(2,731	)		—
Income tax expenses		—			—		(2,458	)		3,325			—			867
Net income/(loss) from continuing operations		(10,860	)		—		7,702			(37,015	)		(3,759	)		(44,559	)
Loss from discontinued operations, net of tax		—			—		—			(26,084	)		—			(26,084	)
Net income/(loss)		(10,860	)		—		7,072			(63,099	)		(3,759	)		(70,643	)

	For the year ended December 31, 2022
	Parent			Other subsidiaries		Yunnan WFOE and its subsidiaries			The VIE and its subsidiaries			Elimination			Consolidated
	(RMB in thousands)
Continuing Operations
Revenues		—			—		112,268			230,238			—			342,506
Cost of revenues		—			—		(45,244	)		(168,378	)		—			(213,622	)
Gross profit		—			—		67,024			61,860			—			128,884
Operating expenses and income:
Selling and marketing expenses		—			—		(862	)		(2,239	)		—			(3,101	)
General and administrative expenses		(6,645	)		—		(10,503	)		(36,709	)		(728	)		(54,586	)
Government grants		—			—		56			1,980			—			2,036
Allowance for credit losses		—			—		(9	)		—			—			(9	)
Income from operations		(6,645	)		—		55,706			24,891			(728	)		73,224

Other income/(expenses):
Interest income		8			—		77			1,343			(5	)		1,422
Interest expense		2			—		(68	)		(9,487	)		7			(9,546	)
Foreign currency exchange (loss)/gain, net		—			—		(55	)		—			—			(55	)
Others, net		—			—		611			467			(9	)		1,069
Investment return		10,000			—		—			—			(10,000	)		—
Income before income taxes		3,364			—		56,270			17,215			(10,735	)		66,114
Gain on disposal		—			—		—			1,782			(1,782	)		—
Income tax expenses		(1,000	)		—		(8,534	)		(10,483	)		—			(20,017	)
Net income from continuing operations		2,364			—		47,735			8,514			(12,516	)		46,097
Income/(loss) from discontinued operations, net of tax		—			—		—			(9,472	)		1,781			(7,691	)
Net income		2,364			—		47,735			(958	)		(10,735	)		38,406

	For the year ended December 31, 2021
	Parent			Other subsidiaries		Yunnan WFOE and its subsidiaries			The VIE and its subsidiaries			Elimination			Consolidated
	(RMB in thousands)
Continuing Operations
Revenues		—			—		127,248			307,343			(97,282	)		337,310
Cost of revenues		—			—		(66,957	)		(237,954	)		98,457			(206,454	)
Gross profit		—			—		60,291			69,390			1,176			130,856
Operating expenses and income:
Selling and marketing expenses		—			—		(2,314	)		(4,068	)		—			(6,383	)
General and administrative expenses		(1,257	)		—		(15,762	)		(37,613	)		7,730			(46,901	)
Government grants		—			—		(315	)		900			—			584
Allowance for credit losses		—			—		—			(14	)		—			(14	)
Income from operations		(1,257	)		—		41,899			28,594			8,906			78,142

Other income/(expenses):
Interest income		15			—		161			621			332			1,128
Interest expense		(1,478	)		—		(509	)		(10,597	)		3,039			(9,545	)
Foreign currency exchange (loss)/gain, net		—			—		—			—			(922	)		(922	)
Others, net		1,805			—		810			1,027			—			3,641
Income before income taxes		(915	)		—		42,360			19,644			11,355			72,444
Income tax expenses		—			—		(6,461	)		(8,463	)		—			(14,924	)
Net income from continuing operations		(915	)		—		35,899			11,182			11,355			57,520
Income/(loss) from discontinued operations, net of tax		—			—		—			(4,827	)		—			(4,827	)
Net income		(915	)		—		35,899			6,354			11,355			52,693

Condensed consolidating balance sheets information

	As of December 31, 2023
	Parent			Other subsidiaries		Yunnan WFOE and its subsidiaries		The VIE and its subsidiaries		Elimination			Consolidated
	(RMB in thousands)
Assets
Current assets
Cash		4,630			—		49,269		135,344		—			189,243
Accounts receivable, net of allowance for credit losses		—			—		43,030		76,114		(36,942	)		82,202
Amounts due from related parties		63,327			—		—		168,450		(15,869	)		215,908
Prepaid expenses and other current assets		—			—		334,812		240,367		(333,777	)		241,403
Assets related to discontinued operation		—			—		—		42,746		—			42,746
Total current assets		67,957			—		427,112		663,021		(386,588	)		771,502
Non-current assets
Long-term equity investment		—			6,878		100		—		(6,978	)		—
Property and equipment, net		—			—		61,058		58,750		—			119,808
Intangible assets, net		—			—		6,296		951		—			7,247
Goodwill		—			—		—		30,347		—			30,347
Deferred tax assets		—			—		7,216		13,078		—			20,294
Other non-current assets		—			—		—		33,350		—			33,350
Assets related to discontinued operation		—			—		—		9,075		—			9,075
Total non-current assets		—			6,878		74,670		145,551		(6,978	)		220,122
Total assets		67,957			6,878		501,781		808,572		(393,566	)		991,624

Liabilities and Equity
Current liabilities
Contract liabilities		—			—		30,238		134,125		(23,861	)		140,501
Borrowings under financing arrangements		—			—		—		—		—			—
Bank loan		—			—		—		87,970		—			87,970
Accounts payable		—			—		45,048		17,615		(41,155	)		21,508
Accrued expenses and other payables		—			—		351,401		208,007		(384,810	)		263,078
Income tax payables		—			—		10,804		17,714		1,160			29,678
Amounts due to related parties		—			—		—		189,768		63,886			165,173
Dividend payables		(8,302	)		—		—		—		—			2,132
Liability related to discontinued operation		—			—		—		119,930		—			119,930
Total current liabilities		(8,302	)		—		437,492		775,129		(374,347	)		829,970
Non-current liabilities
Deferred tax liabilities		—			—		908		5,300		—			6,207
Liability related to discontinued operation		—			—		—		—		—			—
Total non-current liabilities		—			—		908		5,300		—			6,207
Total liabilities		(8,302	)		—		438,399		780,429		(374,348	)		836,177

	As of December 31, 2022
	Parent			Other subsidiaries		Yunnan WFOE and its subsidiaries			The VIE and its subsidiaries		Elimination			Consolidated
	(RMB in thousands)
Assets
Current assets
Cash		7,842			—		858			96,552		6			105,258
Accounts receivable, net of allowance for doubtful accounts		—			—		55,379			41,441		(9,573	)		87,247
Amounts due from related parties		67,248			—		—			41,123		(34,921	)		73,450
Prepaid expenses and other current assets		7,257			—		256,410			131,073		(250,033	)		144,708
Assets related to discontinued operation		—			—		—			69,868		(4,053	)		65,815
Total current assets		82,347			—		312,648			380,057		(298,574	)		476,478
Non-current assets
Property and equipment, net		—			—		60,758			67,206		199			128,163
Intangible assets, net		—			—		5,854			7		134			5,995
Goodwill		—			—		—			30,347		—			30,347
Deferred tax assets		—			—		7,019			5,745		545			13,309
Other non-current assets		—			6,878		100			47,177		(6,978	)		47,177
Assets related to discontinued operation		—			—		(878	)		11,888		—			11,010
Total non-current assets		—			6,878		72,853			162,370		(6,100	)		236,001
Total assets		82,347			6,878		385,501			542,427		(304,673	)		712,479

Liabilities and Equity
Current liabilities
Contract liabilities		—			—		33,694			135,703		(27,823	)		141,574
Borrowings under financing arrangements		—			—		(13,032	)		20,540		—			20,540
Bank loan		—			—		13,032			33,572		—			33,572
Accounts payable		—			—		38,753			10,615		(35,559	)		13,809
Accrued expenses and other payables		—			—		247,344			42,183		(237,064	)		52,463
Income tax payables		—			—		14,428			9,251		5,943			29,622
Amounts due to related parties		1,045			—		—			45,781		4,849			51,675
Dividend payables		(8,302	)		—		—			—		10,434			2,132
Liability related to discontinued operation		—			—		(6,187	)		110,828		—			104,641
Total current liabilities		(7,258	)		—		328,032			408,473		(279,219	)		450,028
Non-current liabilities
Borrowings under financing arrangements		—			—		—			24,987		—			24,987
Other payables		—			—		—			1,270		375			1,645
Deferred tax liabilities		—			—		870			4,285		—			5,155
Liability related to discontinued operation		—			—		—			—		—			—
Total non-current liabilities		—			—		870			30,542		375			31,787
Total liabilities		(7,258	)		—		328,902			439,015		(278,844	)		481,815

xii

Condensed consolidating cash flows information

	For the year ended December 31, 2023
	Parent			Other subsidiaries		Yunnan WFOE and its subsidiaries			The VIE and its subsidiaries			Elimination			Consolidated
	(RMB in thousands)
Net cash generated from/(used) in operating activities—Continuing Operations		(6,028	)		—		75,457			64,007			(1,670	)		131,766
Net cash generated from/(used) from operating activities—Discontinued Operations		—			—		—			17,604			1,377			18,981
Net cash generated from/(used) in investing activities—Continuing Operations		—			—		(4,469	)		(1,765	)		—			(6,234	)
Net cash generated from/(used in) investing activities—Discontinued Operations		—			—		—			—			—			—
Net cash generated from/(used in) financing activities —Continuing Operations		(20	)		—		(20,103	)		(28,462	)		—			(48,585	)
Net cash generated from/(used in) financing activities —Discontinued Operations		—			—		248			(12,298	)		—			(12,050	)
Effect of exchange rate changes on cash		2,835			—		(2,430	)		—			—			405
Net increase in cash		(3,212	)		—		48,702			39,086			(293	)		84,283
Cash at the beginning of the year		7,842			—		860			96,552			—			105,253
Cash at the end of the year		4,630			—		49,562			135,638			(294	)		189,536
Less: Cash and cash equivalents from the discontinued operations, end of period		—			—		—			293			—			293
Cash and cash equivalents, from the continuing operations end of period		4,630			—		49,562			135,344			(293	)		189,243

	For the year ended December 31, 2022
		Parent			Other subsidiaries		Yunnan WFOE and its subsidiaries			The VIE and its subsidiaries			Elimination			Consolidated
		(RMB in thousands)
Net cash generated from/(used) in operating activities—Continuing Operations			(1,327	)		—		33,043			(145,240	)		27,790			(85,734	)
Net cash generated from/(used) from operating activities—Discontinued Operations			—			—		—			73,225			13,156			86,381
Net cash generated from/(used) in investing activities—Continuing Operations			—			—		(10,446	)		27,897			—			38,343
Net cash generated from/(used in) investing activities—Discontinued Operations			—			—		—			136,277			(40,947	)		95,330
Net cash generated from/(used in) financing activities —Continuing Operations			(6,965	)		—		(40,481	)		(35,872	)		—			(83,318	)
Net cash generated from/(used in) financing activities —Discontinued Operations			—			—		—			—			—			—
Effect of exchange rate changes on cash			5,322			—		(3,354	)		—			—			1,968
Net increase in cash			(2,970	)		—		(346	)		56,287			—			52,970
Cash at the beginning of the year			10,812			—		1,206			102,122			—			114,140
Cash at the end of the year			7,842			—		860			158,409			—			167,110
Less: Cash and cash equivalents from the discontinued operations, end of period			—			—		—			(61,857	)		—			(61,857	)
Cash and cash equivalents, from the continuing operations end of period			7,842			—		859			96,552			—			105,253

xiii

	For the year ended December 31, 2021
	Parent			Other subsidiaries		Yunnan WFOE and its subsidiaries			The VIE and its subsidiaries			Elimination		Consolidated
	(RMB in thousands)
Net cash generated from/(used) in operating activities—Continuing Operations		(1,148	)		—		(149,569	)		100,794			27,706		(22,487	)
Net cash generated from/(used) from operating activities—Discontinued Operations		—			—		—			138,563			27,706		110,857
Net cash generated from/(used) in investing activities—Continuing Operations		—			—		(4,602	)		(63,225	)		—		(67,857	)
Net cash generated from/(used in) investing activities—Discontinued Operations		—			—		—			(65,775	)		—		(65,775	)
Net cash generated from/(used in) financing activities —Continuing Operations		13,178			—		84,130			36,877			—		134,185
Net cash generated from/(used in) financing activities —Discontinued Operations		—			—		—			(10,614	)		—		(10,614	)
Effect of exchange rate changes on cash		949			—		1,267			—			—		318
Net increase in cash		10,812			—		(68,776	)		136,610			—		78,647
Cash at the beginning of the year		—			—		69,681			66,972			—		136,953
Cash at the end of the year		10,812			—		1,206			203,582			—		215,600
Less: Cash and cash equivalents from the discontinued operations, end of period		—			—		—			101,460			—		101,460
Cash and cash equivalents, from the continuing operations end of period		10,812			—		1,206			102,112			—		114,140

The Holding Foreign Companies Accountable Act

Our financial statements contained in the annual report on Form 20-F for the years ended December 31, 2021, 2022 and 2023 have been audited by an independent registered public accounting firm that is headquartered in Singapore and has been inspected by the Public Company Accounting Oversight Board (United States) (“PCAOB”) on a regular basis, which was not included in the list of PCAOB Identified Firms of having been unable to be inspected or investigated completely by the PCAOB in the PCAOB Determination Report issued in December 2021. We have not been identified by the U.S. Securities and Exchange Commission (the “SEC”) as a non-inspection registrant under the Holding Foreign Company Accountable Act (the “HFCAA”), as of the date of this annual report. Additionally, in August 2022, the China Securities Regulatory Commission (the “CSRC”), the Ministry of Finance of the PRC (the “MOF”) and the PCAOB signed a Statement of Protocol (the “Statement of Protocol”), which establishes a specific and accountable framework for the PCAOB to conduct inspections and investigations of PCAOB-governed accounting firms in mainland China and Hong Kong. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. 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. In the event that future regulators in China take steps to restrict the audit firm’s access to working papers in mainland China or Hong Kong, or if the PCAOB is unable to fully inspect our audit working papers, or if the PCAOB expands the scope of its determination so that we are subject to the HFCAA, it could restrict or limit our access to the U.S. capital markets or in the over-the-counter trading market in the United States may be prohibited under the HFCAA. If, in the future, we have been identified by the SEC for two consecutive years as a non-inspection registrant whose registered public accounting firm is determined by the PCAOB that it is unable to inspect or investigate completely because of a position taken by one or more authorities in China, the SEC may prohibit our shares or ADSs from being traded on a national securities exchange or in the over the counter trading market in the United States. For more details about the risk on the HFCAA and its impact on us, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our shares and ADSs will be prohibited from trading in the OTC market under the Holding Foreign Companies Accountable Act, if the PCAOB is unable to inspect or investigate completely our auditors for two consecutive years. The cessation of trading of our ordinary shares, or the threat of their being prohibited from being traded, may materially and adversely affect the value of your investment.”

xiv

Permissions Required from the PRC Authorities for Our Securities Offerings and Operations

Our operations in China are governed by PRC laws and regulations. Based on the opinion of our PRC legal counsel, Beijing Zhongwen Law Firm, as of the date of this annual report, we, our PRC subsidiaries, the VIE and the affiliated entities in China have obtained all requisite permissions and approvals from the PRC government authorities for our and the VIE’s business operations in China, have not been denied such permissions and approvals and have not received any requirement to obtain any other permission or approval from any PRC government authority with respect to the operation of our business, nor have we or the VIE been denied or dismissed by any government authority of any application of permissions or approvals that are necessary to the operations of our business, except for (1) Shaanxi Hengshi Tutorial School, and (2) Yunnan Long-Spring Education Holding Group Hengshui Experimental Middle School Management Co., Ltd., and (3) Hengshizhong Education Tutorial School for which the private school operation permit has been cancelled and the school ceased operation since 2023. For such schools that conduct business before we and the VIE can obtain a private school operation permit, we and the VIE may be subject to order to cease the operation, refund the income collected and a fine ranging from one to five times of the income the sponsor collected, which may materially and adversely affect our and the VIE’s business and results of operations. For relevant risks, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We and the VIE may be unable to obtain all required approvals, licenses and make all required registrations for our and the VIE’s education services and business operations, and may be subject to fines and penalties if the operations do not comply with applicable PRC laws and regulation.” The relevant requisite permissions and approvals primarily include business license, private non-enterprise unit registration certificate, and private school operation permit. We set forth below the details of all these licenses and permissions held by our PRC subsidiaries as of December 31, 2023.

Holding Entity	License/Permission	Issuing Authority
Yunnan Century Long-Spring Technology Co., Ltd.	Business license	State Administration for Market Regulation
Yunnan Long-Spring Logistics Service Co., Ltd.	Business license	State Administration for Market Regulation
Long-Spring Education Holding Group Limited	Business license	State Administration for Market Regulation
Kunming Xishan Long-Spring Experimental Secondary School	Private non-enterprise unit registration certificate; Private school operating permit	Ministry of Civil Affairs of the PRC Ministry of Education of the PRC
Kunming Chenggong Long-Spring Experimental Secondary School	Private non-enterprise unit registration certificate; Private school operating permit	Ministry of Civil Affairs of the PRC Ministry of Education of the PRC
Yiliang Long-Spring Experimental Secondary School	Private non-enterprise unit registration certificate; Private school operating permit	Ministry of Civil Affairs of the PRC Ministry of Education of the PRC
Qujing Hengshui Experimental Secondary School	Private non-enterprise unit registration certificate; Private school operating permit	Ministry of Civil Affairs of the PRC Ministry of Education of the PRC
Yunnan Yuxi Hengshui Experimental Secondary School	Private non-enterprise unit registration certificate; Private school operating permit	Ministry of Civil Affairs of the PRC Ministry of Education of the PRC
Yunnan Hengshui Experimental Secondary School—Xishan School	Private non-enterprise unit registration certificate; Private school operating permit	Ministry of Civil Affairs of the PRC Ministry of Education of the PRC
Yunnan Long-Spring Foreign Language Secondary School	Private non-enterprise unit registration certificate; Private school operating permit	Ministry of Civil Affairs of the PRC Ministry of Education of the PRC
Zhenxiong Long-Spring Advanced Secondary School	Private non-enterprise unit registration certificate; Private school operating permit	Ministry of Civil Affairs of the PRC Ministry of Education of the PRC
Bainian Long-Spring Education Technology (Zhenxiong) Co., Ltd.	Business license	State Administration for Market Regulation
Qiubei Long-Spring Experimental Secondary School	Private non-enterprise unit registration certificate; Private school operating permit	Ministry of Civil Affairs of the PRC Ministry of Education of the PRC
Mengla Long-Spring Experimental Secondary School	Private non-enterprise unit registration certificate; Private school operating permit	Ministry of Civil Affairs of the PRC Ministry of Education of the PRC
Wenshan Long-Spring Experimental Secondary School	Private non-enterprise unit registration certificate; Private school operating permit	Ministry of Civil Affairs of the PRC Ministry of Education of the PRC
Xinping Long-Spring Advanced Secondary School Co., Ltd.	Business license; Private school operating permit	State Administration for Market Regulation Ministry of Education of the PRC
Xishuangbanna Long-Spring Experimental Secondary School Co., Ltd.	Business license; Private school operating permit	State Administration for Market Regulation Ministry of Education of the PRC
Shaanxi Hengshi Tutorial School	Business license; Process of obtaining Private school operating permit	State Administration for Market Regulation

Holding Entity

License/Permission

Issuing Authority

Shaanxi Century Long-Spring Education Technology Co., Ltd.	Business license	State Administration for Market Regulation
Guizhou Century Long-Spring Technology Co., Ltd.	Business license	State Administration for Market Regulation
Guizhou Hengzhong Technology Co., Ltd.	Business license	State Administration for Market Regulation
Guizhou Hengzhong Education Tutorial School Co., Ltd.	Business license	State Administration for Market Regulation
Chongqing Hengshi Education Technology Co., Ltd.	Business license	State Administration for Market Regulation
Kunming Chenggong Times Giant Tutorial School Co., Ltd.	Business license; Private school operating permit	State Administration for Market Regulation Ministry of Education of the PRC
Kunming Wuhua District Zhuorui Cultural Training School Co., Ltd	Business license; Private school operating permit	State Administration for Market Regulation Ministry of Education of the PRC
Kunming Guandu Hengshizhong Education Training School Co., Ltd.	Business license	State Administration for Market Regulation
Zunyi Hengshi Education Technology Co., Ltd.	Business license;	State Administration for Market Regulation Ministry of Education of the PRC
Yunnan Long-Spring Education Holding Group Hengshui Experimental Middle School Management Co., Ltd	Business license Process of obtaining Private school operating permit	State Administration for Market Regulation
Yunnan Hengshun Property Service Co., Ltd.	Business license	State Administration for Market Regulation
Yunnan Lihua Education Technology Co., Ltd.	Business license	State Administration for Market Regulation
Bainian Long-Spring (Luoping) Education Technology Co., Ltd.	Business license	State Administration for Market Regulation
Bainian Long-Spring (Mengzi) Education Technology Co., Ltd.	Business license	State Administration for Market Regulation
Bainian Long-Spring (Qingdao) Education Technology Co., Ltd.	Business license	State Administration for Market Regulation
Panzhihua Bainian Long-Spring Education Technology Co., Ltd.	Business license	State Administration for Market Regulation
Beijing Green Carbon Future Intelligent Technology Co., Ltd.	Business license	State Administration for Market Regulation
Yangling Hengshi Secondary School Co., Ltd.	Business license Private school operating permit	State Administration for Market Regulation Ministry of Education of the PRC
Xi'an Hengshi Education Technology Co., Ltd.	Business license	State Administration for Market Regulation

Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we and the VIE may be required to obtain additional licenses, permits, filings or approvals for our and the VIE’s existing and newly opened schools in the future. If we and the VIE (1) do not receive or maintain any necessary permissions or approvals from PRC authorities to operate business or offer securities, (2) inadvertently conclude that such permissions or approvals are not required, or (3) if applicable laws, regulations or interpretations change, and we and the VIE are required to obtain such permissions or approvals in the future, we cannot assure you that we and the VIE will be able to obtain the necessary permissions or approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could subject us to penalties, including fines, suspension of business and revocation of the required licenses, 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. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry— We and the VIE may be unable to obtain all required approvals, licenses and make all required registrations for our and the VIE’s education services and business operations, and may be subject to fines and penalties if the operations do not comply with applicable PRC laws and regulation”, “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We and the VIE face uncertainties with respect to the development of regulatory requirements on operating licenses and permits for the VIE’s online education services in China” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China— Uncertainties with respect to the PRC legal system could have a material adverse effect on us and the VIE.”

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Furthermore, the PRC government has recently promulgated new or proposed laws and regulations to further regulate securities offerings that are conducted overseas and/or foreign investment in China-based issuers. On February 17, 2023, the CSRC promulgated the Trial Measures of the Overseas Securities Offering and Listing by Domestic Companies (the “Overseas Listing Trial Measures”) and the related guidelines, which became effective on March 31, 2023. According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant information. The Overseas Listing Trial Measures further provides that, initial public offerings or listings in overseas markets by domestic companies, either in direct or indirect form shall be filed with the CSRC pursuant to the requirements of the Overseas Listing Trial Measures within three business days after the relevant application is submitted overseas. The companies that had already been listed on overseas stock exchanges prior to March 31, 2023 or the companies that had obtained the approval from overseas supervision administrations or stock exchanges for its offering and listing prior to March 31, 2023 and will complete their overseas offering and listing prior to September 30, 2023 are not required to make immediate filings for its listing, but are required make filings for subsequent offerings in accordance with the Overseas Listing Trial Measures. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The filing procedure with the CSRC shall be fulfilled and the approval of other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, if required.” With respect to our ability to offer securities to investors, based on the opinion of our PRC legal counsel, Beijing Zhongwen Law Firm, pursuant to the Overseas Listing Trial Measures and related guidelines, under the PRC laws, regulations and regulatory rules currently in effect, as of the date of this annual report, (1) in connection with our previous issuance of securities to foreign investors, we and the VIE are not required to obtain any permissions or approvals from the CSRC, or obtain other permission or approval from the PRC government authorities; and (2) should we decide to conduct future offerings of securities overseas or up-listing to an overseas stock exchange, we are not required to obtain any permissions or approvals from any PRC government authorities, except for the requisite filing with the CSRC in connection with such offerings.

On December 28, 2021, the Cyberspace Administration of China (the “CAC”) jointly with other 12 government authorities, issued the Measures for Cybersecurity Review (2021), which became effective on February 15, 2022, and repealed the Cybersecurity Review Measures (2020) simultaneously. The Measures for Cybersecurity Review (2021) provide that critical information infrastructure operators purchasing network products and services and data processors carrying out data processing activities, which affect or may affect national security, shall apply for cybersecurity review to the cyberspace administrations in accordance with the provisions thereunder. It also provides that if a “network platform operator” holding personal information of more than one million users intends to go public in a foreign country, it must apply for a cybersecurity review. Currently, we and the VIE have not been involved in any investigations on cybersecurity review initiated by the CAC or related governmental regulatory authorities, and we and the VIE have not received any inquiry, notice, warning, or sanction in such respect. Based on the opinion of our PRC legal counsel, Beijing Zhongwen Law Firm, we and the VIE are not required to file an application for the cybersecurity review by the CAC for our previous issuance of securities to foreign investors as of the date of this annual report because (1) we and the VIE are not in the industry or business operation that involves critical information infrastructure operation, nor do we or the VIE operate as a network platform operator engaging in relevant data processing activities which affect or may affect national security of the PRC; (2) we and the VIE are not in possession of personal information of over one million users and it is also very unlikely that it will reach such threshold in the near future; and (3) as of the date of the annual report, we and the VIE have not received any notice or determination from applicable PRC governmental authorities identifying us as a critical information infrastructure operator or a network platform operator engaging in relevant data processing activities which affect or may affect national security of the PRC.

Cash and Asset Flows through Our Organization

First High-School Education Group Co., Ltd. is a holding company with no business operations of its own. We conduct our operations primarily through our PRC subsidiaries and affiliated entities in China. Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gains. In addition, upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed.

Under applicable PRC laws and regulations, First High-School Education Group Co., Ltd. may provide funding to our PRC subsidiaries only through capital contributions or loans, and to the VIE only through loans, subject to the satisfaction of applicable government registration and approval requirements. Loans by First High-School Education Group Co., Ltd. to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE and capital contributions to our PRC subsidiaries are subject to approval by MOFCOM or its local counterparts. For more details, please refer to “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Loans to and Direct Investment in the PRC Entities by Offshore Holding Companies.” In 2021, 2022 and 2023, First High-School Education Group Co., Ltd. and its subsidiaries incorporated in the Cayman Islands, British Virgin Islands and Hong Kong did not make any capital contribution or loans to our PRC subsidiaries or the VIE, except that First High-School Education Group Co., Ltd. made loans of RMB63.2 million to Yunnan WFOE in 2021. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries and affiliated entities, which could harm our liquidity and our ability to fund and expand our business.”

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Our PRC subsidiaries received RMB137.7 million, RMB122.9 million and RMB121.5 million from the VIE in 2021, 2022 and 2023, respectively, which include cash advances and service fees made by the VIE to our PRC subsidiaries for daily operations. The VIE received RMB270.8 million, RMB139.6 million and RMB115.5 million from our PRC subsidiaries in 2021, 2022 and 2023, respectively, which include the repayment of aforementioned cash advances for daily operations. For more information relating to cash and asset flows through our organization, see information disclosed in “—Financial Information Related to the VIE.” For risks relating to our corporate structure, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government determines that the contractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, we may be unable to assert our contractual rights over the assets of the VIE, and our ADSs or ordinary shares may decline in value or become worthless.”

Our PRC subsidiaries are permitted to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to allocate at least 10% of their accumulated profits each year, if any, to fund statutory reserves of up to 50% of the registered capital of the enterprise. Statutory reserves are not distributable as cash dividends except in the event of liquidation. If we intend to distribute dividends, we will transfer the dividends to First High-School HK, our Hong Kong subsidiary, in accordance with the laws and regulations of the PRC, and then First High-School HK will transfer the dividends to First High-School BVI, our BVI subsidiary, and further to First High-School Education, the Cayman Islands holding company, and the dividends will be distributed from the First High-School Education to all shareholders respectively in proportion to the shares they hold, regardless of whether the shareholders are U.S. investors or investors in other countries or regions. In 2021 and 2023, no dividends were declared and paid by our PRC subsidiaries. In 2022, dividends of US$1.24 million, net of 10.0% withholding tax were declared and paid to First High-School HK by our PRC subsidiaries. We have no current intention to pay dividends to shareholders. 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.

Furthermore, cash transfers from our PRC subsidiaries to entities outside of China are subject to PRC government controls on currency conversion. As a result, cash in mainland China may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on our PRC subsidiaries’ ability to transfer cash. Shortages in the availability of foreign currency may temporarily delay the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. There is no assurance the PRC government will not intervene in or impose restrictions on us and our subsidiaries to transfer cash. In view of the foregoing, to the extent cash in our business is held in China or by a PRC entity, such cash may not be available to fund operations or for other use outside of China. As of the date of this annual report, there are no equivalent or similar restrictions or limitations in Hong Kong on cash transfers in, or out of, our subsidiary in Hong Kong. However, if certain restrictions or limitations were to become applicable to cash transfers in and out of Hong Kong entities in the future, the funds in our subsidiary in Hong Kong may not be available to fund operations or for other use outside of Hong Kong. For risks relating to the fund flows of our operations in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.”

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We currently have not maintained any cash management policies that specifically dictate how funds shall be transferred among First High-School Education Group Co., Ltd., its subsidiaries, the VIE and investors. We will determine the payment of dividends and fund transfer based on our specific business needs in accordance with the applicable laws and regulations.

Under the Cayman Islands laws, First High-School Education Group Co., Ltd. is not subject to tax on income or capital gains. Upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed. For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid in mainland China and Hong Kong, assuming that: (1) we have taxable earnings and (2) we determine to pay a dividend in the future:

	Tax calculation
Hypothetical pre-tax earnings⁽²⁾		100.0	%
Tax on earnings at statutory rate of 25%⁽³⁾		(25.0	)%
Net earnings available for distribution		75.0	%
Withholding tax at standard rate of 10%⁽⁴⁾		(7.5	)%
Net distribution to shareholders		67.5	%

(1)	For purposes of this hypothetical example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount is assumed to equal PRC taxable income.

(2)

For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective. Under the terms of the VIE agreements, our subsidiaries in China may charge the VIE for services provided to the VIE. These service fees shall be recognized as expenses of the VIE, with a corresponding amount recognized as service income by our subsidiaries in China and eliminated in consolidation. For income tax purposes, our subsidiaries in China and VIE file income tax returns on a separate company basis. The service fees paid are recognized as a tax deduction by the VIE and as income by our subsidiaries in China and are tax neutral.

(3)

PRC Enterprise Income Tax Law and its implementation rules impose a withholding income tax of 10% on dividends distributed by a foreign invested enterprise in China to its immediate holding company outside China. A lower withholding income tax rate of 5% is applied if the foreign invested enterprise’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to a qualification review at the time of the distribution. There is no incremental tax at Hong Kong level for any dividend distribution to First High-School Education Group Co., Ltd. Certain of our subsidiaries and VIE qualify for a 15% preferential income tax rate in China. However, such rate is subject to qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective.

(4)	If a 10% withholding income tax rate is imposed, the withholding tax will be 7.5% and the amount to be distributed as dividend at Hong Kong level and the net distribution to First High-School Education Group Co., Ltd. will be 67.5%.

The table above has been prepared under the assumption that all profits of the VIE will be distributed as fees to our PRC subsidiaries under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the VIE exceed the service fees paid to our PRC subsidiaries (or if the current and contemplated fee structure between the inter-group entities is determined to be non-substantive and disallowed by PRC tax authorities), the VIE could make a non-deductible transfer to our PRC subsidiaries for the amounts of the stranded cash in the VIE. This would result in such transfer being non-deductible expenses for the VIE but still taxable income for our WFOE. Such a transfer and the related tax burdens would reduce our after-tax income to approximately 50.6% of the pre-tax income. Our management believes that there is only a remote possibility that this scenario would happen.

Our reporting currency is Renminbi. This annual report contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of Renminbi into U.S. dollars were made at RMB7.0999 to US$1.00, the noon buying rate on December 29, 2023 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. We make no representation that the Renminbi or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi at any particular rate or at all.

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FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements about our current expectations and views of future events. These forward looking statements are made under the “safe-harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements relate to events that involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from those expressed or implied by these statements.

You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “could,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “propose,” “potential,” “should,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. The forward-looking statements included in this annual report relate to, among other things:

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our mission, goals and strategies;

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our ability to retain and grow customer base;

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our future business development, financial condition and results of operations;

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expected changes in our revenue, costs or expenditures;

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our ability to manage and expand the sales network and other aspects of our operations;

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our projected markets and growth in markets;

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our potential need for additional capital and the availability of such capital;

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competition in our industry;

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relevant government policies and regulations relating to our industry;

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general economic and business conditions globally and in China; and

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assumptions underlying or related to any of the foregoing.

You should read this annual report and the documents that we refer to in this annual report completely and with the understanding that our actual future results may be materially different from and worse than what we expect. Moreover, new risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

This annual report also contains certain data and information that we obtained from various government and private publications. Statistical data in these publications include projections based on a number of assumptions. Failure of the market to grow at the projected rate may have a material adverse effect on our business and the market price of the ADSs. In addition, projections or estimates about our business and financial prospects involve significant risks and uncertainties. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking 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. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.

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

Summary Risk Factors

Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows, and prospects. These risks are discussed more fully below and include, but are not limited to, risks related to:

Risks related to our business and industry

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Our efforts to be in compliance with the Implementation Rules may materially and adversely affecting our business, financial condition, results of operations and prospect in the future. See “—Risks Related to Our Business and Industry—Our efforts to be in compliance with the Implementation Rules has materially and adversely affected and may continue to materially and adversely affect our and the VIE’s business, financial condition, results of operations and prospect in the future”;

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Our limited operating history makes it difficult to predict our prospects and our business and financial performance. See “—Risks Related to Our Business and Industry—We have limited operating history, which makes it difficult to predict our prospects and our and the VIE’s business and financial performance”;

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Potential contractual disputes in relation to the sponsorship in the schools that local governments may claim to have sponsor interests could cause us to lose control of the affected schools if any such contractual dispute were to judicially determined against us. See “—Risks Related to Our Business and Industry—If local governments claim to have sponsor interests in certain of the VIE’s schools, we and the VIE could be subject to contractual disputes in relation to the sponsorship in those schools or the entry into contractual arrangements over those schools”;

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New legislation or proposed changes in the PRC regulatory requirements regarding private education may cast doubt on the legality of our contractual arrangements and our revenue derived from the running of schools pursuant to our contractual arrangements. See “—Risks Related to Our Business and Industry—Uncertainties exist in relation to new legislation or proposed changes in the PRC regulatory requirements regarding private education, which may materially and adversely affect our group structure, our and the VIE’s business, financial condition and results of operation”;

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Our ability to execute our growth strategies, continue to grow rapidly or manage our growth effectively may negatively affect our prospects and our business and financial performance. See “—Risks Related to Our Business and Industry—We may not be able to execute our growth strategies, continue to grow rapidly or manage our growth effectively”;

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Our ability to charge tuition and boarding fees at sufficient levels to be profitable or increase our fee level may negatively affect our profitability. See “—Risks Related to Our Business and Industry—We and the VIE may be unable to charge tuition and boarding fees at sufficient levels to be profitable or increase the VIE’s fee level”;

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Our ability to enroll and retain a sufficient number of students may negatively affect our profitability. See “—Risks Related to Our Business and Industry—If the VIE fails to enroll and retain a sufficient number of students, our and the VIE’s business could be materially and adversely affected”;

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Potential unfavorable changes in our cooperative relationships with local governments or favorable government policy treatment could negatively affect our current business model and/or result in disputes with the relevant local governments. See “—Risks Related to Our Business and Industry—Any unfavorable changes in our and the VIE’s cooperative relationships with third parties or favorable government policy treatment may adversely affect our and the VIE’s business”;

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Our ability to obtain all required approvals, licenses and make all required registrations for our education services and business operations could subject us to fines and penalties and order to cease operation in the case of non-compliance. See “—Risks Related to Our Business and Industry—We and the VIE may be unable to obtain all required approvals, licenses and make all required registrations for our and the VIE’s education services and business operations, and may be subject to fines and penalties if the operations do not comply with applicable PRC laws and regulation”;

●

Our ability to integrate businesses we acquired or plan to acquire in the future, which may negatively affect our expansion. See “—Risks Related to Our Business and Industry—We and the VIE’s may not be able to successfully integrate businesses we and the VIE acquired or plan to acquire in the future, which may adversely affect our business growth”;

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Our ability to attract and retain a sufficient number of qualified teachers and principals could negatively affect our business if we experience a shortage of high-quality teachers and principals. See “—Risks Related to Our Business and Industry—We and the VIE may not be able to attract and retain a sufficient number of qualified teachers and principals”;

●

We may not be able to maintain the market recognition of our brand and our reputation. See “—Risks Related to Our Business and Industry—We may not be able to maintain the market recognition of our brand and our reputation”; and

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Accidents, injuries or other harm at the VIE’s school premises or otherwise arising from or in connection with our education services may subject us to tort liabilities. See “—Risks Related to Our Business and Industry—Accidents, injuries or other harm at the VIE’s school premises or otherwise arising from or in connection with its education services may adversely affect our and the VIE’s reputation and subject us to liabilities.”

Risks related to our corporate structure

●

We face risks arising from the uncertainties in compliance of the contractual arrangements that establish our corporate structure for operating our business, which could subject us to penalties if the PRC government finds that our corporate structure and contractual arrangements does not comply with applicable PRC laws and regulations, and we may also be unable to assert our contractual rights over the assets of the VIE, with the results that our ADSs or ordinary shares may decline in value or become worthless. See “—Risks Related to Our Corporate Structure—If the PRC government finds that our corporate structure and contractual arrangements does not comply with applicable PRC laws and regulations, we and the VIE could be subject to severe penalties, and our and the VIE’s business may be materially and adversely affected” and “—Risks Related to Our Corporate Structure—If the PRC government determines that the contractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, we may be unable to assert our contractual rights over the assets of the VIE, and our ADSs or ordinary shares may decline in value or become worthless”;

●

We may be unable to assert our contractual rights over the assets of the affiliated entities resulting from the uncertainties in the interpretation of newly issued rules, regulatory actions and statements related to VIE and private schools. See “—Risks Related to Our Corporate Structure—If the PRC government determines that the contractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, we may be unable to assert our contractual rights over the assets of the VIE, and our ADSs or ordinary shares may decline in value or become worthless”;

●

Failure by the VIE or its shareholders to perform their obligations under our contractual arrangements with them could force us to rely on legal remedies under PRC laws to enforce the contractual arrangements, which may not be effective. See “—Risks Related to Our Corporate Structure—Any failure by the affiliated entities and their shareholders or sponsors to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our and the VIE’s business”;

●

Uncertainties with respect to the interpretation and implementation of the newly enacted Foreign Investment Law and its impact on the viability of our current corporate structure could require us to take additional actions with respect to, or modify or unwind, our current contractual arrangements to the extent required by any unfavorable interpretation or implementation. See “—Risks Related to Our Corporate Structure—Uncertainties exist with respect to the interpretation and implementation of the newly enacted Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, and our and the VIE’s business, financial condition, results of operations and prospects”; and

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Actual or potential conflicts of interest of shareholders of the VIE with us could cause such shareholders not to act in the best interests of our company. See “—Risks Related to Our Corporate Structure—The shareholders of Long-Spring Education may have actual or potential conflicts of interest with us and not act in the best interests of our company.”

Risks related to doing business in China

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Changes in China’s economic, political or social conditions or government policies, laws and regulations, which could adversely affect the education services market and harm our business. As of the date of this annual report, we have not received any inquiry or notice or any objection in connection with our previous issuance of securities to foreign investors from the CSRC, the CAC or any other PRC governmental authorities that have jurisdiction over our operations. However, given the current regulatory environment in the PRC, there remains uncertainty regarding the interpretation and enforcement of PRC laws, which can change quickly and subject to any future actions within the discretion of PRC authorities. See “—Risks Related to Doing Business in China—PRC economic, political and social conditions, as well as changes in any government policies, laws and regulations, could adversely affect the overall economy in China or the education services market, which could harm our and the VIE’s business”, “—Risk Factors—Risks Related to Doing Business in China—Failure to comply with governmental regulations and other legal obligations concerning data protection and cybersecurity may materially and adversely affect our and the VIE’s business, as we and the VIE routinely collect and store data during the business conduct” and “—Risks Related to Doing Business in China—The filing procedure with the CSRC shall be fulfilled and the approval of other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, if required”;

●

We face risks arising from the uncertainties with respect to the PRC legal system. Certain rules and regulations can change quickly with little advance notice, and there may be risks and uncertainties regarding the interpretation and enforcement of PRC laws and regulations, which may affect our decisions on the policies and actions to be taken to comply with PRC laws and regulations. See “—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could have a material adverse effect on us and the VIE”;

●

Our and the VIE’s business is susceptible to any actions by the Chinese government which may cause us to make material changes to the operation of our PRC subsidiaries or the affiliated entities. We and the affiliated entities face various legal and operational risks and uncertainties related to being based in and having significant operations in China. The PRC government has significant oversight over our and the VIE’s business operations, and may intervene or influence our and the VIE’s operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our securities. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless. See “—Risk Factors—Risks Related to Doing Business in China—Any actions by the Chinese government, including any decision to intervene or influence the operations of our PRC subsidiaries or the affiliated entities or to exert control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, may cause us to make material changes to the operations of our PRC subsidiaries or the VIE, may limit or completely hinder our ability to offer or continue to offer securities to investors, and may cause the value of such securities to significantly decline or be worthless”;

●

Cash transfers from our PRC subsidiaries to entities outside of China are subject to PRC government controls on currency conversion. As a result, cash in mainland China may not be available to fund operations or for other use outside of mainland China due to interventions in or the imposition of restrictions and limitations on our PRC subsidiaries’ ability to transfer cash. There is no assurance the PRC government will not intervene in or impose restrictions on us and our subsidiaries to transfer cash. Although currently there are no equivalent or similar restrictions or limitations in Hong Kong on cash transfers in, or out of, our subsidiary in Hong Kong, if certain restrictions or limitations in mainland China were to become applicable to cash transfers in and out of Hong Kong entities in the future, the funds in our subsidiary in Hong Kong, likewise, may not be available to fund operations or for other use outside of Hong Kong. See “Introduction—Cash and Asset Flows through Our Organization” and “—Risks Related to Doing Business in China—Restrictions on currency exchange may limit our ability to receive and use our revenues effectively”;

●

We face risks arising from the significant uncertainties in the application and interpretation of the Law on Promoting Private Education, the Implementation Rules and their detailed implementation rules and regulations. See “—Risk Factors—Risks Related to Doing Business in China—Based on the recent development of PRC law, there is significant uncertainty about the application and interpretation of the Law on Promoting Private Education, the Implementation Rules and their detailed implementation rules and regulations. We may be subject to significant limitations on our and the VIE’s ability to engage in the private education business, acquire private schools, or receive payments from the VIE and may otherwise be materially and adversely affected by changes in PRC laws and regulations”;

●

We face risks arising from the increased regulatory scrutiny focus on U.S.-listed companies with operations in China, which could add uncertainties to our and the VIE’s business operations, share price and reputation. See “—Risk Factors—Risks Related to Doing Business in China—If the settlement reached between the SEC and the “big four” PRC-based accounting firms concerning the manner in which the SEC may seek access to audit working papers from audits in China of US-listed companies is not or cannot be performed in a manner acceptable to authorities in China and the United States, we may be unable to timely file future financial statements in compliance with the requirements of the Exchange Act in the future”; and

●

We face risks arising from the difficulty for overseas regulators to conduct investigations or collect evidence within China, which could increase difficulties you face in protecting your interests. See “—Risk Factors—Risks Related to Doing Business in China—It may be difficult for overseas regulators to conduct investigations or collect evidence within China.”

Risks related to the ADS

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The delisting of our ADSs from NYSE may continue to have a material adverse effect on the trading and price of our ADSs. See “—Risks Related to Our ADSs—The delisting of our ADSs from the NYSE may continue to have a material adverse effect on the trading and price of our ADSs, and we cannot assure you that our ADSs will be relisted, or that once relisted, they will remain listed”;

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The volatility of the trading price of the ADSs could result in substantial losses to investors. See “—Risks Related to Our ADSs—The trading price of the ADSs has been and may continue to be volatile, which could result in substantial losses to investors”;

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The sale or availability for sale of substantial amounts of the ADSs could adversely affect their market price. See “—Risks Related to Our ADSs—The sale or availability for sale of substantial amounts of the ADSs could adversely affect their market price”; and

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The impact of our dual-class share structure on the ability of holders of our Class A ordinary shares and ADSs to influence corporate matters will, among other things, limit your ability to influence corporate matters and could discourage others from pursuing any favorable change of control transactions. See “—Risks Related to Our ADSs—Our dual-class share structure with different voting rights 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. In addition, holders of our Class A ordinary shares may experience loss of voting power and dilution due to future issuances and conversions of our Class B ordinary shares.”

Risks Related to Our Business and Industry

Our efforts to be in compliance with the Implementation Rules has materially and adversely affected and may continue to materially and adversely affect our and the VIE’s business, financial condition, results of operations and prospect in the future.

On May 14, 2021, the PRC State Council promulgated the amended Implementation Rules for Private Education Laws (the “Implementation Rules”), which became effective on September 1, 2021. Pursuant to the Implementation Rules, (1) foreign-invested enterprises established in China and social organizations whose actual controllers are foreign parties shall not sponsor, participate in or actually control private schools that provide compulsory education, (2) social organizations or individuals shall not control any private school that provides compulsory education or any non-profit private school that provides pre-school education by means of, among others, merger, acquisition and contractual arrangements, and (3) private schools providing compulsory education shall not conduct any transaction with any related party, and any other private school conducting any transaction with any related party shall follow the principles of openness, fairness and impartiality, fix the price reasonably and regulate the decision-making, and shall not damage the interests of the state and the school or the rights and interests of the teachers and students, which may impose restrictions on the above-mentioned related party transactions. Such prohibition has significantly affected the enforceability of the exclusive management services and business cooperation agreements with affiliated entities providing compulsory education.

The Implementation Rules have had significant impacts on our and the VIE’s business operations and our results of operations. As a result of the effectiveness of the Implementation Rules, we and the VIE have lost control over the Affected Entities as from September 1, 2021, which primarily include the middle schools providing compulsory education and the sponsor entities within China that are affected by the Implementation Rules. Consequently, we classified the operation for the Affected Entities as discontinued operations. We have determined that, in substance, we had ceased to recognize revenues for all activities related to the Affected Entities and had discontinued all business activities with such entities by September 1, 2021 except for the continued provision of essential services to keep these schools in normal operations. Such discontinuation has had a material and adverse impact on our business, financial condition and results of operations. Our and the VIE’s ability to engage in the compulsory education in China has been materially and adversely affected, and we cannot assure you that we and the VIE will be able to restore such ability, which could materially and adversely affect our and the VIE’s business, prospects, results of operations and financial condition.

We have limited operating history, which makes it difficult to predict our prospects and our and the VIE’s business and financial performance.

We have a limited operating history. Although the VIE’s first school established in 2012, the majority of the VIE’s schools were established in or after 2017. Our and the VIE’s limited operating history may not serve as an adequate basis for evaluating our and the VIE’s prospect and results of operations, including revenues, cash flows and operating margins. We and the VIE have encountered, and may continue to encounter in the future, risks, challenges and uncertainties associated with operating a private education business, such as addressing regulatory compliance and uncertainty, engaging, training and retaining high-quality teachers, and expanding the VIE’s school network. If we do not manage these risks successfully, our and the VIE’s operating and financial results may differ materially from our expectations, and our and the VIE’s business and financial performance may suffer.

In addition, as some of the VIE’s schools commenced operations recently, they have not yet reached their full capacity. For newly established schools, the VIE only admits students for the entry classes, such as the tenth grade for high schools, but not higher grades, upon the establishment of a new school, which leads to a relatively lower utilization rate for such schools. With the VIE’s existing students progressing into the next grades in school and as the VIE fill up new entry classes, the utilization rates of the VIE’s newly established schools will increase accordingly. We cannot assure you that we or the VIE will be able to successfully increase the utilization rate for the schools that are in the ramp-up stage, which may materially and adversely affect our and the VIE’s business growth and profitability.

If local governments claim to have sponsor interests in certain of the VIE’s schools, we and the VIE could be subject to contractual disputes in relation to the sponsorship in those schools or the entry into contractual arrangements over those schools.

The VIE primarily collaborates with local governments to establish and operate its schools. The cooperative arrangements for a total of 13 schools provide that the local governments retain ownership in the affected schools’ “ownership assets” without defining what constitutes such assets. It is possible that “ownership assets” could be interpreted in a way to include sponsor interest, in which case, the local governments may have a claim over the sponsor interest in the affected schools. We have obtained written statements from local governments for all of the seven schools confirming our understanding that “ownership assets” refer to real estate and tangible assets that local governments provided.

In addition, the school operation permits for Yunnan Hengshui Experimental Secondary School—Xishan School and Yunnan Yuxi Hengshui Experimental Secondary School provide that the local governments and Long-Spring Education are co-sponsors of such schools. We have obtained written statements for Yunnan Hengshui Experimental Secondary School—Xishan School and Yunnan Yuxi Hengshui Experimental Secondary School from the local governments confirming our understanding that the sponsor interests of such schools belong to Long-Spring Education. As of the date of this annual report, we are in the process of amending these permits to designate Long-Spring Education as the sole sponsor.

Furthermore, according to the list released by People’s Government of Xishan District on March 30, 2022 and our recent communication with such government authority, Yunnan Hengshui Experimental Secondary School—Xishan School may be turned into a public school upon further determination. As of the date of this annual report, we are in the process of communicating with the competent authorities on such matter.

To the extent that any local government has a claim over the sponsor interest in or control over any of the VIE’s schools, we and the VIE could be subject to contractual disputes. For example, the government claimants could argue that they have de facto sponsor interest in the affected schools per the VIE’s cooperative arrangements and that the entry into the contractual arrangements in relation to the affected schools have infringed their interests. If the government claimants successfully persuaded the court to rule in their favor, we and the VIE could lose control over the affected schools and may be unable to receive the full rights and economic benefits of any or all of those schools, in which case we would no longer be able to include the operating results of those schools in our consolidated financial statements, which in turn would materially and adversely affect we and the VIE’s business, results of operation and financial condition.

Uncertainties exist in relation to new legislation or proposed changes in the PRC regulatory requirements regarding private education, which may materially and adversely affect our group structure, our and the VIE’s business, financial condition and results of operations.

Pursuant to the Law on Promoting Private Education of the PRC (the “Private Education Law”), last amended and becoming effective on December 29, 2018, sponsors of private schools may choose to establish schools in China as either non-profit or for-profit schools. Sponsors are not permitted to establish for-profit schools that provide compulsory education services, which cover grades one to nine. Sponsors of for-profit private schools are entitled to retain the profits from their schools and the operating surplus may be allocated to the sponsors pursuant to the PRC Company Law and other relevant laws and regulations. Sponsors of non-profit private schools are not entitled to any distribution of profits from their schools and all revenues must be used for the operation of the schools. For further details, see “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Private Education in the PRC—The Law on Promoting Private Education.” Our school sponsors have registered Xinping Long-Spring Advanced Secondary School, Xishuangbanna Long-Spring Experimental Secondary School, and Yangling Hengshui Experimental Secondary School as for-profit private schools and have registered Kunming Xishan Long-Spring Experimental Secondary School, Kunming Chenggong Long-Spring Experimental Secondary School, Yiliang Long-Spring Experimental Secondary School, Qujing Hengshui Experimental Secondary School, Yunnan Yuxi Hengshui Experimental High School, Qiubei Long-Spring Experimental Secondary School, Wenshan Long-Spring Experimental Secondary School, Zhenxiong Long-Spring Advanced Secondary School, and Mengla Long-Spring Experimental Secondary School as non-profit private schools, while have not submitted classified registration materials for the rest of the VIE’s schools as for-profit or non-profit educational institutions. We cannot assure you that our current intention to register some of the VIE’s schools as non-profit educational institutions will not materially and adversely affect our business, financial condition and results of operations. As a holding company, our ability to generate profits, pay dividends and other cash distributions to our shareholders under the Private Education Law is affected by many factors, including but not limited to the characterizations of the VIE’s schools as for-profit or non-profit schools, the profitability of the VIE’s schools and other affiliated entities, and our ability to receive dividends and other distributions from our wholly-owned PRC subsidiary, Yunnan WFOE, which in turn depends on the service fees paid to Yunnan WFOE from the VIE’s schools and other affiliated entities. If the VIE’s schools are unable to be registered as for-profit private education entities, the approval of which is subject to the discretion of government authorities, our contractual arrangements with such schools may be subject to more stringent scrutiny. Furthermore, pursuant to the Private Education Law, sponsors are not permitted to establish for-profit schools if such schools provide compulsory education services, which cover grades one to nine. Nevertheless, during the reporting period, compulsory education services accounted for a significant portion of our student base as well as revenue.

In addition, the Opinions on Further Strengthening and Regulating the Administration of Education Fees (the “Opinions”), which were issued on August 17, 2020 by the MOE, the National Development and Reform Commission, the Ministry of Finance, the State Administration of Market Regulation and the National Press and Publication Administration, reiterate the provision from the decision that the sponsors of non-profit privately-run schools may not obtain proceeds from the running of schools. The Opinions further provide that the sponsors of non-profit privately-run schools and non-profit Sino-foreign cooperative educators may not obtain proceeds from the running of schools such as tuition income, distributing school balances (residual assets) or transferring proceeds from the running of schools through related-party transactions or affiliated parties or other means. The Opinions have not specified (1) whether the contractual arrangements fall within the activities of transferring the proceeds from the running of schools through profit privately-run schools and non-profit Sino-foreign cooperative educators may not obtain proceeds from the running of schools such as tuition income, distributing school balances (residual assets) or transferring proceeds from the running of schools through related-party transactions or affiliated parties or other means, (2) the relevant legal consequences of engaging in activities through contractual arrangements, or (3) the scope of proceeds from the running of schools by listing other possible income sources such as meal and accommodation services.

We are entitled to the tuition and boarding fees to be paid by the VIE’s schools that are largely derived from the proceeds from the running of schools pursuant to our contractual arrangements. See “Item 4. Information on the Company—C. Organizational Structure—Our Contractual Arrangements.” If any law and regulation that may be promulgated in the future further defines the contractual arrangements, including ours, as related-party transactions transferring proceeds from the running of schools, we may not obtain the part of the tuition and boarding fees under our contractual arrangements that is funded by proceeds from the running of schools. As advised by our PRC legal counsel, Beijing Zhongwen Law Firm, the Opinions do not affect the legality of our contractual arrangements in accordance with applicable PRC laws and regulations, as the provisions under the Opinions did not render the contractual arrangements invalid under the Civil Code of the PRC. As of the date of this annual report, however, we have not sought declaration from the relevant government authorities as to the legality of our contractual agreements under the Opinions, and we are not aware of any official administrative or judicial declaration on, or interpretation of, the Opinions, especially as applied to contractual or other similar arrangements under which we operate. We are also not aware of when official administrative or judicial declaration or interpretation on that matter will be released, if at all, and we cannot assure you that the Opinions will not be interpreted, or further laws and regulations will not be promulgated, in a way that would affect or impair our ability to retain the tuition and boarding fees under the contractual arrangements in the future. Our business, financial condition and results of operations would be materially and adversely affected if we are unable to obtain any or all of the tuition and boarding fees to be paid by the VIE’s schools under the contractual arrangements.

On August 24, 2023, the Yunnan Provincial Department of Education, together with the Yunnan Provincial Development and Reform Commission, the Yunnan Provincial Department of Finance, the Yunnan Provincial Market Supervision Administration, the Yunnan Provincial Local Financial Supervision Administration, and the Kunming Central Branch of the People’s Bank of China issued the Yunnan Province Private School Financial Management and School Fund Supervision Measures (the “Fund Supervision Measures”). The Fund Supervision Measures require that, among others, (1) all operational private schools (including kindergartens, elementary, middle, secondary level schools, as well as vocational schools and universities), should enter into a supervision agreement with their custodian banks, and such banks should supervise the supervision account and report to the relevant education supervising authorities; (2) except for grants or special purpose funds from the government, the balance in the supervision accounts of private schools should not be less than 15% of the total tuition fees collected for the academic year. The proportion of the minimum operating guarantee fund balance is determined by the relevant education supervising authorities together with other relevant administrative departments based on the actual situation of the schools. The minimum operating guarantee amount of 15% for private schools is calculated based on the total amount of tuition fees collected, and shall be reported by the schools to the education authorities for review and approval within 10 working days after the collection of fees, and also reported to the regulatory and custodian bank. If the next tuition collection date is less than three months away, the minimum operating guarantee balance can be lower than the approved amount. The Fund Supervision Measures may significantly limit our transfer of cash throughout our and the VIE’s business, which could materially and adversely affect our and the VIE’s business, prospects, results of operations and financial condition.

We may not be able to execute our growth strategies, continue to grow rapidly or manage our growth effectively.

We have experienced steady growth and expansion since the establishment of our first secondary school in 2014. We plan to continue to expand our operations in different geographic locations in China primarily by (1) entering into partnerships with local governments and independent third parties; (2) establishing new self-owned schools; and (3) acquiring additional schools if there are suitable targets.

However, we may not be able to continue to grow as we did in the past due to uncertainties involved in the process as follows:

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we and the VIE may not be able to attract and retain a sufficient number of students for the VIE’s existing and new schools;

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we and the VIE may not be able to hire, retain and train qualified teachers, and attract and retain management, administrative and marketing personnel for the VIE’s existing and new schools;

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we and the VIE may be unable to optimize the VIE’s student’s academic performance as expected;

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we and the VIE may be unable to adequately update our operational, administrative and technological systems and strengthen our financial and management controls to support our future expansion;

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we and the VIE may be unable to keep strengthening our operational, administrative and technological systems, our financial and management controls;

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the development and acquisitions of new schools may be delayed or affected as a result of many factors, such as delays in obtaining government approvals or licenses, and changes in applicable laws and regulations, some of which are beyond our control;

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we may not be able to maintain and enhance our brand name and reputation;

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we may be unable to successfully execute new growth strategies; and

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we may be unable to successfully integrate entities we and the VIE have established or acquired into our and the VIE’s operations.

These risks may increase significantly as we expand into new geographical areas. We may find it difficult to manage our financial resources, implement uniform education standard and operational policies and maintain consistency across our network. There are no guarantees that we will be able to effectively manage any future growth in an efficient, cost-effective and timely manner, or at all. Our growth in a relatively short period of time is not necessarily indicative of results that we may achieve in the future. In addition, local governments and cooperative partners may have interests which are not entirely in line with ours and may consider their own interests or the interests of other stakeholders of schools in making cooperation decisions, and as a result, we may be unable to execute our expansion plan and growth strategies in a cost-effective or timely manner, or at all. Any failure in our management and execution of our expansion plan may materially and adversely affect our ability to capitalize on new business opportunities, which in turn may have a material adverse effect on our and the VIE’s business, financial condition and results of operations.

We and the VIE may be unable to charge tuition and boarding fees at sufficient levels to be profitable or increase the VIE’s fee level.

Our revenues are primarily driven by our tuition and boarding fees. For 2021, 2022 and 2023, tuition income accounted for 77.4%, 82.3% and 73.7% of our total revenues, respectively, and our boarding fees accounted for 5.7%, 2.2% and 6.4% of our total revenues, respectively, for the same periods. Subject to applicable regulatory requirements, we determine the tuition and boarding fee rates based on many factors, including market supply and demands for education, our cost of operations, the quality of education services we and the VIE provide, the geographic area we and the VIE operate in, and general economic conditions of the PRC. Although we have been able to increase the tuition and boarding fees charged for the students at certain of the VIE’s schools in the past, we cannot guarantee that the VIE will be able to maintain or increase the tuition in the future without adversely affecting the demand for the VIE’s education services. Our competitive advantage might be adversely affected if we and the VIE fail to implement the optimal pricing strategy to maintain our profitability, which could adversely affect the VIE’s student enrollments and consequently our revenues and cash flow.

As part of the VIE’s cooperation with local governments, the VIE admits a certain number of local students on behalf of the government as publicly-sponsored students. These students pay us tuition typically at the level of public schools, which are usually lower than the normal tuition charged by the VIE, and under the VIE’s cooperative arrangements with local governments for certain of the VIE’s schools, we the VIE may receive government subsidies to make up for the tuition difference. As of December 31, 2021, 2022 and 2023, the number of publicly-sponsored students in the VIE’s schools was 7,993, 8,293 and 7,780, respectively, accounting for 47.1%, 47.8% and 41.2% of the VIE’s total students for our continuing operations as of the same dates. We and the VIE has limited discretion in increasing the tuition for publicly-sponsored students, and the government subsidies have an upper limit which we and the VIE may gradually use up over a number of years. We and the VIE intend to re-negotiate with the local governments to obtain additional government subsidies to cover the tuition difference for the publicly-sponsored students after we and the VIE use up the upper limit or our cooperative arrangements with local governments expire. If our re-negotiation efforts fail, or if we and the VIE cannot collect the outstanding amount of government subsidies on time, we and the VIE would be unable to make up for the price difference for publicly-sponsored students, which would materially and adversely affect our profitability.

The tuition and boarding fees the VIE charges are subject to regulatory restrictions. While we and the VIE are not required to obtain pre-approval from relevant authorities before raising our tuition and boarding fees in Yunnan province, China where most of the VIE’s schools are located, the VIE is generally required to file and record the VIE’s price increase with local governments, who in turn still maintain certain level of control and oversight of our and the VIE’s operation. We and the VIE might also be inspected by relevant pricing authorities in the future, which could result in negative adjustments in the VIE’s tuition and boarding fees and material disruption of our and the VIE’s operations.

Furthermore, the tuition the VIE may charge is subject to a number of other factors, such as the perception of our brand, the academic results achieved by our students, our ability to hire qualified teachers, and local economic conditions. Any significant deterioration in these factors could have a material adverse effect on the VIE’s ability to charge tuition at levels for us to remain profitable.

If the VIE fails to enroll and retain a sufficient number of students, our and the VIE’s business could be materially and adversely affected.

Our ability to continue to enroll and retain students for the VIE’s schools is critical to the continued success and growth of our and the VIE’s business. The success of our efforts to enroll and retain students will depend on several factors, including our ability to:

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enhance existing education programs and services to respond to market changes and student demands;

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develop new programs and services that appeal to the VIE’s students and their parents;

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maintain and enhance our reputation and brand recognition as a leading school operator;

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expand our and the VIE’s school network and geographic reach;

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effectively market the VIE’s schools and programs to a broader base of prospective students;

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manage our and the VIE’s growth while maintaining consistency of the VIE’s teaching quality;

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maintain cooperative relationships with local governments; and

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respond to increasing competition in the market.

In addition, local and provincial government authorities may impose restrictions on the number of students the VIE can enroll. Our and the VIE’s business, financial condition and results of operations could be materially and adversely affected if we and the VIE cannot maintain or increase the VIE’s student base as we expand the VIE’s school network.

Our ability to maintain sufficient cash to fund our operations depends on our financing activities.

Our ability to maintain sufficient cash to fund our operations depends on our financing activities. In November 2021, we entered into a sale and leaseback arrangement with certain financing leasing companies for net financing proceeds of RMB50.0 million, respectively. Under the sale and leaseback arrangement, Long-Spring Education, as the lessee, sold certain equipment, including computers, projectors and printers, to the lessor. Concurrent with the sale of the leased equipment, the lessee leased back all of the leased equipment sold to the lessor for a lease term of three years. We consider the substance of the transaction to be debt financing in nature and no gain or loss is recognized upon the sale of these assets. If the lessees fail to make lease payments in full and timely or there be any material adverse change in our business, the lessor has the right to immediately collect the total lease payments, request for penalty on late payment, and/or retrieve the leased equipment. As a result, our ability to maintain sufficient cash to fund our and the VIE’s operations could be diminished, which may materially and adversely affect our and the VIE’s business, financial condition and results of operations.

Any unfavorable changes in our and the VIE’s cooperative relationships with third parties or favorable government policy treatment may adversely affect our and the VIE’s business.

Our and the VIE’s asset-light business model, under which the VIE form mutually beneficial cooperative arrangements with third parties, including local governments and real estate developers, has allowed us and the VIE to grow rapidly and expand with light capital commitments and have more flexibility in our allocation of financial resources. Under such arrangements, our and the VIE’s partners contributed or leased to the VIE land and/or school facilities, and our and the VIE’s government partners also granted to us and the VIE favorable tax treatments or other forms of favorable government policies or support, while the VIE contributed its expertise in operating private schools, teachers, as well as operating expenses of the schools and capital expenditures to construct and renovate school facilities.

If our and the VIE’s relationship with partners deteriorates or favorable government policies and support cease to be available, we may incur substantial amount of expenses in connection with our and the VIE’s infrastructure, promotion, and other matters relating to school establishment and operations, which may materially and adversely affect our and the VIE’s business, financial condition and results of operations. We and the VIE may also be unable to form cooperative relationship with third parties in the geographic areas we and the VIE plan to enter and expand into, which would materially and adversely affect our and the VIE’s ability to grow as quickly as planned or maintain historical growth rates.

The cooperative arrangements for five schools within our network have provided that the local government has the right to appoint a majority of a school’s board of supervisors, which shall be the supreme decision-making body in school management. As of the date of this annual report, we obtained written statements from local governments for four of such schools confirming that the school council or board of director should be the decision-making body for such schools. To the extent any of these local governments changes their view toward our collaborative relationships and claims to have control in these schools, we and the VIE could be subject to contractual disputes with the local governments in relation to the management of such schools.

We and the VIE are also required to meet certain academic performance targets pursuant to the cooperative agreements. If we and the VIE fail to meet such performance targets, we and the VIE may be found in breach of the agreements and be unable to continue our cooperation with the relevant governments, which may materially and adversely affect our relationship with the relevant governments, as well as our and the VIE’s business, financial condition and results of operations. We and the VIE may also be unable to enter into similar cooperation agreements with third parties in the future, which may materially and adversely affect our and the VIE’s business, financial condition and results of operations.

We and the VIE may be unable to obtain all required approvals, licenses and make all required registrations for our and the VIE’s education services and business operations, and may be subject to fines and penalties if the operations do not comply with applicable PRC laws and regulation.

In order to conduct our and the VIE’s business and operate schools in China, we and the VIE are required to obtain and maintain various approvals, licenses and permits and fulfill registration and filing requirements. For example, to establish and operate a school in the PRC, we and the VIE are required to obtain a private school operation permit from the local education bureau and register with the local civil affairs bureau to obtain a certificate of registration for a privately-run non-enterprise unit for a non-profit school, or register with the local market supervision and administration department to obtain a business license for a for-profit school. Such local regulatory authorities may also conduct annual inspection of the VIE’s schools. We and the VIE currently hold valid private school operation permits for all of the VIE’s operating schools except for Shaanxi Hengshi Tutorial School and Yunnan Long-Spring Education Holding Group Hengshui Experimental Middle School Management Co., Ltd., which are still in the process of obtaining a private school operation permit and registering with the local market supervision and administration department or the local civil affairs bureau, and Hengshizhong Education Tutorial School for which the private school operation permit has been cancelled. For such schools which conduct business before we and the VIE can obtain a private school operation permit, the VIE may be subject to order to cease its operation, refund the income we collected and a fine ranging from one to five times of the income the sponsor collected. We cannot guarantee that all of the VIE’s existing schools will be able to renew their permits, or that all of the VIE’s newly opened schools will be able to receive operation permits in a timely manner or at all, which may materially and adversely affect our and the VIE’s business and results of operations.

A total of 14 of the VIE’s schools have not set up their own on-site medical clinics, all of such schools are in the process of engaging third-party hospitals and/or medical clinics with valid practice license to provide healthcare services on campus, and recruiting a sufficient number of medical care personnel. However, we cannot assure you that we and the VIE may be able to obtain all relevant practice licenses, retain third-party licensed medical care providers or otherwise fully comply with the relevant laws and regulations relating to on-site medical clinics at all of our and the VIE’s current locations in a timely manner or at all, and we and the VIE may be subject to orders to rectify within a specified period of time.

While we and the VIE intend to obtain all requisite permits, approvals and complete the necessary filings, renewals and registrations on a timely basis for the VIE’s schools, there is no assurance that we and the VIE will be able to obtain all required permits given the significant amount of discretion the local PRC authorities may have in interpreting, implementing and enforcing relevant rules and regulations, as well as other factors that are beyond our control and anticipation. If we and the VIE fail to receive required permits in a timely manner or obtain or renew any permits and certificates, we and the VIE may be subject to fines, confiscation of the gains derived from non-compliant operations, the suspension of non-compliant operations or disgorgement of our profits to compensate for any economic loss suffered by the VIE’s students or other relevant parties, which may materially and adversely affect our and the VIE’s business and results of operations.

We and the VIE’s may not be able to successfully integrate businesses we and the VIE acquired or plan to acquire in the future, which may adversely affect our business growth.

We and the VIE have expanded rapidly primarily through organic growth. We and the VIE have, in the past, acquired an underperforming high school and successfully turned it into a high-quality high school with solid academic results. We and the VIE may attempt to make similar acquisitions in the future. The integration of acquired schools is complicated and time-consuming and requires significant resource commitment, standardized integration process, and adequate planning and implementation. We and the VIE may not successfully integrate the schools we acquire in a timely manner and may not effectively and efficiently manage our expansion, which would have a material adverse effect on our and the VIE’s financial condition and results of operations. In addition, as advised by our PRC legal counsel, our plan to pursue further expansion through acquisitions could be affected by regulatory uncertainty in connection with the Private Education Law and related implementation rules.

We and the VIE may be unable to engage with the Affected Entities to provide education services as we expected.

Following the effectiveness of the Implementation Rules, we have been engaging with the relevant government authorities and external advisors to seek full compliance with the Implementation Rules and other applicable PRC laws and regulations. However, we and the VIE are exploring the possibility of continuing to engage with the Affected Entities in future cooperation on mutually acceptable terms and in full compliance with the Implementation Rules and other applicable PRC laws and regulations. The future cooperation may involve our provision of management services to the Affected Entities, such as consultation for school operation, catering and accommodation, property management and maintenance, administrative management, student admission and school branding. However, the future cooperation with the Affected Entities, if any, will be arm’s length transactions on mutually acceptable terms, and we cannot assure you that the cooperation under contemplation will be specifically permitted by competent government authorities or that we and the VIE will be able to agree on commercial terms satisfactory to us, and as such, we and the VIE may be unable to effectuate the cooperation with the Affected Entities as we expect.

We and the VIE may not be able to attract and retain a sufficient number of qualified teachers and principals.

As an education service provider, our ability to recruit and retain qualified teachers and principals is crucial to the quality of our education and services and our brand and reputation. To ensure our successful operation and growth, we and the VIE need to retain and continue to hire high-quality teachers specialized in specific subjects that are able to teach the courses the VIE offers or plans to offer to the students, as well as high-quality principals who are able to effectively manage the operation of schools. We and the VIE must provide competitive compensation and benefits packages to attract and retain qualified candidates. However, there is no guarantee that we and the VIE would be able to keep recruiting teachers and principals meeting the high standards in the future, or retain the VIE’s current, high-quality teachers and principals, especially when we and the VIE seek a more rapid expansion plan to meet the growing demands for our services. Furthermore, under our and the VIE’s business model, the VIE may not be able to provide extensive training to its newly hired teachers for them to familiarize with its teaching methods and to retain existing teachers who can provide such trainings. A shortage of high-quality teachers and principals, a decrease in the quality of the VIE’s teachers’ and principals’ performance, whether actual or perceived, or a significant increase in the cost to engage or retain high-quality teachers and principals would have a material adverse effect on our and the VIE’s business, financial condition and results of operations.

We may not be able to maintain the market recognition of our brand and our reputation.

Our success depends heavily on our reputation. We might face potential difficulties in maintaining our reputation and brand recognition, which could adversely affect our and the VIE’s student enrollments and results of operations. Our ability to maintain our brand and reputation could be affected by many factors, some of which are beyond our control, including: our and the VIE’s ability to deliver satisfactory academic results, the teaching quality of the VIE’s teachers, the academic quality and achievements of the VIE’s students, news report about our company, the VIE’s schools or our partners, results of government inspections or compliance with relevant regulations, unauthorized use or other infringement of our and the VIE’s copyright and brand by third party, campus incidents, especially safety incidents, and any kind of disruption of the VIE’s education services.

The VIE has developed its student base mainly through word-of-mouth referrals. Our and the VIE’s other promotion efforts include participating in education fairs organized by local governments and distributing relevant promotional materials in connection with such fairs. However, we cannot guarantee that our promotional efforts will be enough to maintain or enhance our reputation in the marketplace to remain competitive. Our and the VIE’s promotional efforts may be insufficient to enhance our brand recognition and reputation and we may incur excessive expenses for our and the VIE’s promotions, which may adversely affect our and the VIE’s business.

Accidents, injuries or other harm at the VIE’s school premises or otherwise arising from or in connection with its education services may adversely affect our and the VIE’s reputation and subject us to liabilities.

We and the VIE may be subject to liabilities arising from accidents or injuries or other harm to students or other people on the VIE’s school premises, including those caused by or otherwise arising in connection with the VIE’s school facilities, employees or education services. We and the VIE could also face claims alleging that we and the VIE were negligent, provided inadequate maintenance to the VIE’s school facilities or supervision of the VIE’s employees and therefore may be held liable for accidents or injuries suffered by the VIE’s students or other people at the VIE’s schools. In addition, if any of the VIE’s students, employees or contractors commits unlawful acts or displays seriously inappropriate behavior, we and the VIE could face allegations that we and the VIE failed to provide adequate security, supervision or were otherwise responsible for his or her actions, even if such acts or behavior may occur off the VIE’s school premises. As an education services provider, we and the VIE may be held liable for other accidents, injuries or other harm in relation to the VIE’s education services and students, such as commuting to the VIE’s schools and extracurricular activities. We and the VIE may also be subject to liabilities arising from out-of-school activities or events which the VIE organize or involve in. As a result, the VIE’s schools may be perceived to be unsafe, which may discourage prospective students from applying to or attending the VIE’s schools.

The VIE’s schools have also outsourced the operation of all of its meal catering services to third parties since September 2017. We cannot assure you that we and the VIE will be able to maintain the quality of food or monitor the meal preparation process to ensure its quality, that service providers adhere to food quality standards, or that no incidents resulted from food quality will occur in the future. In the event of incidents arising from poor quality food that result in any serious health violations or medical emergencies, such as mass food poisonings, our and the VIE’s business and reputation could be materially and adversely affected.

Furthermore, although we and the VIE maintain certain liability insurance, the insurance coverage may not be adequate to fully protect us from these kinds of claims and liabilities. In addition, we and the VIE may not be able to obtain liability insurance in the future at reasonable prices or at all. A liability claim against us, the VIE or any of our employees could adversely affect our and the VIE’s reputation, student enrollment and retention, and teacher recruitment and retention. Such a claim, even if unsuccessful, could create unfavorable publicity, incur substantial expenses for us and divert the time and resources of our management, all of which may have a material and adverse effect on our and the VIE’s business, prospects, financial condition and results of operations.

Failure to adequately and promptly respond to changes in examination systems, admission standards, test materials, teaching methods and regulation changes in the PRC could render the VIE’s education services less attractive to students.

Our and the VIE’s reputation, student enrollment, and results of operations depend in part on the VIE’s ability to prepare the students for various tests and examinations, such as Gaokao. Admission and assessment processes undergo continuous changes, in terms of subject and skill focus, question type, examination format and the manner in which the processes are administered. The VIE is therefore required to continually update and enhance its curricula, course materials and teaching methods. Any failure to respond to the changes in a timely and cost-effective manner will adversely impact the VIE’s students’ academic performance and the marketability of its education services, which would have a material adverse effect on our and the VIE’s business, financial condition and results of operations.

Regulations and policies that decrease the weight of scholastic competition achievements in the admissions process mandated by government authorities or adopted by schools or affect the number of students participating in Gaokao or Zhongkao may have an impact on the VIE’s student enrollments and teaching methods. For example, the Ministry of Education of the PRC (the “MOE”), issued certain implementing opinions in January 2014 to clarify that local educational administrative departments at all levels, public schools and private schools are not allowed to use examinations to select their students for admission to middle schools from primary schools. As a result, the VIE may need to adjust its teaching methods to accommodate a student body of a potentially wide competency range. Failure to track and respond to these changes in a timely and cost-effective manner would render our courses, services and products less attractive to students, which may materially and adversely affect our and the VIE’s reputation and ability to continue to attract students.

If the VIE fails to help the students achieve their academic goals, student and parent satisfaction with its education services may decline.

The success of our and the VIE’s business depends on our and the VIE’s ability to deliver quality school experiences and help the VIE’s students achieve their academic goals. The VIE’s schools may not be able to meet the expectations of the students and their parents in terms of students’ academic performance. A student may not be able to attain the level of academic improvement that he or she seeks and his or her performance may otherwise not progress or decline due to reasons beyond our control. The VIE may not be able to provide education that is satisfactory to all of its students and their parents, and student and parent satisfaction with our services may decline. In addition, we cannot guarantee that the VIE’s students will be admitted to higher levels of education institutions of their choice. Any of the foregoing could result in a student’s withdrawal from the VIE’s schools, and dissatisfied students or their parents may attempt to persuade other students or prospective students not to attend the VIE’s schools. If the VIE ability to retain students decreases significantly or if the VIE otherwise fails to continue to enroll and retain new students, our and the VIE’s business, financial condition and results of operations may be materially and adversely affected.

We and the VIE face intense competition in the PRC education industry, and we and the VIE may fail to compete effectively.

The private education sector in China is rapidly evolving, highly fragmented and competitive, and we expect competition in this sector to persist and intensify. We and the VIE compete with public schools and other private schools that offer similar programs in each geographic market where the VIE operates its schools. In particular, we and the VIE face significant competition from public schools and other private schools in Yunnan province, China. Although our and the VIE’s business model and cooperative relationship with local governments helped us and the VIE receive favorable regulatory treatments, we and the VIE may fail to compete effectively with public schools that may enjoy more substantial financial and policy support from the local governments. Additionally, our and the VIE competitors may adopt similar curriculums, school management approaches and marketing strategies, with different pricing and service packages that may be more appealing than the VIEs’ to students and parents in the relevant regions. Some of our and the VIE competitors might be able to dedicate more resources than we and the VIE can to the development and improvement of their schools and respond more quickly than we and the VIE can to the changes in student demands, testing materials, admission standards, market needs and new technologies. As such, the VIE may be required to lower its tuition and boarding fees or increase its spending in order to maintain its competitiveness and retain or attract students and qualified teachers or pursue new market opportunities. If we and the VIE are unable to successfully compete for new students, attract and retain competent teachers or other key personnel, maintain or increase the tuition level, enhance the quality of education services or maintain our and the VIE operations in a cost-effective manner, our and the VIE business and/or results of operations may be materially and adversely affected.

Our and the VIE’s business may be disrupted if we lose the services of our senior management and other key personnel.

Our continued success depends in part on the expertise and dedication of our senior management team and other key personnel. We rely on our and the VIE’s senior management and school administrators for the efficient and effective operation of the VIE’s schools and the execution of our business plans, which is vital for us to compete in the education industry. We may experience changes in our senior management in the future for reasons beyond our control. We may not be able to retain our directors, senior management, or other key management personnel, who might either join our competitors or start their own businesses that directly compete with us. If we lose one or more of our directors, senior management, or other key management personnel, we might not be able to hire qualified candidates to fill the gap in a timely manner and our business could be materially disrupted or otherwise adversely affected.

The VIE’s school premises and facilities are subject to extensive governmental approvals and compliance requirements.

The construction and usage of the VIE’s school premises requires various permits, certificates and approvals, including, for example, land use rights certificates, construction permits, public health permits and certificates for passing fire control assessments. As of the date of this annual report, the VIE leased two business premises for its schools and were provided with 12 business premises by governments pursuant to its cooperative arrangements with them. For premises the VIE leased from or were provided for use by local governments or entities associated with local governments, the lessors or premise providers failed to obtain the relevant land use rights certificates, construction planning approvals or construction permits, or failed to pass the relevant environmental protection verification, fire control assessment or inspection for completion of construction, or failed to provide us with the authorization to lease the premises. If the government authorities suspend the use of such premises or require measures to be taken to rectify the defects or any of the VIE’s lease agreements is invalidated due to the defects of such premises, or if any third party successfully challenges the VIE’s use of the affected premises, the operation of the affected schools could be interrupted and the VIE may need to relocate those schools, which would incur additional expenses and our and the VIE’s business and results of operations may be materially and adversely affected.

We and the VIE have also encountered, and may in the future encounter, problems in fulfilling the conditions precedent to the receipt of the permits, certificates and approvals for the VIE’s self-built premises. As of the date of this annual report, we and the VIE built four business properties for the VIE’s schools on the leased or provided premises. For the self-built school premises which the VIE have already put in use, the lessors or premise providers have not obtained the relevant land use rights certificates, construction planning approval or construction permits, or passed environmental protection verification, fire control assessment and inspection for completion of construction primarily because the lessors or premise providers failed to fulfill the conditions precedent to completing such procedures, and we may be subject to fines and/or temporary suspension of the usage of the affected school premises before the defects are rectified. If the lessors, premise providers, or we and the VIE ourselves are not able to rectify the defects in a timely manner, or fail to obtain requisite permits, certificates or approvals for campuses and school premises we and the VIE plan to develop in the future, we and the VIE may become subject to administrative fines and other penalties, which could disrupt our and the VIE’s business and cause us and the VIE to incur additional expenses.

A significant portion of the VIE’s schools are not in compliance with fire safety regulations.

According to the PRC fire safety laws and regulations, construction projects and decoration projects are generally required to obtain fire safety permits or complete fire safety filings except for certain statutory exemptions. As of the date of this annual report, the VIE leased two business premises for its schools, were provided with 12 business premises by governments pursuant to its cooperative arrangements with them, and built four business properties for its schools on the leased or provided premises. As the four business properties were built on the leased or provided premises, we the VIE do not control the ownership licenses of the business properties. As of the date of this annual report, the VIE has obtained fire safety permits or written evidence for passing the fire safety inspection for five of its schools. For the schools that the VIE has not obtained the fire safety permits or written evidence for passing the fire safety inspection nor made the requisite fire safety filings, it is primarily because the lessors or premise providers failed to fulfill the condition precedent to completing such procedures. We and the VIE have, however, arranged periodic inspections for all of the premises by third-party fire control assessment institutions and obtained verification reports that the VIE’s school premises have met the technical requirements for the fire safety inspections. We cannot assure you that the lessors, the premise providers or we ourselves would be able to obtain the fire safety permits, rectify the defects or otherwise fully comply with the relevant fire safety laws and regulations at all of the VIE’s current locations in a timely manner or at all. Given the relevant lessors or premise providers have the legal obligation to obtain fire safety permits or complete fire safety filings, we cannot assure you that such lessor or premise provider can meet the conditions precedents to obtaining such permits or completing such filings, over which we have little control. We and the VIE may be subject to orders to rectify within a specified period of time or to suspend operations for such non-compliance. As a result, we and the VIE may not be able to occupy certain of the VIE’s current locations and may be ordered to relocate our and the VIE’s operations to other locations that comply with the relevant fire safety laws and regulations, and we cannot assure you that such alternative locations will be available on commercially reasonable terms or at all, which could materially and adversely affect our and the VIE’s business, results of operations and financial conditions.

Failure to control rental costs, control the quality, maintenance and management of the leased school premises, obtain leases at desired locations at reasonable prices or failure to comply with the applicable PRC property laws and regulations regarding certain of our leased and owned premises could materially and adversely affect our and the VIE’s business.

As of the date of this annual report, the VIE leased two premises and have been provided with 12 premises by governments pursuant to the VIE’s cooperative arrangements with a total gross floor area of approximately 821,259 square meters for its school operations. These school premises, including the associated school buildings and facilities, were developed and/or maintained by the VIE’s landlords or the providers. Accordingly, we and the VIE are not in a position to effectively control the quality, maintenance and management of such premises, buildings and facilities. In the event that the quality of the school premises, buildings and facilities deteriorates, or if any or all of our landlords or providers fail to properly maintain and renovate such premises, buildings or facilities in a timely manner, or at all, the operation of the VIE’s schools could be materially and adversely affected. In addition, if any of the VIE’s landlords terminates the existing lease agreements, refuses to continue to lease the premises to the VIE’s schools when such lease agreements expire, or increase rent to the level not acceptable to the VIE, or the providers refuse to continue to provide the premises for the VIE’s use, the VIE will be forced to relocate its schools to other locations, the VIE may not be able to find suitable premises for such relocation without incurring significant time and costs, or at all. If this occurs, our and the VIE’s business, results of operations and financial condition could be materially and adversely affected, and the VIE’s students, teachers and staff may also be negatively affected by such relocation.

We and the VIE did not receive from the lessors of some of the VIE’s leased premises copies of the title certificates or obtain proof of authorization to lease or provide the premises for the VIE’s use from land providers for certain of its school premises. As of the date of this annual report, we are not aware of any actions, claims or investigations threatened against us, the VIE or its lessors or premise providers with respect to the defects in the VIE’s land use interests. However, if any of the VIE’s leases or cooperative arrangements is terminated as a result of challenges by third parties or government authorities for lack of title certificates or proof of authorization to lease, while we and the VIE do not expect to be subject to any fines or penalties, the VIE may be forced to relocate the affected schools and incur additional expenses relating to such relocation, or we and the VIE may not be able to find suitable premises for relocation at all.

Under the applicable PRC laws and regulations, the parties to a lease agreement are required to register and file the executed lease agreement with the relevant government authorities. As of the date of this annual report, all the lease agreements for the leased properties that we and the VIE occupy are not registered or filed. As advised by our PRC counsel, while the failure to complete the lease registration will not affect the legal effectiveness of the lease agreements according to PRC law, the relevant real estate administrative authorities may require the parties to the lease agreements to complete lease registration within a prescribed period of time and the failure to do so may subject the parties to fines ranging from RMB1,000 to RMB10,000 for each non-registered lease. While we and the VIE have not been subject to any penalties or disciplinary action related to the failure to register the lease agreements, we cannot assure you that we and the VIE will not be subject to penalties or other disciplinary actions for past and future non-compliance. The failure to comply with the applicable PRC property laws and regulations regarding certain of our and the VIE’s leased premises may cause us and the VIE to make relocations and be subject to fines and suspension of business, which may materially and adversely affect our and the VIE’s business, financial condition and results of operations.

We face uncertainties with respect to the development of regulatory requirements on operating licenses and permits for the VIE’s online education services in China.

As a supplement to conventional school programs, the VIE provides online education services on third-party platforms to the students on a complimentary basis. See “Item 4. Information on the Company—B. Business Overview—Online Education Services.” As advised by our PRC legal counsel, the launch of the courses developed by us on third-party online platforms and the use of the education resources available thereon by the VIE’s students and teachers do not involve any activities in relation to the provision of basic or value-added telecommunication services, and therefore the VIE is not required to obtain additional approvals, licenses or permits for the online education services it currently provides, except for those it already obtained.

However, we and the VIE may be required to apply for and obtain additional licenses or permits, or make additional registration and filings for the VIE’s online education services, as the interpretation and implementation of current PRC laws and regulations are still evolving, and new laws and regulations may also be promulgated. There can be no assurance that once required, we and the VIE will be able to obtain all the required approvals, licenses, permits and complete all necessary filings and registrations on a timely basis for the VIE’s online education services, given the significant amount of discretion the PRC authorities may have in interpreting, implementing and enforcing relevant rules and regulations, as well as other factors beyond our control and anticipation. If we and the VIE fail to obtain required approvals, licenses and permits or complete necessary registrations and filings in a timely manner, we and the VIE may be subject to fines or suspension of the non-compliant operations, and the VIE may be forced to cease the provision of online education services in whole or in part, which could adversely affect the VIE’s overall teaching results and appeal to students.

Our and the VIE’s business is subject to seasonal fluctuations, which may cause our and the VIE’s operating results to fluctuate from quarter to quarter. This may result in volatility and adversely affect the price of the ADSs.

We and the VIE have experienced, and expect to continue to experience, seasonal fluctuations in our and the VIE’s results of operations, primarily due to seasonal changes in service days, student enrollments and influence of the summer and winter breaks. The VIE generally requires students to pay tuition and boarding fees for each semester upfront prior to the commencement of such semester, and recognize revenues for the tuition fees and boarding fees received proportionately over relevant period of the applicable program. However, the timing of our recording of our costs and expenses do not necessarily correspond with the timing of our recognition of revenues. Our interim results, growth rates and profitability may not be indicative of our annual results or our future results, and our historical interim and annual results, growth rates and profitability may not be indicative of our future performance for the corresponding periods. These fluctuations could result in volatility and adversely affect the price of the ADSs.

Termination of our cooperative relationship with Hebei Hengshui High School may adversely affect our and the VIE’s business.

We have partnered with Hebei Hengshui High School, a well-regarded benchmark of secondary schools in China, in developing a series of standardized measures and protocols for each stage in a school’s development and for a wide variety of scenarios in school management and operation, which we require all of the VIE’s schools to consistently adhere to. The VIE also has teachers with work experience at Hebei Hengshui High School to coach its teachers to ensure the consistent implementation of effective teaching methods within its school network. If the cooperation is terminated by Hebei Hengshui High School, or if any unforeseeable events cause us to terminate our cooperation with Hebei Hengshui High School, we and the VIE may be required to change the names of the VIE’s schools and may be unable to recruit additional high-quality teachers laterally from Hebei Hengshui High School and ensure the VIE’s overall teaching quality and the operation of the VIE’s education system could be materially and adversely affected.

Failure to adequately protect our and the VIE’s intellectual property could materially and adversely affect our and the VIE’s business.

Unauthorized use of any of our and the VIE’s intellectual property may adversely affect our and the VIE’s business and reputation. We and the VIE rely on a combination of copyright, trademark and trade secrets laws to protect our and the VIE’s intellectual property rights. Nevertheless, third parties may obtain and use our and the VIE’s intellectual property without due authorization. The practice of intellectual property rights enforcement action by the PRC regulatory authorities is in its early stage of development and is subject to significant uncertainty. We and the VIE may also need to resort to litigation and other legal proceedings to enforce our and the VIE’s intellectual property rights. Any such action, litigation or other legal proceedings could result in substantial costs and diversion of our management’s attention and resources and could disrupt our business. In addition, there is no assurance that we and the VIE will be able to enforce our and the VIE’s intellectual property rights effectively or otherwise prevent others from the unauthorized use of our and the VIE’s intellectual property. Failure to adequately protect our and the VIE’s intellectual property could materially and adversely affect our and the VIE’s brand name and reputation, business, financial condition and results of operations.

We and the VIE may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our and the VIE’s business and operations.

We cannot assure you that our and the VIE’s operations or any aspects of our and the VIE’s business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. From time to time, we and the VIE may be subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights, know-how or other intellectual property rights that are infringed by our and the VIE’s services or other aspects of our and the VIE’s business without our awareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against us and the VIE in China, the United States or other jurisdictions. If any third-party infringement claims are brought against us or the VIE, we may be forced to divert management’s time and other resources from our and the VIE’s business and operations to defend against these claims, regardless of their merits.

Additionally, the application and interpretation of China’s intellectual property right laws and the procedures and standards for granting trademarks, patents, copyrights, know-how or other intellectual property rights in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we and the VIE were found to have violated the intellectual property rights of others, we and the VIE may be subject to liability for such infringement activities or may be prohibited from using such intellectual property, and we and the VIE’s may incur licensing fees or be forced to develop alternatives of our own. As a result, our and the VIE’s business, financial condition, results of operations and prospects may be materially and adversely affected.

We and the VIE may be involved in labor and employment related disputes and legal claims from time to time arising out of our and the VIE operations.

We and the VIE may, from time to time, be involved in labor and employment related disputes with and subject to such claims by school personnel and other employees. We cannot assure you that any of the labor and employment related legal actions will be resolved in our favor. We and the VIE may be subject to uncertainties as to the outcome of such legal proceedings, and our and the VIE’s business operations may be disrupted. Such legal or other proceedings involving us or the VIE may, among other impacts, incur significant costs, divert our management and other resources, disrupt our and the VIE’s business operations, draw negative publicity against us and the VIE, or damage our and the VIE’s reputation. As a result, our and the VIE’s business, financial condition and results of operations may be materially and adversely affected.

We and certain of our directors and officers have been named as defendants in a putative shareholder class action lawsuit, which could have a material adverse impact on our business, financial condition, results of operations, cash flows and reputation.

We will have to defend against the putative shareholder class action lawsuit described in “Item 4. Information on the Company—B. Business Overview—Legal Proceedings,” including any appeals of such lawsuit should our initial defense be unsuccessful. We are currently unable to estimate the timing, possible outcome or loss or possible range of loss, if any, associated with the resolution of the lawsuit. There can be no assurance that we will be able to prevail in our defense or reverse any unfavorable judgment on appeal, and we may decide to settle such lawsuit on unfavorable terms. Any adverse outcome of the case, including any plaintiff’s appeal of a judgment in the lawsuit, could have a material adverse effect on our business, financial condition, results of operations, cash flows and reputation. The litigation process may utilize a significant portion of our resources and divert management’s attention from the day-to-day operations of our company, which could harm our results of operations and require us to incur significant expenses to defend the suit. In addition, there can be no assurance that our insurance carriers will cover all or part of the defense costs, or any liabilities that may arise from these matters. We also may be subject to claims for indemnification related to these matters, and we cannot predict the impact that indemnification claims may have on our and the VIE’s business or financial results.

Our and the VIE’s brand image, business and results of operations may be adversely impacted by students and employees’ misconduct and improper activities, many of which are beyond our control.

We and the VIE have limited control over the behavior of the VIE’s students, teachers and other employees. To the extent any improper behavior is associated with the VIE’s schools and education services, our ability to protect our and the VIE’s brand image and reputation may be limited. In addition, if any of the VIE’s students or employees suffer or allege to have suffered physical, financial or emotional harm following contact initiated in connection with the VIE’s education services, we and the VIE may face civil lawsuits or other liabilities initiated by the affected student and employees, or governmental or regulatory actions against us or the VIE. In response to allegations of illegal or inappropriate activities in connection with the VIE’s education services or any negative media coverage about us or the VIE, PRC governmental authorities may intervene and hold us and the VIE liable for non-compliance with PRC laws and regulations concerning the dissemination of information on the internet and subject us to administrative penalties or other sanctions, such as requiring us to restrict or discontinue some of the education services provided by the VIE. As a result, our and the VIE’s business may suffer, and our and the VIE’s brand image, student base, results of operations and financial condition may be materially and adversely affected.

We and the VIE are exposed to the risk of other types of employee fraud or other misconduct. Other types of employee misconduct include intentionally failing to comply with government regulations, engaging in unauthorized activities and misrepresentation to the VIE’s students, which could harm our and the VIE’s reputation. It is not always possible to deter employee misconduct, and the precautions we take to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses, which could harm our and the VIE’s business, financial condition and results of operations.

We recorded share-based compensation, and we may grant share-based awards in the future, which may result in increased share-based compensation expense.

We recorded share-based compensation of RMB177.8 million in 2018 for our directors, officers and employees and certain external consultants for their services performed. We may grant share-based awards pursuant to our 2021 Share Incentive Plan and other share incentive plans to be adopted in the future, which we believe will help us attract and retain key personnel and employees. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations and financial condition.

Unauthorized disclosure of personal data that we collect and retain due to a system failure or otherwise could expose us and the VIE to liabilities and adversely affect our and the VIE’s reputation and business.

We and the VIE maintain records that include personal data, such as academic and medical records, address and family information. If the security measures we and the VIE use to protect personal data are ineffective due to a system failure or other reasons, we and the VIE could be liable for claims of invasion of privacy, impersonation, unauthorized purchases or other claims. In addition, we and the VIE could be held liable for the misuse of personal data, fraudulent or otherwise, by our and the VIE’s employees, independent consultants or third-party contractors.

We and the VIE could incur significant expenses in connection with rectifying any security breaches, settling any resulting claims and providing additional protection to prevent additional breaches. In addition, any failure to protect personal information may adversely impact our and the VIE’s ability to attract and retain students, harm our and the VIE’s reputation, and materially adversely affect our and the VIE’s business, prospects and results of operations.

Any health pandemics, including the recent outbreak of COVID-19, and other natural disasters and calamities, could have a material adverse effect on our and the VIE’s business operations.

We and the VIE are vulnerable to health pandemics, including COVID-19, Ebola virus diseases, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome (SARS) and other epidemics. For example, COVID-19 has significantly affected China and many other countries. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. Many businesses and social activities in China and other countries and regions were severely disrupted, including school operations. Such disruption and the potential slowdown of China’s economy could have a material adverse effect on our and the VIE’s business, results of operations and financial condition.

In 2022, we experienced higher operating costs due to increased spending in COVID-19 related prevention and testing equipment. We paid additional subsidies for our staff working during irregular shifts to accommodate local preventive and partial lock-down measures. In addition, compared with 2020, we were required to pay higher corporate social insurance premiums. In 2022, the VIE’s schools experienced temporary closures due to the COVID-19 outbreak. Furthermore, the COVID-19 outbreak related traveling and gathering restrictions in China in had an adverse impact on the VIE’s student admission campaigns in 2021 and 2022. The VIE’s student admission officers had to rely on higher portion of video calls and online marketing measures, whereas the quality of student admission might be negatively affected. All of the foregoing impacts of COVID-19 outbreak could materially and adversely affect our and the VIE’s business, results of operations and financial condition. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results— Major Factors Affecting Our Results of Operations—COVID-19 outbreak.”

Many of the restrictive measures previously adopted by the PRC governments at various levels to control the spread of the COVID-19 virus have been revoked or replaced with more flexible measures since December 2022. Moreover, there has been and may continue to be an increase in COVID-19 cases in China, and as a result, we and the VIE experienced temporary disruption to our and the VIE’s operations where many of the VIE’s students, teachers and other staff were infected with COVID-19 in December 2022. Since 2023, as the COVID-19 pandemic has been largely contained in China, our and the VIEs’ daily operation has been mostly restored with necessary pandemic prevention measures in place. However, to the extent that future waves of COVID-19 disrupt normal business operations in China, we and the VIE’s may face operational challenges for providing services. The extent to which the COVID-19 pandemic impacts our and the VIE’s results of operations will depend on future developments, which are highly uncertain, including the availability and effectiveness of any new vaccines and the emergence of any new COVID-19 variants, among others. We will pay close attention to the development of the outbreak of COVID-19 and continuously evaluate its impact on our and the VIE’s business, results of operations and financial condition, which we believe will depend on the duration of the pandemic and the government’s responsive measures.

In addition, other natural disasters and calamities, such as fire, floods, typhoons, earthquakes, power loss, telecommunications failures, wars, riots, terrorist attacks or similar events, could cause severe disruption of our and the VIE’s operations or those of our industry customers, which could materially and adversely affect our and the VIE’s business, results of operations and financial condition.

We and the VIE’s have limited insurance coverage with respect to our and the VIE’s business and operations.

We and the VIE are exposed to various risks associated with our and the VIE’s business and operations, and we and the VIE have limited insurance coverage. We and the VIE are exposed to risks including, among other things, accidents or injuries in the VIE’s schools, loss of key management and personnel, business interruption, natural disasters, terrorist attacks and social instability or any other events beyond our control. The insurance industry in China is still at an early stage of development, and as a result insurance companies in China offer limited business-related insurance products. We and the VIE do not have any business interruption insurance, or key-man life insurance. Any business interruption, legal proceeding or natural disaster or other events beyond our control could result in substantial costs and diversion of our and the VIE’s resources, which may materially and adversely affect our and the VIE’s business, financial condition and results of operations.

If we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the rules and regulations of the applicable listing and corporate governance standards of the over-the-counter market (the “OTC” market). We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Commencing with our fiscal year ended December 31, 2021, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Form 20-F filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. In addition, once we cease to be an “emerging growth company” as the term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting.

In the course of auditing our consolidated financial statements that are included elsewhere in this annual report, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting, in accordance with the standards established by the PCAOB.

The material weakness that has been identified relates to our lack of sufficient number of financial reporting personnel with appropriate knowledge, experience and training of U.S. GAAP and SEC financial reporting requirements to properly address complex U.S. GAAP accounting issues and prepare and review financial statements and related disclosures in accordance with U.S. GAAP and reporting requirements set forth by the SEC. To remedy our identified material weakness, we have adopted and plan to continue to adopt certain measures to improve our internal control over financial reporting, including (1) hiring more qualified accounting personnel with extensive experience and knowledge in handling U.S. GAAP and SEC financial reporting requirements; (2) providing regular and appropriate trainings for our accounting staff, especially trainings related to U.S. GAAP and SEC reporting requirements; and (3) setting up performance measurement and reward plan for our accounting staff aligning with our objective of internal control over financial reporting and our ethical value. However, the implementation of these measures may not fully address these weakness and deficiencies in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. Our failure to correct these weakness and deficiencies or our failure to discover and address any other weakness and deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud.

We cannot assure you that there will not be additional material weaknesses or any significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begins its Section 404 reviews, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of the ADSs could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. See “Item 15. Controls and Procedures—Management’s Annual Report on Internal Control over Financial Reporting” and “Item 15. Controls and Procedures—Internal Control Over Financial Reporting.”

Risks Related to Our Corporate Structure

If the PRC government finds that our corporate structure and contractual arrangements does not comply with applicable PRC laws and regulations, we and the VIE could be subject to severe penalties, and our and the VIE’s business may be materially and adversely affected.

We are a Cayman Islands company and thus, we are classified as a foreign enterprise under the PRC laws. Foreign investment in the education industry in the PRC is extensively regulated and subject to numerous restrictions. Under the Special Administrative Measures for Foreign Investment Access (Negative List) (2021)(the “2021 Special Administrative Measures”), foreign investors are prohibited from investing in primary and middle schools in the PRC for students in grades one through nine. High school is also restricted industries for foreign investors, and foreign investors are only allowed to invest in such industries in cooperative ways with domestic investors, provided that domestic investors play a dominant role in such cooperation. Furthermore, under the Implementation Opinions of the MOE on Encouraging and Guiding the Entry of Private Capital in the Field of Education and Promoting the Healthy Development of Private Education, which was issued by the MOE on June 18, 2012, the foreign portion of the total investment in a Sino-foreign joint venture high school should be below 50%. According to relevant regulations, the foreign investors invested in high schools must be foreign education institutions, with relevant educational qualification and high quality of education. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Foreign Investment in Education in the PRC” for details. Accordingly, our wholly-owned subsidiary, Yunnan WFOE, in China is currently ineligible to apply for the required education licenses and permits in China for the operation of primary and middle schools. In order to establish the structure for operating our business in China, we entered into a series of arrangements in which our wholly-owned subsidiary, Yunnan WFOE, receives full economic benefits from the VIE’s schools. Neither we nor our subsidiaries own any share in the affiliated entities, and investors may never hold equity interests in the Chinese operating companies. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Our Contractual Arrangements.” We expect to continue to rely on our contractual arrangements to operate our education business. As a result, investors face unique risks associated with our holding company structure. The contractual arrangements with the VIE have not been tested in court. The PRC regulatory authorities could disallow our holding company structure which could lead to a material change in our operations and/or a material change in the value of our ADSs, and could cause the value of our ADSs to significantly decline or become worthless.”

On July 24, 2021, the General Office of State Council and the General Office of Central Committee of the Communist Party of China jointly promulgated the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education (the “Alleviating Burden Opinion”), which provides, among others, that (1) Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities; and (2) 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. 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. It remains uncertain as to how and to what extent the administration over academic subjects tutoring institutions for students on grade ten to twelve will be implemented by reference of the Alleviating Burden Opinion.

If our corporate structure and contractual arrangements are found to be in violation of any PRC laws or regulations, or if we are found to be required but failed to obtain any of the permits or approvals for our private education business, the relevant PRC regulatory authorities, including the MOE, which regulates the education industry in China, MOFCOM, which regulates the foreign investment in China, and the Ministry of Civil Affairs, which regulates the registration of schools in China, would have broad discretion in imposing fines or punishments upon us for such violations, including:

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revoking the business and operating licenses of us and/or the affiliated entities;

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discontinuing or restricting any related-party transactions between us and/or the affiliated entities;

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imposing fines and penalties, or imposing additional requirements for our operations which we or the affiliated entities may not be able to comply with;

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revoking the preferential tax treatment available to us;

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requiring us to restructure the ownership and control structure or our current schools;

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requiring us to restructure our operations in such a way as to compel us to establish new entities, re-apply for the necessary licenses or relocate our businesses, staff and assets; or

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restricting or prohibiting our use of the proceeds from overseas offerings to finance our business and operations in China, particularly the expansion of our business through strategic acquisitions.

As of the date of this annual report, similar ownership structure and contractual arrangements were used by many China-based companies listed overseas, including a number of education companies listed in the United States. To our knowledge, none of the fines or punishments listed above has been imposed on any of these public companies, including companies in the education industry. However, we cannot assure you that such fines or punishments will not be imposed on us or any other companies in the future. If any of the above fines or punishments is imposed on us, our business, financial condition and results of operations could be materially and adversely affected. If any of these penalties results in our inability to direct the activities of Long-Spring Education and its schools and subsidiaries that most significantly impact their economic performance, and/or failure to receive the economic benefits from Long-Spring Education and its schools and subsidiaries, we may not be able to consolidate Long-Spring Education and its schools and subsidiaries in our financial statements in accordance with U.S. GAAP. However, we do not believe that such actions would result in the liquidation or dissolution of our company, our wholly-owned subsidiaries in China or Long-Spring Education or its schools or subsidiaries.

In addition, pursuant to the Implementation Rules, (1) foreign-invested enterprises established in China and social organizations whose actual controllers are foreign parties shall not sponsor, participate in or actually control private schools that provide compulsory education, (2) social organizations or individuals shall not control any private school that provides compulsory education or any non-profit private school that provides pre-school education by means of, among others, merger, acquisition and contractual arrangements, and (3) private schools providing compulsory education shall not conduct any transaction with any related party. Where any other private school conducts any transaction with any related party, it shall follow the principles of openness, fairness and impartiality, fix the reasonable tuition and fees and regulate the decision-making, and shall not damage the state interests, the interests of the school or the rights and interests of the teachers and students, otherwise, there is a risk of being ordered to make corrections within a time limit, and the illegal gains, if any, shall be confiscated after the fees collected are returned; if the circumstances are serious, the sponsor, actual controller and member of the decision-making body or supervisory body shall not become the sponsor, actual controller or member of the decision-making body or supervisory body of other private school within one to five years; if the circumstances are especially serious with adverse social impact, the sponsor, actual controller and member of the decision-making body or supervisory body shall not become the sponsor, actual controller and members of the decision-making body or supervisory body of other private school permanently; if a violation of public security administration is constituted, the public security organ shall impose a public security administration punishment according to law; if a crime is constituted, criminal responsibility shall be investigated in accordance with the law.

These regulations may challenge the enforcement of our contractual arrangements that establish our corporate structure for operating our business, for example, the clause or provision of the exclusive management services and business cooperation agreement in relation to related party transactions between Yunnan WFOE and the affiliated entities to the extent concerning private schools offering compulsory education have been rendered not legally enforceable since September 1, 2021. Furthermore, our contractual arrangements may not be enforceable in the PRC if the PRC government authorities take a view that such contracts contravene any mandatory provision of PRC laws and administrative regulations or are otherwise not enforceable due to offending public order or good morals. In the event we are unable to enforce these contractual arrangements, for our continuing operations, we may not be able to exert effective control over the affiliated entities and its shareholders, and our ability to conduct our business may be materially and adversely affected. We are continuously assessing the impact of relevant regulations on our business and making necessary measures and efforts to comply with the requirements under these regulations and implementations, including restructuring corporate structure or unwinding contractual arrangements. However, the relevant authorities have yet to promulgate any detailed implementation rules and regulations under the Implementation Rules, it is still unclear whether the above provisions have any retrospective effect for contractual arrangements over private compulsory education schools existing before September 1, 2021, therefore, there remains uncertainty as to when and how the Implementation Rules will become specifically applied to our business.

Uncertainties exist with respect to the interpretation and implementation of the newly enacted Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, and our and the VIE’s business, financial condition, results of operations and prospects.

On March 15, 2019, the National People’s Congress of the PRC (the “NPC”) promulgated the Foreign Investment Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation, and failure to take timely and appropriate measures to cope with the regulatory-compliance challenges could result in material and adverse effect on us. For instance, though the Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, it contains a catch-all provision under the definition of “foreign investment”, which includes investments made by foreign investors in China through means stipulated in laws or administrative regulations or other methods prescribed by the State Council of the PRC (the “State Council”). Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the Stale Council to provide for contractual arrangements as a form of foreign investment, at which time it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for foreign investment in the PRC and if yes, how our contractual arrangements should be dealt with. In addition, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. In the worst-case scenario, we may be required to unwind our existing contractual arrangements and/or dispose of the relevant business operations, which could have a material and adverse effect on our current corporate structure, corporate governance, business, financial condition and results of operations.

We rely on contractual arrangements with Long-Spring Education and its shareholders for our business operations in China, which may not be as effective as direct ownership in providing control.

We have relied and expect to continue to rely on contractual arrangements with Long-Spring Education and its shareholders to operate our business in China. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Our Contractual Arrangements.” These contractual arrangements may not be as effective as direct equity ownership in providing us with control over our affiliate entities. Any failure by the affiliated entities, to perform their obligations under the contractual arrangements would have a material adverse effect on the financial position and performance of our company.

If we had direct ownership of Long-Spring Education, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Long-Spring Education, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by the affiliated entities and their shareholders or sponsors of their obligations under the contracts to exercise control over the affiliated entities. The shareholders or sponsors of the affiliated entities may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portion of our business through the contractual arrangements with Long-Spring Education. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system. See “—Any failure by the affiliated entities and their shareholders or sponsors to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.” As a result, uncertainties in the commercial arbitration system or legal system in China could limit our ability to enforce these contractual arrangements. In addition, if the legal structure and the contractual arrangements were found to violate any existing or future PRC laws and regulations, we may be subject to fines or other legal or administrative sanctions. Therefore, our contractual arrangements with Long-Spring Education and its shareholders may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.

If the imposition of government actions causes us to lose our right to direct the activities of the affiliated entities or our right to receive substantially all the economic benefits and residual returns from the affiliated entities and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of the affiliated entities.

Furthermore, we are a holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own, we conduct a substantial majority of our operations through our subsidiaries established in China, the VIE, and its subsidiaries in China. We control and receive the economic benefits of the VIE and its subsidiaries’ business operations through certain contractual arrangements. Our ADSs on the OTC market represents shares of our offshore holding company instead of shares of the VIE or its subsidiaries in China. We may not be able to continue to satisfy the applicable requirements and rules with respect to such structure.

If the PRC government determines that the contractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, we may be unable to assert our contractual rights over the assets of the VIE, and our ADSs or ordinary shares may decline in value or become worthless.

Investors in the ADSs are not purchasing equity securities of our subsidiaries that have substantive business operations in China but instead are purchasing equity securities of a Cayman Islands holding company. We are a Cayman Islands holding company that conducts all of its operations and operates its business in China through its PRC subsidiaries and the affiliated entities through contractual agreements. Such structure involves unique risks to investors in the ADSs.

Recently, the PRC government adopted a series of regulatory actions and issued statements to regulate business operations in China, including those related to VIE and private schools, which may challenge the validity of our contractual arrangements. In the event that the PRC government determines that the contractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, we may be unable to assert our contractual rights over the assets of the VIE, and our ADSs or ordinary shares may decline in value or become worthless.

On May 14, 2021, the PRC State Council promulgated the amended Implementation Rules, which became effective on September 1, 2021. Under the Implementation Rules, social organizations and individuals are prohibited from controlling a private school that provides compulsory education by means of, among others, merger, acquisition, and contractual arrangements, and a private school providing compulsory education is prohibited from conducting transactions with its related parties. In particular, the prohibition over related party transactions has significantly affected the enforceability of the exclusive management services and business cooperation agreements with affiliated entities providing compulsory education. Therefore, we re-assessed our control over the Affected Entities. Based on the relevant accounting standard in accordance with U.S. GAAP, we have concluded that we have lost control of the Affected Entities since September 1, 2021, in view of the significant uncertainties and restrictions the Implementation Rules impose on our ability to direct the range of ongoing activities that would most significantly impact the returns of those entities and to be exposed to returns that are commensurate with a controlling interest, and that such uncertainties and restrictions already had a significant impact on our ability to direct and its economic exposure from involvement with such entities.

Except for the Affected Entities, the contractual arrangements enable us to: (1) exercise effective control over the affiliated entities; (2) receive substantially all of the economic benefits of the affiliated entities in consideration for the services provided by us; and (3) have an exclusive option to purchase all of the equity interests in the affiliated entities when and to the extent permitted under PRC law. Therefore, we are able to consolidate the financial results of the affiliated entities in our consolidated financial statements. However, our PRC legal counsel has advised us that as there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, and we cannot assure you that the PRC government would agree that our corporate structure or any of the above contractual arrangements comply with current or future PRC laws or regulations. PRC laws and regulations governing the enforcement of these contractual arrangements are uncertain and the relevant government authorities may have broad discretion in interpreting these laws and regulations.

Any failure by the affiliated entities and their shareholders or sponsors to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our and the VIE’s business.

The affiliated entities and their shareholders or sponsors may fail to take certain actions required for our business or to follow our instructions despite their contractual obligations to do so. In addition, there might be a risk that the shareholders of the performing parties to the contractual arrangements may raise objections to the arrangements. If they fail to perform their obligations under their respective agreements with us, we may have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, which may not be effective. For example, if the shareholders of Long-Spring Education were to refuse to transfer their equity interests in Long-Spring Education to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.

All the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. Moreover, our contractual arrangements provided that arbitrators may award remedies over the shares and/or assets of the affiliated entities in China, injunctive relief and/or winding up of the affiliated entities, and that courts of competent jurisdictions are empowered to grant interim remedies in support of the arbitration pending the formation of an arbitral tribunal. However, under PRC law, arbitrators have no power to grant injunctive relief and may not directly issue a provisional or final liquidation order to protect assets or equity interest involved in case of disputes. In addition, interim remedies or enforcement orders granted by foreign courts in the United States and the Cayman Islands may not be recognized or enforceable in China. In the event we are unable to enforce our contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our affiliate entities, and our ability to conduct our business may be negatively affected. See “—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could have a material adverse effect on us and the VIE.”

The shareholders of Long-Spring Education may have actual or potential conflicts of interest with us and not act in the best interests of our company.

The shareholders of Long-Spring Education may have actual or potential conflicts of interest with us. These shareholders may breach, or cause Long-Spring Education to breach, or refuse to renew, the existing contractual arrangements we have with them and Long-Spring Education, which would have a material and adverse effect on our ability to effectively control Long-Spring Education and receive economic benefits from it. For example, the shareholders may be able to cause our agreements with Long-Spring Education to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company. If we cannot resolve any conflict of interest or dispute between us and these shareholders, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

Contractual arrangements between the affiliated entities and us may be subject to scrutiny by the PRC tax authorities and a finding that we or the affiliated entities owe additional taxes could materially reduce our net income and the value of your investment.

Under PRC laws and regulations, transactions between related parties should be conducted on an arm’s-length basis and may be subject to audit or challenge by the PRC tax authorities. We could face material adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between us and the affiliated entities are not conducted on an arm’s-length basis and adjust the income of the affiliated entities through the transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in, for PRC tax purposes, increased tax liabilities of the affiliated entities. In addition, the PRC tax authorities may require us to disgorge our prior tax benefits, and require us to pay additional taxes for prior tax years and impose late payment fees and other penalties on the affiliated entities for underpayment of prior taxes. To date, similar contractual arrangements have been used by many public companies, including companies listed in the United States, and, to our knowledge, the PRC tax authorities have not imposed any material penalties on those companies. However, we cannot assure you that such penalties will not be imposed on any other companies or us in the future. Our net income may be reduced if the tax liabilities of the affiliated entities materially increase or if they are found to be subject to additional tax obligations, late payment fees or other penalties.

If any of the affiliated entities becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy assets held by such entity, which could materially and adversely affect our business, financial condition and results of operations.

We currently conduct our operations in China through contractual arrangements with the affiliated entities and the shareholders of Long-Spring Education. As part of these arrangements, substantially all of our education-related assets that are important to the operation of our business are held by the affiliated entities. If any of these entities goes bankrupt and all or part of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If any of the affiliated entities undergoes a voluntary or involuntary liquidation proceeding, its equity owner or third-party creditors may claim rights relating to some or all of these assets, which would hinder our ability to operate our business and could materially and adversely affect our business, our ability to generate revenues and the market price of the ADSs.

We may rely on dividends paid by our PRC subsidiaries to fund cash and financing requirements. Any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares.

We are a holding company, and we may rely on dividends to be paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to the holders of the ADSs and our ordinary shares and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.

Pursuant to the Law on Promoting Private Education, sponsors of for-profit private schools are entitled to retain the profits from their schools and the operating surplus may be allocated to the sponsors pursuant to the PRC company law and other relevant laws and regulations. Sponsors of non-profit private schools are not entitled to any distribution of profits from their schools and all revenue must be used for the operation of the schools. According to Implementation Rules, a non-profit private school should allocate no less than 10% of its audited annual non-restricted net asset increase, or a for-profit private school should allocate no less than 10% of its audited annual net income, to its development, respectively. Under PRC laws and regulations, wholly foreign-owned enterprises in the PRC, such as Yunnan WFOE, may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. At the discretion of the wholly foreign-owned enterprise, it may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. However, the relevant authorities have yet to promulgate any detailed implementation rules and regulations under the Implementation Rules. We remain uncertain as to the timing and substance of the rules under the Law on Promoting Private Education and Implementation Rules to be promulgated, and how such rules will impact our operation. Furthermore, if our subsidiaries or the affiliated entities in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our wholly-owned PRC subsidiaries 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 regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries and affiliated entities, which could harm our liquidity and our ability to fund and expand our business.

As an offshore holding company of our PRC subsidiaries and affiliated entities, we may (1) make loans to our PRC subsidiaries and affiliated entities, (2) make additional capital contributions to our PRC subsidiaries, (3) establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, and (4) acquire offshore entities with business operations in China in an offshore transaction. However, most of these uses are subject to PRC regulations and approvals. For example:

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loans by us to our wholly-owned subsidiaries in China, which are foreign-invested enterprises, cannot exceed statutory limits, which is the difference between the total investment amount and the registered capital of our wholly-owned subsidiaries, and must be registered with the State Administration of Foreign Exchange of the PRC, or SAFE, or its local counterparts;

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loans by us to the affiliated entities, which are domestic PRC entities, over a certain threshold must be approved by the relevant government authorities and must also be registered with SAFE or its local counterparts; and

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capital contributions to our wholly-owned subsidiaries in China must be filed with MOFCOM or its local counterparts and must also be registered with the local bank authorized by SAFE.

As a result of the requirements and limitations outlined above, the amount of funds that we can directly contribute to our operations in China through Yunnan WFOE, is limited. In addition, on March 30, 2015, SAFE promulgated the Circular of the SAFE on Reforming the Administrative Measures of Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (the “SAFE Circular 19”), a notice regulating the conversion by a foreign-invested company of its capital contribution in foreign currency into Renminbi. The notice requires that the capital of a foreign-invested company settled in Renminbi converted from foreign currencies shall be used only for purposes within the business scope as approved by the applicable government authorities and may not be used for equity investments in China unless such activity is set forth in the business scope or is otherwise permissible under PRC laws or regulations. In addition, SAFE strengthened its oversight of the flow and use of such capital of a foreign-invested company settled in Renminbi converted from foreign currencies. The use of such Renminbi capital may not be changed without SAFE’s approval, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not otherwise been used. Violations of the SAFE Circular 19 will result in severe penalties including hefty fines. As a result, the SAFE Circular 19 may significantly limit our ability to transfer the net proceeds from our initial public offering and future overseas offering to our operations in China through our PRC subsidiaries, which may adversely affect our ability to expand our business. On February 13, 2015, the SAFE promulgated the Circular on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies (the “SAFE Circular 13”), which was effective on June 1, 2015. Pursuant to the SAFE Circular 13, the registration of existing equity is required in lieu of annual foreign exchange inspection of direct investment. The SAFE Circular 13 also grants the authority to banks to examine and process foreign exchange registration with respect to both domestic and overseas direct investments.

We expect that PRC laws and regulations may continue to limit our use of proceeds from our overseas offering or from other financing sources. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to our entities in China. If we fail to receive such registrations or approvals, our ability to use the proceeds from our initial public offering and future overseas offerings and foreign currency to capitalize our PRC operations may be hindered, which could adversely affect our liquidity and our ability to fund and expand our business.

Risks Related to Doing Business in China

PRC economic, political and social conditions, as well as changes in any government policies, laws and regulations, could adversely affect the overall economy in China or the education services market, which could harm our and the VIE’s business.

Our revenues are all sourced from China. Accordingly, our business, prospects, financial condition and results of operations are subject, to a significant extent, to economic, political and legal developments in China.

The PRC economy differs from the economies of most developed countries in many respects. Although the PRC economy has been transitioning from a planned economy to a more market-oriented economy since the late 1970s, the PRC government continues to play a significant role in regulating the industry. The PRC government continues to exercise significant control over China’s economic growth through allocating resources, controlling the incurrence and oversight and discretion over the conduct of our business and may intervene with or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Changes in any of these policies, laws and regulations could adversely affect the economy in China or the market for education services, especially for Gaokao and Zhongkao, which could harm our business. The governance, operation and management of the affiliated entities in the PRC are governed by the PRC Company Law, which was promulgated by the SCNPC in 1993 and last amended on December 29, 2023 (the “New Company Law”). The New Company Law will take effect from July 1, 2024 and introduces new requirements on capital contributions, corporate governance, liabilities of directors, supervisors and senior executives, protection of minority shareholders, share transfer and liquidation process, among others. The capital contribution of certain of the affiliated entities in China have not been fully paid. We and the VIE will pay the outstanding subscribed capital or take relevant measures to comply with the New Company Law and relevant regulations by June 30, 2027. To comply with the New Company Law, we may need to review our capital contribution liabilities and corporate governance for the affiliated entities in China. Our efforts to comply with changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over overseas securities offerings and other capital markets activities and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.

While the PRC economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. In addition, the rate of growth has been slowing since 2012, and the impact of COVID-19 on the Chinese and global economies in 2020 is likely to be severe. In particular, the National Bureau of Statistics of China reported a 6.8% drop and a 3.2% growth in GDP for the first and second quarters of 2020, respectively, compared with the respective periods of 2019. Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Any significant slowdown in China’s economic growth may cause our potential students to delay or cancel their plans to enroll in the VIE’s schools, which in turn could reduce our revenues. The PRC government has implemented various measures to stimulate economic growth and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past, the PRC government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and results of operations. In addition, the increased global focus on social, ethical and environmental issues may lead to China’s adoption of more stringent standards in these areas, which may adversely impact the operations of China-based companies including us.

Furthermore, our company, the VIE and its subsidiaries, and our investors may face uncertainty about future actions by the government of China that could significantly affect the affiliated entities and its subsidiaries’ financial performance and operations, including the enforceability of the contractual arrangements. As of the date of this report, neither our company nor the VIE has received or has been denied permission from Chinese authorities to list on U.S. exchanges. However, there is no guarantee that our company or VIE will receive or not be denied permission from Chinese authorities to list on U.S. exchanges in the future.

Uncertainties with respect to the PRC legal system could have a material adverse effect on us and the VIE.

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions in a civil law system may be cited as reference but have limited precedential value. Since 1979, newly introduced PRC laws and regulations have significantly enhanced the protections of interest relating to foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system continues to evolve rapidly, the interpretations of such laws and regulations may not always be consistent, and enforcement of these laws and regulations involves significant uncertainties, any of which could limit the available legal protections.

In addition, the PRC administrative and judicial authorities have significant discretion in interpreting, implementing or enforcing statutory rules and contractual terms, and it may be more difficult to predict the outcome of administrative and judicial proceedings and the level of legal protection we may enjoy in the PRC than under some more developed legal systems. These uncertainties may affect our decisions on the policies and actions to be taken to comply with PRC laws and regulations, and may affect our ability to enforce our contractual rights, property (including intellectual property) or tort rights. In addition, the regulatory uncertainties may be exploited through unmerited legal actions or threats in an attempt to extract payments or benefits from us. Such uncertainties may therefore increase our operating expenses and costs, and materially and adversely affect our and the VIE’s business and results of operations.

Any actions by the Chinese government, including any decision to intervene or influence the operations of our PRC subsidiaries or the affiliated entities or to exert control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, may cause us to make material changes to the operations of our PRC subsidiaries or the VIE, may limit or completely hinder our ability to offer or continue to offer securities to investors, and may cause the value of such securities to significantly decline or be worthless.

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The ability of our subsidiaries and affiliated entities to operate in China may be impaired by changes in its laws and regulations, including those relating to education, taxation, land use rights, foreign investment limitations, and other matters.

The economic and social conditions in China differ from those of the countries in other jurisdictions in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. The PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises. These reforms have resulted in significant economic growth and social prospects. The PRC government exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions, providing preferential treatment to particular industries or companies, or imposing industry-wide policies on certain industries. For example, on May 14, 2021, the PRC State Council promulgated the Implementation Rules, which have had significant impacts on our and the VIE’s business operations and our results of operations. See “—Risks Related to Our Business and Industry—Our efforts to be in compliance with the Implementation Rules has materially and adversely affected and may continue to materially and adversely affect our and the VIE’s business, financial condition, results of operations and prospect in the future.” Economic reform measures may also be adjusted, modified or applied inconsistently from industry to industry or across different regions of the country, and there can be no assurance that the Chinese government will continue to pursue a policy of economic reform or that the direction of reform will continue to be market friendly.

While the Chinese economy has experienced significant growth in the past four decades, growth has been uneven, both geographically and among various sectors of the economy. Various measures implemented by the PRC government to encourage economic growth and guide the allocation of resources may benefit the overall Chinese economy, but may also have a negative effect on our and the VIE’s business operations and/or the value of our securities. Our results of operations and financial condition could be materially and adversely affected by government control over capital investments, foreign investment or changes in applicable tax regulations. The PRC government has also implemented certain measures in the past, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for our services and consequently have a material adverse effect on our business, results of operations and financial condition. In addition, future pandemics outbreaks similar to COVID-19 may also trigger tightening controls, and have a severe and negative impact on the Chinese economy. Any severe or prolonged slowdown in the rate of growth of the Chinese economy may adversely affect our business and results of operations, leading to reduction in demand for its products and adversely affect its competitive position.

The central or local governments of China may impose new, stricter regulations or interpretations of existing regulations that seek to impose stricter scrutiny over, or completely revise, the current regulatory regime in certain industries or in certain activities, which would require additional expenditures and efforts on our part to ensure our PRC subsidiaries and the affiliated entities’ compliance with such regulations or interpretations. For instance, the PRC government has significant discretion over the business operations in China and may intervene with or influence specific industries or companies as it deems appropriate to further regulatory and societal goals, which could have a material and adverse effect on the future growth of the affected industries and the companies operating in such industries. As such, our PRC subsidiaries and the affiliated entities may be subject to various government actions and regulatory interference in the provinces in which they operate. They could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. They may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply.

Furthermore, it is uncertain when and whether we will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be later denied or rescinded. Although we believe that our company, our PRC subsidiaries, and the VIE, are currently not required to obtain permission from any Chinese authorities, and none of them has received any notice of denial of permission to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business or industry, particularly in the event permission to list on U.S. exchanges may be later required, or withheld or rescinded once given.

Accordingly, any actions by the Chinese government in the future, including any decision to intervene or influence the operations of our PRC subsidiaries or the affiliated entities at any time, or to exert more oversight and control over an offering of securities conducted overseas and/or foreign investment in China-based issuers, may cause us to make material changes to the operations of our PRC subsidiaries or the VIE, may significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and/or may cause the value of such securities to significantly decline or be worthless.

Based on the recent development of PRC law, there is significant uncertainty about the application and interpretation of the Law on Promoting Private Education, the Implementation Rules and their detailed implementation rules and regulations. We may be subject to significant limitations on our and the VIE’s ability to engage in the private education business, acquire private schools, or receive payments from the VIE and may otherwise be materially and adversely affected by changes in PRC laws and regulations.

Pursuant to the Law on Promoting Private Education, sponsors of private schools may choose to establish schools as either non-profit or for-profit schools. Sponsors are not permitted to establish for-profit schools that provide compulsory education services, which covers grades one to nine and which accounts for a significant portion of our students as well as revenue during the reporting period. Sponsors of for-profit private schools are entitled to retain the profits from their schools and any operating surplus may be allocated to the sponsors pursuant to the PRC company law and other relevant laws and regulations. Sponsors of non-profit private schools are not entitled to any distribution of profits from their schools and all revenue must be used for the operation of the schools.

As a holding company, our ability to generate profits, pay dividends and other cash distributions to our shareholders under the Law on Promoting Private Education, the Implementation Rules and other relevant laws and regulations are affected by many factors, including whether the VIE’s schools are characterized as for-profit or non-profit schools, the profitability of the VIE’s schools, and our ability to receive dividends and other distributions from our PRC subsidiary, Yunnan WFOE, which in turn depends on the service fees paid to Yunnan WFOE from the affiliated entities. Yunnan WFOE has respectively entered into exclusive management services and business cooperation agreements with the affiliated entities and each of the shareholders of Long-Spring Education, pursuant to which Yunnan WFOE has the exclusive right to provide comprehensive technical and business support services to the affiliated entities. As advised by our PRC counsel, as of the date of this annual report, except for the Affected Entities, our right to receive the service fees from the VIE’s schools and other affiliated entities did not, to our knowledge, contravene any PRC laws and regulations then in force. Likewise, the payment of service fees under our contractual arrangements should not be regarded as the distribution of returns, dividends or profits to the sponsors of the VIE’s schools under the PRC laws and regulations then in force.

However, according to the Implementation Rules, which came into force and effect beginning September 1, 2021, (1) foreign-invested enterprises established in China and social organizations whose actual controllers are foreign parties shall not sponsor, participate in, or actually control private schools that provide compulsory education; (2) social organizations or individuals shall not control any private school that provides compulsory education or any non-profit private school that provides pre-school education by means of, among others, merger, acquisition and contractual arrangements; and (3) private schools providing compulsory education shall not conduct any transaction with any related party. Where any other private school conducts any transaction with any related party, it shall follow the principles of openness, fairness and impartiality, fix reasonable tuition and fees and regulate the decision-making, and shall not damage the state and the school or the rights and interests of the teachers and students, otherwise, there is a risk of being ordered to make corrections within a time limit, and the illegal gains, if any, shall be confiscated after the fees collected are returned; if the circumstances are serious, the sponsor, actual controller and member of the decision-making body or supervisory body shall not become the sponsor, actual controller or member of the decision-making body or supervisory body of other private school within one to five years; if the circumstances are especially serious with adverse social impact, the sponsor, actual controller and member of the decision-making body or supervisory body shall not become the sponsor, actual controller and members of the decision-making body or supervisory body of other private school permanently; if a violation of public security administration is constituted, the public security organ shall impose a public security administration punishment according to law; if a crime is constituted, criminal responsibility shall be investigated in accordance with the law.

Therefore, a private school providing compulsory education is prohibited from conducting transactions with its related parties. As a result, the clause or provision of the exclusive management services and business cooperation agreements, in relation to related party transactions between a private school providing compulsory education and Yunnan WFOE, have been rendered not legally enforceable since September 1, 2021. Since September 1, 2021, we and the VIE have ceased our transactions with the Affected Entities, to the extent practicable. However, to keep these private schools providing compulsory education open, the VIE continued to provide essential services without recognizing any revenues relating to such activities to schools providing compulsory education in our discontinued operation, which are key to the normal daily operation of these schools. As date of this annual report, schools providing compulsory education that the VIE continues to provide services to have not received any further rectification requirements or penalty notices from the relevant competent authority, and we are currently unable to assess, with any certainty, the risks of penalty associated with our continued provision of such essential services. We are continuously assessing the impact of relevant regulations on our and the VIE’s business and making necessary measures and efforts to comply with the requirements under these regulations and implementations, including restructuring corporate structure or unwinding contractual arrangements.

In particular, the enforcement of our contractual arrangements may be challenged, and our corporate structure may need to be restructured to comply with the new regulations, which may be time-consuming and expensive and impose additional restrictions on our and the VIE’s business expansion and may further adversely affect our and the VIE’s business operations and results of operations. See “—Risks Related to Our Corporate Structure—If the PRC government finds that our corporate structure and contractual arrangements does not comply with applicable PRC laws and regulations, we and the VIE could be subject to severe penalties, and our and the VIE’s business may be materially and adversely affected.”

Our shares and ADSs will be prohibited from trading in the OTC market under the Holding Foreign Companies Accountable Act, if the PCAOB is unable to inspect or investigate completely our auditors for two consecutive years. The cessation of trading of our ordinary shares, or the threat of their being prohibited from being traded, may materially and adversely affect the value of your investment.

Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares and ADSs from being traded in the OTC market in the United States. On December 2, 2021, the SEC adopted final amendments to its rules implementing the HFCAA, which 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. These amendments also establish procedures the SEC will follow in identifying issuers and prohibiting trading by certain issuers under the HFCAA. In March 2022, the SEC issued its first “Conclusive list of issuers identified under the HFCAA,” which indicates that those companies are now formally subject to the delisting provisions if they remain on the list for two consecutive years. We have not been identified by the SEC as a commission-identified issuer under the HFCAA as of the date of this annual report.

Our current auditor, Audit Alliance LLP, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report and is headquartered in Singapore, is a firm registered with the PCAOB, and was not included in the list of PCAOB Identified Firms in the PCAOB Determination Report issued in December 2021. The PCAOB currently has access to inspect the working papers of our auditor. However, the recent developments would add uncertainties to our trading or future offering of our securities in the United States, and we cannot assure you whether 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 they relate to the audit of our financial statements. To the extent this status changes in the future and our auditor’s audit documentation related to their audit reports for our Company is inaccessible for inspection by the PCAOB or if the PCAOB is unable to inspect or investigate our auditor completely because of a position taken by an authority in a foreign jurisdiction, trading in our shares could be prohibited under the HFCAA, and, as a result, our shares could be suspended or prohibited from trading in the OTC market.

Our ability to retain an auditor subject to PCAOB inspection and investigation, including but not limited to inspection of the audit working papers related to us, may depend on the relevant positions of U.S. and Chinese regulators. With respect to audits of companies with operations in China, such as our company, there are uncertainties about the ability of auditors of such companies to fully cooperate with a request by the PCAOB for audit working papers in China without the approval of Chinese authorities. In August 2022, the CSRC, the MOF, and the PCAOB signed a Statement of Protocol (the “Statement of Protocol”), which establishes a specific and accountable framework for the PCAOB to conduct inspections and investigations of PCAOB-governed accounting firms in mainland China and Hong Kong. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. 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. In the event that future regulators in China take steps to restrict the audit firm’s access to working papers in mainland China or Hong Kong, or if the PCAOB is unable to fully inspect our audit working papers, or if the PCAOB expands the scope of its determination so that we are subject to the HFCAA, it could restrict or limit our access to the U.S. capital markets or in the OTC market in the United States may be prohibited under the HFCAA. If our ADSs are prohibited from trading in the OTC market in the United States, there is no certainty that we will be able to list our Ordinary Shares on a securities exchange outside the United States or that a market for our Ordinary Shares will develop outside the U.S. Such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition and prospects.

If the settlement reached between the SEC and the “big four” PRC-based accounting firms concerning the manner in which the SEC may seek access to audit working papers from audits in China of US-listed companies is not or cannot be performed in a manner acceptable to authorities in China and the United States, we may be unable to timely file future financial statements in compliance with the requirements of the Exchange Act in the future.

In December 2012, the SEC brought administrative proceedings against the “big four” PRC-based accounting firms, alleging that they had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ audit work papers and other documents related to certain other PRC-based companies that are publicly traded in the United States.

On January 22, 2014, the administrative law judge presiding over the matter rendered an initial decision that each of the firms had violated the SEC’s rules of practice by failing to produce audit papers and other documents to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC for a period of six months. The decision was neither final nor legally effective until reviewed and approved by the SEC, and on February 12, 2014, the PRC-based accounting firms appealed to the SEC against this decision.

On February 6, 2015, the four PRC-based accounting firms each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S.-listed companies. The settlement required the firms to follow detailed procedures and to seek to provide the SEC with access to PRC-based firms’ audit documents via the CSRC. Under the terms of the settlement, the underlying proceeding against the four PRC-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019. Despite the Statement of Protocol, it remains uncertain whether the SEC will further challenge the four PRC-based accounting firms’ compliance with U.S. laws in connection with U.S. regulatory requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions.

In the past we had engaged certain Chinese affiliates of the “big four” accounting firms as our independent registered public accounting firm. While we did not do so for the fiscal year ended December 31, 2023, we cannot assure you that we will not engage or otherwise rely on their audits in the future. If the accounting firm we engage were denied, even temporarily, the ability to practice before the SEC, and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the quoting of our ordinary shares on the OTC market or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States. Moreover, any negative news about any such future proceedings against these accounting firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our ADSs may be adversely affected.

Failure to comply with governmental regulations and other legal obligations concerning data protection and cybersecurity may materially and adversely affect our and the VIE’s business, as we and the VIE routinely collect and store data during the business conduct.

We and the VIE routinely collect and store data during our operations. We and the VIE store basic personal information such as students’ name, age, birthday and other personal information, and use such data for the purposes of facilitating students in the examination application and national census and statistics related reporting process only. We and the VIE are subject to PRC laws and regulations governing the collecting, storing, sharing, using, processing, disclosure and protection of data on the Internet and mobile platforms as well as cybersecurity. On August 17, 2021, the state council promulgated the Regulations on Protection of Critical Information Infrastructure, which became effective on September 1, 2021. Pursuant to the Regulations on Protection of Critical Information Infrastructure, critical information infrastructure shall mean any important network facilities or information systems of an important industry or field, such as public communication and information service, energy, communications, water conservation, finance, public services, e-government affairs and national defense science, which may endanger national security, peoples’ livelihoods and public interest in the event of damage, function loss or data leakage. In addition, relevant administration departments of each critical industry and sector, or Protection Departments, shall be responsible to formulate eligibility criteria and determine the critical information infrastructure operator in the respective industry or sector. The operators shall be informed about the final determination as to whether they are categorized as critical information infrastructure operators. On December 28, 2021, the Cyberspace Administration of China jointly with other 12 government authorities, issued the Measures for Cybersecurity Review (2021), which became effective on February 15, 2022, and repealed the Cybersecurity Review Measures (2020) simultaneously. The Measures for Cybersecurity Review (2021) provide that critical information infrastructure operators purchasing network products and services and data processors carrying out data processing activities, which affect or may affect national security, shall apply for cybersecurity review to the cyberspace administrations in accordance with the provisions thereunder.

As of the date of this annual report, no detailed rules or implementation have been issued by any Protection Departments. As of the date of this annual report, we have not received any inquiry or notice or any objection in connection with our previous issuance of securities to foreign investors from the CAC or any other PRC governmental authorities that have jurisdiction over our operations. Based on the opinion of our PRC legal counsel, Beijing Zhongwen Law Firm, we are not required to file an application for the cybersecurity review by the CAC for our previous issuance of securities to foreign investors as of the date of this annual report because (1) we are not in the industry or business operation that involves critical information infrastructure, nor do we operate as a network platform operator engaging in relevant data processing activities which affect or may affect national security of the PRC; (2) we are not in possession of personal information of over one million users and it is also very unlikely that it will reach such threshold in the near future; and (3) as of the date of the annual report, we have not received any notice or determination from applicable PRC governmental authorities identifying us as a critical information infrastructure operator or a network platform operator engaging in relevant data processing activities which affect or may affect national security of the PRC. We will closely monitor the rule-making process and will assess and determine whether we are required to apply for the cybersecurity review.

On August 20, 2021, the Standing Committee of the National People’s Congress (the “SCNPC”) promulgated the Personal Information Protection Law, which became effective on November 1, 2021. The Personal Information Protection Law aims at protecting the personal information rights and interests, regulating the processing of personal information, ensuring the orderly and free flow of personal information in accordance with the law, and promoting the reasonable use of personal information. According to the Personal Information Protection Law, personal information includes all kinds of identified or identifiable information related to natural persons recorded by electronic or other means, but excludes de-identified information. The Personal Information Protection Law also specified the rules for handling sensitive personal information, which includes biometrics, religious beliefs, specific identities, medical health, financial accounts, trails and locations, and personal information of teenagers under fourteen years old and other personal information, which, upon leakage or illegal usage, may easily infringe the personal dignity or harm safety of livelihood and property. Personal information handlers shall bear responsibility for their personal information handling activities, and must adopt necessary measures to safeguard the security of the personal information they handle. Otherwise, the personal information handlers will be ordered for rectification or suspension or termination of provision of services, confiscation of illegal income, subject to fines or other penalties.

Furthermore, based on the opinion of our PRC legal counsel, Beijing Zhongwen Law Firm, based on the facts that, (1) the Measures for Cybersecurity Review (2021) and the Personal Information Protection Law were newly adopted, and the implementation and interpretation of both are subject to uncertainties, and (2) we have not been involved in any investigations on cyber security review made by the CAC on such basis, nor have we received any inquiries, notices, warnings, or sanctions from any competent PRC regulatory authorities related to cybersecurity, data security and personal data protection, we believe we are in compliance with the existing PRC laws and regulations on cybersecurity, data security and personal data protection in all material aspects. However, given the current regulatory environment in the PRC, there remains uncertainty regarding the interpretation and enforcement of PRC laws, which can change quickly with little notice in advance and subject to any future actions within the discretion of PRC authorities.

We cannot predict the impact of these new laws and regulations, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. Therefore, it remains uncertain whether the proposed measures will be applicable to our business, or whether the future regulatory changes would impose additional restrictions on companies like us. Failure to comply with the cybersecurity and data privacy requirements in a timely manner, or at all, may subject us to government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, among other sanctions. As a result, we and the VIE may be required to upgrade or change our service offerings and other aspects of our business to comply with such laws and regulations.

We and the VIE have adopted various measures to ensure compliance with privacy and data protection regulations. However, our security control may not prevent the improper leakage of personal data and confidential information. Additionally, we cannot assure you that we and the VIE will be able to address any vulnerabilities in our systems that we may become aware of in the future. In particular, we and the VIE could be subject to attacks on our systems by external parties or fraudulent or inappropriate behaviors by our employees, third-party providers or other business partners. Third parties may also gain access to our data using computer malware, viruses, spamming, phishing attacks or other means. A security breach that leads to leakage of data and information of our users, even though anonymized, could still subject us to legal liabilities, regulatory sanctions, reputational damage and loss of user confidence. In addition, data breaches or any misconduct during the process of collection, analysis, and storage of data, could result in a violation of applicable data privacy and protection laws and regulations in China, and subject us to regulatory actions, investigations or litigations. Even if these actions, investigations or litigations do not result in any liability to us, we could incur significant costs in investigating and defending against them, and could be subject to negative publicity about our privacy and data protection practices, which may affect our reputation in the marketplace. Potential risks related to our collection and use of data could require us to implement measures to reduce our exposure to liability, which may require us to expend substantial resources. As a result, our business, results of operations and financial condition could be materially and adversely affected.

The filing procedure with the CSRC shall be fulfilled and the approval of other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, if required.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors (the “M&A Rules”), adopted by six PRC regulatory agencies in 2006 and amended in 2009, include, among other things, provisions that purport to require that an offshore special purpose vehicle, formed for the purpose of an overseas listing of securities through acquisitions of domestic enterprises in China or assets and controlled by enterprises or individuals in China, to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, pursuant to the M&A Rules and other PRC laws, the CSRC published on its official website relevant guidance regarding its approval of the listing and trading of special purpose vehicles’ securities on overseas stock exchanges, including a list of application materials. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose vehicles. We completed our initial public offering on March 11, 2021.

On July 6, 2021, the relevant PRC government authorities issued the Opinions on Severely Cracking Down on Illegal Securities Activities According to Law, which were made available to the public on July 6, 2021. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. As these opinions were recently issued, official guidance to act upon, and interpretation thereof remain unclear in several respects at this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all.

On February 17, 2023, the CSRC promulgated the Trial Measures of the Overseas Securities Offering and Listing by Domestic Companies (the “Overseas Listing Trial Measures”) and the related guidelines, which became effective on March 31, 2023. According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant information. The Overseas Listing Trial Measures provides that an overseas listing or offering is explicitly prohibited, if any of the following: (1) such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (2) the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) the domestic company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual controller, have committed relevant crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years; (4) the domestic company intending to make the securities offering and listing is currently under investigations for suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (5) there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.

The Overseas Listing Trial Measures also provides that if the issuer meets both the following criteria, the overseas securities offering and listing conducted by such issuer will be deemed as indirect overseas offering by PRC domestic companies: (1) 50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal year is accounted for by domestic companies; and (2) the main parts of the issuer’s business activities are conducted in mainland China, or its main place(s) of business are located in mainland China, or the majority of senior management staff in charge of its business operations and management are PRC citizens or have their usual material events in mainland China.

The Overseas Listing Trial Measures further provides that, initial public offerings or listings in overseas markets by domestic companies, either in direct or indirect form shall be filed with the CSRC pursuant to the requirements of the Overseas Listing Trial Measures within three business days after the relevant application is submitted overseas. The companies that had already been listed on overseas stock exchanges prior to March 31, 2023 or the companies that had obtained the approval from overseas supervision administrations or stock exchanges for its offering and listing prior to March 31, 2023 and will complete their overseas offering and listing prior to September 30, 2023 are not required to make immediate filings for its listing, but are required make filings for subsequent offerings in accordance with the Overseas Listing Trial Measures. Companies that had already submitted an application for an initial public offering to overseas supervision administrations but had not yet obtained the approval from overseas supervision administrations or stock exchanges for the offering and listing prior to March 31, 2023 may arrange for the filing within a reasonable time period and should complete the filing procedure before such companies’ overseas issuance and listing. Companies, like us, that had already been listed overseas as of March 31, 2023 are not required to make immediate filing with the CSRC but are required to file with the CSRC within three business days after the completion of subsequent securities offerings in the same overseas market where its securities were previously offered and listed, or file the required filing materials with the CSRC within three working days after the submission of relevant application for subsequent securities offerings and listings in other overseas markets. In addition, an overseas listed company is required to report to the CSRC within three business days after the occurrence and announcement of any of the following material events: (1) a change of control of the listed company; (2) the investigation, sanction or other measures undertaken by any foreign securities regulatory agencies or authorities in respect of the listed company; (3) a change of listing status or transfer of listing segment; and (4) the voluntary or mandatory delisting of the listed company. If there is any material change of the principal business of the listed company after the overseas offering and listing so that the listed company is no longer required to file with the CSRC, it shall file a specific report and a legal opinion issued by a domestic law firm to the CSRC within three business days after the occurrence thereof.

If we do not receive prior approval or complete the filing, to the extent it is required, for any of our future offerings of securities overseas or up-listing to the New York Stock Exchange (the “NYSE”) or the NASDAQ Stock Market, or to maintain the trading status of our ADSs, or if we inadvertently conclude that such prior approval or any filing is not required, the CSRC or other PRC regulatory agencies may take actions requiring us, or making it advisable for us, not to proceed with such offering or maintain the trading status of our ADSs. Any failure to obtain or delay in obtaining approvals and completing filing procedures from the CSRC or other regulatory authorities or other procedures, including the cybersecurity review, for our offshore offerings, or a rescission of any such approval or filing if obtained by us, or if we are unable to comply with any new approval requirements or regulatory requirements which might be adopted for offerings that we have completed prior to the publication of the above-referenced opinions, would subject us to sanctions by the CSRC or other PRC regulatory authorities. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our securities. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery of the shares offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our securities.

It may be difficult for overseas regulators to conduct investigations or collect evidence within China.

Shareholder claims or regulatory investigations that are common in jurisdictions outside China 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 United States or other jurisdictions may not be efficient in the absence of a mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law (“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, and without the consent by the Chinese securities regulatory authorities and the other competent governmental agencies, no entity or individual may provide documents or materials related to securities business to any foreign party. While detailed interpretation of or implementation rules under Article 177 has yet to be promulgated, the inability of an overseas securities regulator to directly conduct investigation or evidence collection activities within China and the potential obstacles for information provision may further increase difficulties you face in protecting your interests. See “—Risks Related to our ADSs—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 and conduct our operations in China” for risks associated with investing in us as a Cayman Islands company.

The discontinuation of any preferential tax treatment currently available to us, in particular the tax exempt status of the VIE’s schools, could materially and adversely affect our results of operations.

Prior to the Private Education Law taking effect on December 29, 2018, private schools for which the school sponsors do not require returns are eligible to enjoy the same preferential tax treatment as public schools according to the Implementation Rules of the Law on Promoting Private Education. Pursuant to the Private Education Law, a non-profit private school may enjoy the same preferential tax treatments as public schools in accordance with the relevant PRC laws and regulations. The VIE’s school sponsors have registered Xinping Long-Spring Advanced Secondary School, Xishuangbanna Long-Spring Experimental Secondary School and Yangling Hengshui Experimental Secondary School as for-profit private education institutions and have registered Kunming Xishan Long-Spring Experimental Secondary School, Kunming Chenggong Long-Spring Experimental Secondary School, Yiliang Long-Spring Experimental Secondary School, Qujing Hengshui Experimental Secondary School, Yunnan Yuxi Hengshui Experimental High School, Qiubei Long-Spring Experimental Secondary School, Wenshan Long-Spring Experimental Secondary School, Zhenxiong Long-Spring Advanced Secondary School, and Mengla Long-Spring Experimental Secondary School as non-profit private schools. The VIE has not made decisions to register some of its schools as for-profit or non-profit schools as it is currently in the transition period during which no registration election is required. There is a possibility that the PRC government may promulgate relevant tax regulations that will eliminate such preferential tax treatment, or the local tax bureaus may change their policy, in each such case, we and the VIE will be subject to PRC enterprise income tax going forward. The discontinuation of any preferential tax treatment currently available to us or the VIE, or the determination of any of the relevant tax authorities that any of the preferential tax treatment we and the VIE have enjoyed or currently enjoy is not in compliance with the PRC laws would cause our effective tax rate to increase, which would increase our tax expenses and reduce our net profit.

We may be subject to potential tax penalty and surcharge for the enterprise income tax payable in PRC.

As of the date of this annual report, the VIE’s 16 schools have not paid enterprise income tax for revenues generated from formal education services and three of these schools and another one school have not paid enterprise income tax for revenues generated from informal education services, among which the VIE has obtained confirmation letters from or conducted interview with the PRC tax authorities for six of these schools to confirm that such schools are not required to pay enterprise income tax. As of the date of this annual report, the VIE has not obtained confirmation letters from the PRC tax authorities for the remaining four schools, and the VIE may be subject to additional tax liabilities if deemed payable by the relevant PRC tax authorities. If any of the VIE’s schools is deemed to have failed to pay enterprise income tax within the prescribed time limit, it may be subject to tax penalty and related surcharges, and our and the VIE’s business, financial condition and results of operations could be materially and adversely affected.

If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or the ADS holders.

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established under the laws of jurisdictions outside of the PRC with its “de facto management body” within the PRC is considered a “resident enterprise” and will be subject to PRC enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation (the “SAT”) issued a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (1) the senior management and core management departments in charge of daily operations are located mainly within the PRC; (2) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (3) the enterprise’s primary assets, accounting books, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (4) at least 50% of voting board members or senior executives habitually reside in the PRC.

We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that First High-School Education Group Co., Ltd. is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In addition, non-resident enterprise shareholders (including the ADS holders) may be subject to PRC tax at a rate of 10% on gains realized on the sale or other disposition of ADSs or ordinary shares at a rate of 10%, if such income is treated as sourced from within the PRC. Furthermore, if PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, dividends paid to our non-PRC individual shareholders (including the ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us), if such gains are deemed to be from PRC sources. These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC shareholders of First High-School Education Group Co., Ltd. would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that First High-School Education Group Co., Ltd. is treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the ADSs.

We face uncertainties with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holding companies.

In February 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises or Bulletin 7. Pursuant to Bulletin 7, an “indirect transfer” of PRC assets, including a transfer of equity interests in an unlisted non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of the underlying PRC assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.

On October 17, 2017, the SAT issued the Announcement of the SAT on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or Bulletin 37, which came into effect on December 1, 2017 and further amended on June 15, 2018. The Bulletin 37 further clarifies the practice and procedure of the withholding of nonresident enterprise income tax.

There is uncertainty as to the application of Bulletin 37 or previous rules under Bulletin 7. We face uncertainties on our offshore restructuring transactions or sale of the shares of our offshore subsidiaries, where non-resident enterprises, as the transferors, were involved. Under Bulletin 37 and Bulletin 7, our company may be subject to filing obligations or taxes if our company is the transferor in such transactions, and may be subject to withholding obligations if our company is the transferee in such transactions. As a result, we and our non-PRC shareholders may have the risk of being taxed for the disposition of our ordinary shares or ADS and may be required to spend valuable resources to comply with Bulletin 7 and Bulletin 37 or to establish that we or our non-PRC shareholders should not be taxed as an indirect transfer, which may have a material adverse effect on our financial condition and results of operations or the investment by non-PRC investors in us.

The custodians or authorized users of our controlling non-tangible assets, including chops and seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets.

Under the PRC law, legal documents for corporate transactions, including agreements and contracts are executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with relevant PRC market regulation administrative authorities.

In order to secure the use of our chops and seals, we have established internal control procedures and rules for using these chops and seals. In any event that the chops and seals are intended to be used, the responsible personnel will submit the application through our office automation system and the application will be verified and approved by authorized employees in accordance with our internal control procedures and rules. In addition, in order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to authorized employees. Although we monitor such authorized employees, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that our employees could abuse their authority, for example, by entering into a contract not approved by us or seeking to gain control of one of our subsidiaries or the affiliated entities or their subsidiaries. If any employee obtains, misuses or misappropriates our chops and seals or other controlling non-tangible assets for whatever reason, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve and divert management from our operations.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. 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 approval of the SAFE, by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries and affiliated entities to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi.

In light of the flood of capital outflows of China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to utilize cash held in mainland China or generated by a PRC entity to fund our operations outside of mainland China or pay dividends in foreign currencies to our shareholders, including holders of the ADSs. There is no assurance the PRC government will not intervene in or impose restrictions on us, our subsidiaries, and the VIE to transfer cash. Although currently there are no equivalent or similar restrictions or limitations in Hong Kong on cash transfers in, or out of, our subsidiary in Hong Kong (including currency conversion), if certain restrictions or limitations in mainland China were to become applicable to cash transfers in and out of Hong Kong entities (including currency conversion) in the future, the funds in our subsidiary in Hong Kong, likewise, may not be available to meet our currency demand. See “Introduction—Cash and Asset Flows through Our Organization.”

Our subsidiaries and affiliated entities in China are subject to restrictions on making dividends and other payments to us.

We are a holding company and rely principally on dividends paid by our subsidiaries in China for our cash needs, including paying dividends and other cash distributions to our shareholders to the extent we choose to do so, servicing any debt we may incur and paying our operating expenses. The income for our PRC subsidiaries, especially Long-Spring Education, in turn depends on the service fees paid by the affiliated entities. Current PRC regulations permit our subsidiaries in China to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Under the applicable requirements of PRC law, our PRC subsidiaries may only distribute dividends after they have made allowances to fund certain statutory reserves. These reserves are not distributable as cash dividends. Pursuant to the Law on Promoting Private Education, sponsors of for-profit private schools are entitled to retain the profits from their schools and the operating surplus may be allocated to the sponsors pursuant to the PRC company law and other relevant laws and regulations. Sponsors of non-profit private schools are not entitled to any distribution of profits from their schools and all revenue must be used for the operation of the schools. According to Implementation Rules, a non-profit private school should allocate no less than 10% of its audited annual non-restricted net asset increase, or a for-profit private school should allocate no less than 10% of its audited annual net income, to its development, respectively. In addition, prior to the specific Implementation Rules being promulgated by the State Council and other relevant regulations promulgated by other local and regional governments, at the end of each fiscal year, each of the VIE’s schools that are private schools in China is required to allocate a certain amount to its development fund for the construction or maintenance of the school properties or purchase or upgrade of school facilities. In particular, the VIE’s schools that require reasonable returns must allocate no less than 25.0% of their annual net income, and the VIE’s schools that do not require reasonable returns must allocate no less than 25.0% of their annual increase in the net assets of the school for such purposes. However, the relevant authorities have yet to promulgate any detailed implementation rules and regulations under the Implementation Rules. We remain uncertain as to the timing and substance of the rules under the Law on Promoting Private Education and Implementation Rules to be promulgated, and how such rules will impact our operation. Furthermore, if our subsidiaries or the affiliated entities in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any such restrictions may materially affect such entities’ ability to make dividends or make payments, in service fees or otherwise, to us, which may materially and adversely affect our business, financial condition and results of operations.

Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.

The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and China’s foreign exchange policies, among other things. In 2005, the PRC government changed its decades-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of IMF completed the regular five-year review of the basket of currencies that make up the Special Drawing Right (the “SDR”), and decided that with effect from October 1, 2016, Renminbi is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the Renminbi has depreciated significantly against the backdrop of a surging U.S. dollar and persistent capital outflows from China. This depreciation halted in 2017, and the RMB appreciated approximately 7% against the U.S. dollar during this one-year period. In 2018, a new round of RMB depreciation emerged under the influence of a strong U.S. dollar and the trade friction between China and the United States. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system and we cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.

Significant revaluation of the Renminbi may have a material adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars we receive from our overseas offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or the ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.

Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any material hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.

The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

The Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors (the “M&A Rules”) adopted by six PRC regulatory agencies in 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that MOFCOM, be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that MOFCOM shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase its registered capital or distribute profits to us, or may otherwise adversely affect us.

The SAFE promulgated the Circular on Relevant Issues Relating to Foreign Exchange Administration of Overseas Investment and Financing and Return Investments Conducted by Domestic Residents through Overseas Special Purpose Vehicles (the “SAFE Circular 37”), in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing with such PRC residents or entities’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests. On February 13, 2015, SAFE issued SAFE Circular 13, which took effect on June 1, 2015, pursuant to which, the power to accept SAFE registration was delegated from local SAFE to local qualified banks where the assets or interest in the domestic entity was located. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions.

SAFE Circular 37 is issued to replace the Circular on Relevant Issues Relating to Foreign Exchange Administration of Financing and Roundtrip Investments by Domestic Residents via Overseas Special Purpose Vehicles, or SAFE Circular 75.

If our shareholders who are PRC residents or entities do not complete their registration with the local SAFE branches, our PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. As of the date of this annual report, all PRC residents known to us that currently hold direct or indirect ownership interests in our company completed the registration with SAFE as required by the SAFE Circular 37, except for Mr. Shaowei Zhang, who is in the process of updating his SAFE registration for his equity position in the offshore special purpose vehicles, including Long-Spring Education Management Limited, Long-Spring Education Technology Limited, and Long-Spring Education Consulting Limited. However, we may not at all times be fully aware or informed of the identities of all our shareholders or beneficial owners that are required to make or update such registration, and we cannot compel our beneficial owners to comply with SAFE registration requirements. As a result, we cannot assure you that all other shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.

Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies due to their position as director, senior management or employees of the PRC subsidiaries of the overseas companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees who are PRC residents and who have been granted share-based awards may have to follow SAFE Circular 37 to apply for the foreign exchange registration before our company becomes an overseas listed company. In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or SAFE Circular 7. Under SAFE Circular 7 and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly listed company or another qualified institution selected by such PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of share-based awards, the purchase and sale of corresponding shares or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution, or any other material changes.

We did not grant any share options to our employees or consultants under our 2021 Share Incentive Plan as of the date of this annual report but may do so in the future. When we do, from time to time, we need to apply for or update our registration with SAFE or its local branches on behalf of our employees or consultants who receive options or other equity-based incentive grants under our share incentive plan or material changes in our share incentive plan. However, we may not always be able to make applications or update our registration on behalf of our employees or consultants who hold any type of share incentive awards in compliance with SAFE Circular 7, nor can we ensure you that such applications or update of registration will be successful. If we or the participants of our share incentive plan who are PRC citizens fail to comply with SAFE Circular 7, we and/or such participants of our share incentive plan may be subject to fines and legal sanctions, there may be additional restrictions on the ability of such participants to exercise their share options or remit proceeds gained from sale of their shares into China, and we may be prevented from further granting share incentive awards under our 2021 Share Incentive Plan or any future share incentive plans to our employees or consultants who are PRC citizens.

The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may adversely affect our and the VIE’s business, financial condition and results of operations.

The SCNPC enacted the Labor Contract Law in 2007, and amended it on December 28, 2012. The Labor Contract Law introduced specific provisions related to fixed-term employment contracts, part-time employment, probationary periods, consultation with labor unions and employee assemblies, employment without a written contract, dismissal of employees, severance, and collective bargaining to enhance previous PRC labor laws. Under the Labor Contract Law, an employer is obligated to sign an unlimited-term labor contract with any employee who has worked for the employer for ten consecutive years. Further, if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract, with certain exceptions, must have an unlimited term, subject to certain exceptions. With certain exceptions, an employer must pay severance to an employee where a labor contract is terminated or expires. In addition, the PRC governmental authorities have continued to introduce various new labor-related regulations since the effectiveness of the Labor Contract Law.

Under the PRC Social Insurance Law and the Administrative Measures on Housing Fund, employees are required to participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternity insurance, and housing funds and employers are required, together with their employees or separately, to pay the social insurance premiums and housing funds for their employees. However, certain of the affiliated entities did not make adequate social insurance and housing fund for certain employees. As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our and the VIE’s employment practices do not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. We cannot assure you that we or the VIE have complied or will be able to comply with all labor-related law and regulations regarding including those relating to obligations to make social insurance payments and contribute to the housing funds. If we or the VIE are deemed to have violated relevant labor laws and regulations, we and the VIE could be required to provide additional compensation to employees, and our and the VIE’s business, financial condition and results of operations will be adversely affected.

Under the PRC Tort Law, employers shall bear tortious liability for any injury or damage caused to other people by their employees in the course of their employment. Entities that engage dispatched laborers shall bear tortious liability for any injury or damage caused to other people by such dispatched laborers in the course of their work and during the dispatch period, and the dispatching party shall bear corresponding supplementary liabilities if it is at fault. If workers on the VIE’s platform are deemed as its employees or dispatch employees by courts or arbitral tribunals, the VIE shall bear the responsibilities accordingly.

These laws designed to enhance labor protection tend to increase our labor costs. In addition, as the interpretation and implementation of these regulations are still evolving, our and the VIE’s employment practices may not be at all times be deemed in compliance with the regulations. As a result, we and the VIE could be subject to penalties or incur significant liabilities in connection with labor disputes or investigations.

Labor contract laws in China may adversely affect our results of operations.

The current PRC Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce. Further, it requires certain terminations be based on the mandatory retirement age. In the event we and the VIE decide to significantly change or decrease our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations.

Risks Related to our ADSs

The delisting of our ADSs from the NYSE may continue to have a material adverse effect on the trading and price of our ADSs, and we cannot assure you that our ADSs will be relisted, or that once relisted, they will remain listed.

On November 22, 2022, we were delisted from NYSE when the staff of the New York Stock Exchange LLC filed a Form 25 Notification of Delisting. The ADSs have since then been quoted on the OTC Pink Limited Information under the symbol “FHSEY.” The delisting of our ADSs from the NYSE has had and may continue to have a material adverse effect on us by, among other things, causing investors to dispose of our ADSs and limiting:

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the liquidity of our ADSs;

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the market price of our ADSs;

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the number of institutional and other investors that will consider investing in our ADSs;

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the availability of information concerning the trading prices and volume of our ADSs;

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the number of broker-dealers willing to execute trades in our ADSs; and

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our ability to obtain equity or debt financing for the continuation of our operations

The lack of an active trading market may limit the liquidity of an investment in our ADSs, meaning you may not be able to sell our ADSs you own at times, or at prices, attractive to you. Any of these factors may materially and adversely affect the price of our ADSs.

The trading price of the ADSs has been and may continue to be volatile, which could result in substantial losses to investors.

Our ADSs were listed on the NYSE, since our SEC-registered initial public offering in March 2021. On November 22, 2022, we were delisted from the NYSE when the staff of the New York Stock Exchange LLC filed a Form 25 Notification of Delisting. The OTC market is a significantly more limited market than NYSE. The quotation of our ADSs on the OTC market may result in a less liquid market available for existing and potential stockholders to trade our ADSs, could depress the trading price of our ADSs and could have a long-term adverse impact on our ability to raise capital in the future.

The trading prices of the ADSs has been volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of other companies based in China that have listed their securities in the United States in recent years. The securities of some of these companies 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, which consequently may impact the trading performance of the ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, such as the large decline in share prices in the United States, China and other jurisdictions in late 2008, early 2009 and the second half of 2011, which may have a material adverse effect on the market price of the ADSs.

In addition to the above factors, the price and trading volume of the ADSs may be highly volatile due to multiple factors, including the following:

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regulatory developments affecting us, our users, or our industry;

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condition of the education industry;

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announcements of studies and reports relating to the quality of our services or those of our competitors;

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changes in the economic performance or market valuations of other education companies;

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actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;

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changes in financial estimates by securities research analysts;

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announcements by us or our competitors of new services, acquisitions, strategic relationships, joint ventures or capital commitments;

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additions to or departures of our senior management;

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detrimental negative publicity about us, our management or our industry;

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fluctuations of exchange rates between the RMB and the U.S. dollar;

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release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and

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sales or perceived potential sales of additional ordinary shares or ADSs.

Any of these factors may result in large and sudden changes in the volume and price at which the ADSs will trade. The securities of some China-based companies that have listed their securities in the United States have experienced significant volatility since their initial public offerings in recent years, including, in some cases, substantial declines in the trading prices of their securities. The trading performances of these companies’ securities after their offerings may affect the attitudes of investors towards Chinese companies listed in the United States in general, which consequently may impact the trading performance of the ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have engaged in any inappropriate activities. In particular, the global financial crisis, the ensuing economic recessions and deterioration in the credit market in many countries have contributed and may continue to contribute to extreme volatility in the global stock markets.

Moreover, there have been recent instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings, particularly among companies with relatively smaller public floats. We may experience greater stock price volatility, including aggressive price run-ups and declines, lower trading volume and less liquidity, compared with companies with larger public floats. In particular, the ADSs may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices. Such volatility, including any stock run-up, may be unrelated to our actual or expected operating performance, financial condition or prospects, and industry, market or economic factors, which makes it difficult for prospective investors to assess such rapidly changing value of the ADSs. In addition, if the trading volumes of the ADSs are low, persons buying or selling in relatively small quantities may easily influence prices of the ADSs. This low volume of trades could also cause the price of the ADSs to fluctuate significantly, with large percentage changes in price occurring in any trading day session. Holders of the ADSs may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to such low-volume trading. As a result of such volatility, investors may experience losses on their investment in the ADSs. Such volatility also could adversely affect our ability to issue additional ADSs or other securities and our ability to obtain additional financing in the future, as well as our ability to retain key employees, many of whom have been granted equity incentives. Furthermore, the potential extreme volatility may confuse the public investors of the value of the ADSs, distort the market perception of the price of the ADSs, and our financial performance and public image, and negatively affect the long-term liquidity of the ADSs, regardless of our actual or expected operating performance.

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. We and certain of our directors and officers have been named as defendants in a putative shareholder class action lawsuit in the United States, as described in “Item 4. Information on the Company—B. Business Overview—Legal Proceedings,” and we may be named in similar lawsuits in the future. Such lawsuits 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 share structure with different voting rights 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. In addition, holders of our Class A ordinary shares may experience loss of voting power and dilution due to future issuances and conversions of our Class B ordinary shares.

Our authorized and issued ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. In respect of matters requiring the votes of shareholders, holders of Class B ordinary shares are entitled to 20 votes per share, while holders of Class A ordinary shares are entitled to one vote per share based on our dual-class share structure. 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 direct or indirect sale, transfer, assignment or disposition of such number of Class B ordinary shares by the holder thereof to any person other than a designated holder (as defined in our memorandum and articles of association) or any person that is not an affiliate of such holder, or upon a change of beneficial ownership of any Class B ordinary shares as a result of which any person who is not a designated holder or any person who is not an affiliate of the holders of such ordinary shares becomes a beneficial owner of such ordinary shares, such Class B ordinary shares are automatically and immediately converted into the same number of Class A ordinary shares.

As of the date of this annual report, Mr. Shaowei Zhang (our founder, chairman and chief executive officer) and Ms. Yu Wu (his spouse) beneficially own all of our issued Class B ordinary shares. These Class B ordinary shares constitute approximately 37.94% of our total issued and outstanding share capital and 92.30% of the aggregate voting power of our total issued and outstanding share capital due to the disparate voting powers associated with our dual-class share structure. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” As a result of the dual-class share structure and the concentration of ownership, holders of Class B ordinary shares will have considerable influence over matters such as decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. Any future issuances of Class B ordinary shares may be dilutive to the voting power of holders of Class A ordinary shares. Any conversions of Class B ordinary shares into Class A ordinary shares may dilute the percentage ownership of the existing holders of Class A ordinary shares within their class of ordinary shares. Such conversions may increase the aggregate voting power of the existing holders of Class A ordinary shares. In the event that we have multiple holders of Class B ordinary shares in the future and certain of them convert their Class B ordinary shares into Class A ordinary shares, the remaining holders who retain their Class B ordinary shares may experience increases in their relative voting power. Holders of Class B ordinary shares may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.

Our dual-class share structure may adversely affect the trading market for and the trading price of the ADSs.

Certain shareholder advisory firms have announced changes to their eligibility criteria for inclusion of shares of public companies on certain stock market indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, our dual-class share structure may prevent the inclusion of the ADSs representing Class A ordinary shares in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for the ADSs. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of the ADSs.

If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline.

The trading market for the ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If research analysts do not establish and maintain adequate research coverage or if one or more analysts who cover us downgrade the ADSs or publish inaccurate of unfavorable research about our business, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for the ADSs to decline.

The sale or availability for sale of substantial amounts of the ADSs could adversely affect their market price.

Sales of substantial amounts of the ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of the ADSs and could materially impair our ability to raise capital through equity offerings in the future. The ADSs sold in our initial public offering were freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. As of the date of this annual report, there are 12,589,230 ADSs (equivalent to 37,767,690 Class A ordinary shares) outstanding. 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 the ADSs.

Techniques employed by short sellers may drive down the market price of the ADSs.

Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.

Public companies that have substantially all of their operations in China have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.

It is not clear what effect such negative publicity could have on us. If we were to become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could materially and adversely affect our business, and any investment in the ADSs could be greatly reduced or even rendered worthless.

Because we cannot guarantee to pay dividends in the foreseeable future, you must rely on price appreciation of the ADSs for return on your investment.

We approved and declared a cash dividend of US$0.0146 per ordinary share (US$0.0437 per ADS) in September 2022 and made payments in October 2022. However, we still intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. Therefore, you should not rely on an investment in the ADSs as a source for any future dividend income.

Our board of directors has complete discretion as to whether to distribute dividends, subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium account, and provided always that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. 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 the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the ADSs would appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs or even lose your entire investment in the 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 ordinary shares and the ADSs.

Our memorandum and articles of association contain provisions which could limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

Forum selection provisions in our memorandum and articles of association could limit the ability of holders of our Class A ordinary shares, ADSs or other securities to obtain a favorable judicial forum for disputes with us, our directors and officers, and potentially others.

Our memorandum and articles of association provide that the federal district courts of the United States are the exclusive forum within the United States for the resolution of any complaint asserting a cause of action arising under the Securities Act and the Exchange Act. However, the enforceability of similar federal court choice of forum provisions has been challenged in legal proceedings in the United States, and it is possible that a court could find this type of provision to be inapplicable, unenforceable, or inconsistent with other documents that are relevant to the filing of such lawsuits. If a court were to find the stipulated choice of forum provision contained in our memorandum and articles of association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other forums or jurisdictions. If upheld, the forum selection clause in our memorandum and articles of association may increase the costs for you or limit your ability to bring a claim against us, our directors and officers, and potentially others in his or her preferred judicial forum, and this limitation may discourage such lawsuits. In addition, the Securities Act provides that both federal and state courts have jurisdiction over suits brought to enforce any duty or liability under the Securities Act or the rules and regulations thereunder. Accepting or consent to this forum selection provision does not constitute a waiver by you of compliance with federal securities laws and the rules and regulations thereunder. You may not waive compliance with federal securities laws and the rules and regulations thereunder. The exclusive forum provision in our memorandum and articles of association will not operate so as to deprive the courts of the Cayman Islands from having jurisdiction over matters relating to our internal affairs.

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 and conduct our operations in China.

We are an exempted company with limited liability incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, as amended from time to time, the Companies Act (As Revised) of the Cayman Islands, and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities 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 responsibilities 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 has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. 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 or to obtain the copies of register of members of these companies (other than the memorandum and articles of associations, any special resolutions passed by such companies and the register of mortgages and charges of such companies). The Registrar of Companies of the Cayman Islands shall make available the list of the names of the current directors of these companies (and where applicable the current alternate directors of the Company) for inspection by any person upon payment of a fee by such person. 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 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.

In addition, we and the VIE conduct our and the VIE’s business operations in China, and all of our directors and senior management are based in China. The SEC, U.S. Department of Justice and other authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain emerging markets, including China. Additionally, our public shareholders may have limited rights and few practical remedies in China, as shareholder claims that are common in the United States, including class action securities law and fraud claims, generally are difficult or impossible to pursue as a matter of law or practicality in many emerging markets, including China.

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. See Exhibit 2.4 to this annual report.

Certain judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands exempted company and all of our assets are located outside of the United States. Substantially all of our current operations are conducted in China. In addition, most of our current directors and officers are nationals and residents of countries other than the United States. All or a substantial portion 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 China may render you unable to enforce a judgment against us, our assets, our directors and officers or their assets.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct how your Class A ordinary shares which are represented by your ADSs are voted.

Holders of ADSs do not have the same rights as our registered shareholders. As a holder of the ADSs, you will only be able to exercise the voting rights with respect to the underlying Class A ordinary shares in accordance with the provisions of the deposit agreement. You will only be able to exercise the voting rights which are carried by the Class A ordinary shares represented by your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. If we request the depositary to ask for your instructions, then upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the underlying Class A ordinary shares which are represented by your ADSs in accordance with your instructions. If we do not request 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 represented by your ADSs unless you withdraw the shares and became the registered holder of such shares prior to the record date for the general meeting. Under our second amended and restated memorandum and articles of association, the minimum notice period required for convening a general meeting will be seven days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the Class A ordinary shares underlying your ADSs and become the registered holder of such shares to allow you to attend the general meeting and vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our amended and restated memorandum and 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 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 vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

The depositary may give us a discretionary proxy to vote our Class A ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, which could adversely affect your interests and the ability of our shareholders as a group to influence the management of our company.

Under the deposit agreement for the ADSs, if you do not give voting instructions to the depositary to direct how the Class A ordinary shares underlying your ADSs are voted, upon our request, the depositary will give us (or our nominee) a discretionary proxy to vote the Class A ordinary shares underlying your ADSs at shareholders’ meetings if:

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we timely provided the depositary with notice of meeting and related voting materials and requested it to solicit your instructions;

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we request the depositary to give a proxy;

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we have informed the depositary that there is no substantial opposition as to a matter to be voted on at the meeting; and

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the matter subject to voting would not have a material adverse impact on shareholders.

The effect of this discretionary proxy is that if you do not give voting instructions to the depositary to direct how the Class A ordinary shares underlying your ADSs are voted, you cannot prevent the Class A ordinary shares underlying your ADSs from being voted, under the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

You may not receive cash dividends if the depositary decides it is impractical to make them available to you.

The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our Class A ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property to you.

You may experience dilution of your holdings due to 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 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 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 events in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of the 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.

ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.

Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

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 are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

●

the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC;

●

the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

●

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

●

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely than that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

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.

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

We incur significant legal, accounting and other expenses as a result of being a public company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, 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. As a company with less than US$1.235 billion in revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. 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.

As a public company, we need to 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.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. investors owning the ADSs or our ordinary shares.

A non-U.S. corporation, such as our company, will be considered a passive foreign investment company, or PFIC, for any taxable year if either (1) at least 75% of its gross income is passive income for such taxable year or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during such taxable year) is attributable to assets that produce or are held for the production of passive income (which includes cash and cash equivalents). Although the law in this regard is not entirely clear, we treat the affiliated entities as being owned by us for U.S. federal income tax purposes because we control their management decisions and are entitled to substantially all of the economic benefits associated with them. As a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements. If it were determined, however, that we are not the owner of the affiliated entities for U.S. federal income tax purposes, we would likely be treated as a PFIC for the current taxable year and any subsequent taxable year.

Assuming that we are the owner of the affiliated entities for U.S. federal income tax purposes, and based on the market price of our ADSs and the value and composition of our assets, we do not believe we were a PFIC for the taxable year ending December 31, 2023, although there can be no assurance in this regard. The determination of whether we will be or become a PFIC is a factual determination made annually that will depend, in part, upon the composition of our income and assets, and our determination about whether our assets, including our prepaid expenses, generate passive or active income. Fluctuations in the market price of the ADSs may cause us to be classified as a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to the market price of the ADSs from time to time (which has been and is likely to continue to be volatile). Among other factors, if our market capitalization continues to decline or does not increase, we may be classified as a PFIC for our current taxable year ending December 31, 2024 or future taxable years. Furthermore, the composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets. Under circumstances where our revenues from activities that produce passive income significantly increases relative to our revenues from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase. As such, we cannot assure you that we will not be a PFIC for the current or any future taxable year. If we are classified as a PFIC for any year, we generally would continue to be treated as a PFIC for all succeeding years for U.S. federal tax purposes.

If we were to become a PFIC, such characterization could result in adverse U.S. federal income tax consequences to any U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations”) of our ADSs or ordinary shares. For example, if we are a PFIC, U.S. Holders may become subject to increased tax liabilities under U.S. federal income tax laws and regulations and will become subject to burdensome reporting requirements. We cannot assure any investor that we will not be a PFIC for our 2024 taxable year or any future taxable year. U.S. investors should consult their own tax advisors about the circumstances that may cause us to be classified as a PFIC and the consequences if we are classified as a PFIC.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

In September 2011, we established Long-Spring Education Holding Group Limited, or Long-Spring Education, in the PRC, through which we operated our schools.

In September 2016, we established Long-Spring Education Group (the former parent of our company), or the former parent, in the Cayman Islands. In the same month, we established First High-School Group Hong Kong Limited, or First High-School HK, under the former parent in Hong Kong. In October 2016, First High-School HK incorporated Yunnan Century Long-Spring Technology Co., Ltd., or Yunnan WFOE, in the PRC.

In November 2016, First High-School HK became the offshore holding company of our group in Hong Kong through Yunnan WFOE by entering into a series of contractual arrangements with Long-Spring Education and its shareholders. Such contractual arrangements were terminated and re-entered into in December 2018 to add additional entities as parties to the contractual arrangements. See “—C. Organizational Structure—Our Contractual Arrangements” for details.

In September 2018, we established First High-School Education Group Co., Ltd., or First High-School Education, under the former parent as our proposed listing entity in the Cayman Islands. In the same month, we established First High-School Education Group (BVI) Limited, or First High-School BVI, under the former parent in the British Virgin Islands.

In August 2019, we transferred the ownership of First High-School BVI to First High-School Education and then transferred the ownership of First High-School HK to First High-School BVI in September 2019.

In January 2021, we completed our corporate restructuring by issuing ordinary shares or redeemable ordinary shares to the respective shareholders of the former parent to generally mirror the shareholding structure in the former parent, and immediately after the share issuance, the former parent surrendered our shares and ceased to be our parent company.

On March 11, 2021, our ADSs commenced trading on the NYSE under the symbol “FHS.” We raised approximately US$42.4 million in net proceeds from our initial public offering after deducting underwriting discounts and commissions and offering expenses paid by us.

In May 2021, we acquired 51% equity interests in Beijing Tomorrow Future Plus Education Technology Co., Ltd., a technology-driven education company that provides premium full-time live AI online teaching services. In December 2022, for strategic reasons, we divested of our equity interest in Beijing Tomorrow Future Plus Education Technology Co., Ltd.

In July 2021, our wholly-owned subsidiary, First High-School HK, has entered into a strategic partnership agreement with Sichuan Fuhang Capital Equity Investment Fund Management Co., Ltd., to collaborate in establishing an education fund with a focus on online-merge-offline learning.

In November 2021, we established Beijing Long-Spring Ordinary-Vocational Education Integration Development and Research Institute to actively carry out research on the integration of ordinary and vocational education, and to promote the high-quality development of the related occupations.

In June 2022, our board of directors authorized a share repurchase program under which our Company may repurchase up to RMB4.0 million of its Class A ordinary shares in the form of ADSs during a twelve-month period commencing on July 15, 2022, to maximize value for shareholders.

In September 2022, our board of directors approved a cash dividend of US$0.0146 per ordinary share (US$0.0437 per ADS). The amount of cash dividends distributed was approximately US$1.24 million in total, net of 10.0% withholding tax. The dividends were paid in October 2022 to the holders of our ordinary shares (including those represented by the ADSs) of record as of the close of business on October 11, 2022.

On November 7, 2022, we were notified by the NYSE that the staff of the NYSE Regulation has determined to commence proceedings to delist the ADSs. Trading in the ADSs was suspended after the market close on the NYSE on November 7, 2022. On November 22, 2022, we were delisted from the NYSE when the staff of the New York Stock Exchange LLC filed a Form 25 Notification of Delisting. The ADSs have since then been quoted on the OTC Pink Limited Information under the symbol “FHSEY.”

Our principal executive offices are located at No. 1-1, Tiyuan Road, Xishan District, Kunming, Yunnan Province 650228, People’s Republic of China. Our telephone number is +86-10-6255-5966. Our registered office in the Cayman Islands is located at P.O. Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands.

Our website is www.longspringedu.com. The information contained on our website is not a part of, and will not be incorporated by reference into, this annual report. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.

B. Business Overview

We, together with the VIE, trace our history back to August 2012 when the VIE established its first school to provide after-school tutoring services. The VIE has since developed a network of 25 schools for continuing operations, offering 14 high school programs and two tutorial school programs for Gaokao repeaters, and nine school management service programs as of December 31, 2023. In addition, the VIE has also established Chinese-English bilingual programs for students interested in pursuing higher education overseas. As of December 31, 2023, the VIE had 19,852 high school students (including Gaokao repeaters) across its school network, and 12,076 public school students at schools to which it provides management services, for our continuing operations. We and the VIE are dedicated to recruiting teachers who hold sufficient academic credentials, are devoted and active professionals in their field, and are committed to improving their students’ academic performance. As of December 31, 2023, the VIE had a total of 1,814 teachers in its schools for our continuing operations, 99.2% of whom had a bachelor’s degree. As of the same date, the VIE had a total of 55 principals and deputy principals across its school network for our continuing operations, who are responsible for the strategic development and operation of schools. We and the VIE are committed to investing in the VIE’s teachers and principals and offer them opportunities to grow with us. The VIE has designed systematic training courses and established a comprehensive internal training system to assist its teachers and principals in their professional development, including regular training sessions to discuss educational theories, methodologies and techniques.

We and the VIE have a highly scalable, asset-light business model premised on collaboration with third parties, including local governments and real estate developers. The VIE’s partners typically contribute the land and school facilities. The VIE’s government partners also provide other forms of support, such as subsidies and preferential tax treatment. In return, the VIE provides educational resources, teachers and staff, and school management expertise. The VIE’s services raise local education standards for the under-developed areas and often invigorate the local economy by attracting more talents to live and work in the area. The VIE currently operate 12 schools pursuant to cooperative arrangements with local governments. Operating private secondary schools under the current regulatory regime requires stringent approvals from the relevant governments in China. As such, we believe that, with our and the VIE’s proven track record, our and the VIE’s ability to maintain cooperative relationship with local governments to obtain not only the approval but also the support to operate the VIE’s schools has created strong entry barriers and underpins our and the VIE’s long-term growth. The VIE has also cooperated with the local governments and private school operators to provide management services for nine schools in Yunnan province, Henan province, Guizhou province, and Shandong province for annual management service fees. In addition to collaborating with local governments, The VIE currently operates two schools by either leasing lands from or collaborating with third parties. The VIE’s synergistic relationship with third parties allows it to launch new schools with relatively lower upfront capital expenditures.

We and the VIE have also developed a standardized and centralized school management system. We and the VIE have devised a series of standardized measures and protocols for each stage in a school’s development and for a wide variety of scenarios in school management and operation, which we and the VIE require all of its schools to consistently adhere to. Our and the VIE’s standardized and centralized management model allows us and the VIE to secure control over key resources, including teaching methods, education contents and school management experience, making our and the VIE’s business success highly replicable and scalable.

For our continuing operations, our revenues were RMB337.3 million, RMB342.5 million and RMB266.3 million (US$37.5 million) in 2021, 2022 and 2023, respectively. Our net income was RMB52.7 million and RMB38.4 million in 2021 and 2022, respectively. We recorded net loss of RMB70.6 million (US$10.0 million) in 2023. Our adjusted net income was RMB52.7 million and RMB38.4 million in 2021 and 2022, respectively. We recorded adjusted net loss of RMB18.6 million (US$2.6 million) in 2023.

The VIE’s Schools and Programs

The VIE operates a network of 25 schools located in Yunnan province, Shaanxi province, Henan province, Guizhou province, and Shandong province, offering 14 high school programs and two tutorial school programs for Gaokao repeaters, and nine school management service programs as of December 31, 2023.

The following map sets forth the geographical locations of the VIE’s schools and the schools to which the VIE provided management services as of December 31, 2023.

The following table sets forth the student enrollment, capacity and utilization rate of the VIE’s schools as categorized by the type of schools (including the schools to which the VIE provided management services).

	Student enrollment						School capacity						School utilization rate⁽¹⁾
	As of December 31,						As of December 31,						As of December 31,
	2021		2022		2023		2021		2022		2023		2021			2022			2023
High schools		15,613		16,265		17,753		29,895		28,360		28,860		52.2	%		57.4	%		61.5	%
Tutorial schools		1,359		1,071		1,147		2,701		2,000		1,700		50.3	%		53.6	%		67.5	%
School management service programs		2,735		8,487		13,028		—		—		—		—			—			—
Total		19,707		25,823		31,928		32,596		30,360		32,360		52.1	%		57.1	%		61.8	%

(1)	School utilization rate is calculated by dividing student enrollment with school capacity.

The following table sets forth certain key information about the VIE’s schools and the schools to which the VIE provided management services.

				Student enrollment						School capacity
	Commencement		Education	As of December 31,						As of December 31,
High Schools	date of operation	Location	programs	2021		2022		2023		2023
Kunming Xishan Long-Spring Experimental Secondary School	September 2014	Kunming, Yunnan	High School		1,218		1,465		1,485		1,480
Kunming Chenggong Long-Spring Experimental Secondary School⁽¹⁾	September 2015	Kunming, Yunnan	High School		1,230		1,159		915		1,500
Yiliang Long-Spring Experimental Secondary School	September 2016	Kunming, Yunnan	High School		1,038		941		883		1,580
Yunnan Hengshui Experimental Secondary School—Xishan School	September 2016	Kunming, Yunnan	High School		1,363		696		306		1,450
Qujing Hengshui Experimental Secondary School	September 2017	Qujing, Yunnan	High School		2,161		1,601		1,687		3,800
Yunnan Yuxi Hengshui Experimental Secondary School	September 2017	Yuxi, Yunnan	High School		3,210		3,083		3,097		3,480
Yunnan Long-Spring Foreign Language Secondary School	September 2017	Kunming, Yunnan	High School		497		370		175		860
Xinping Long-Spring Advanced Secondary School	September 2019	Yuxi, Yunnan	High School		1,314		1,746		1,880		1,780
Xishuangbanna Long-Spring Experimental Secondary School	September 2020	Jinghong, Yunnan	High School		640		678		829		850
Qiubei Long-Spring Experimental Secondary School	September 2020	Qiubei, Yunnan	High School		547		910		1,022		1,200
Wenshan Long-Spring Experimental Secondary School	September 2020	Wenshan, Yunnan	High School		580		874		1,498		2,880
Zhenxiong Long-Spring Advanced Secondary School	September 2020	Zhenxiong, Yunnan	High School		648		954		1,813		4,500
Mengla Long-Spring Experimental Secondary School	September 2020	Mengla, Yunnan	High School		1,167		1,788		1,901		3,000
Yangling Hengshui Experimental Middle School	September 2023	Yangling, Shaanxi	High School		-		-		262		500

				Student enrollment						School capacity
	Commencement		Education	As of December 31,						As of December 31,
Tutorial Schools	date of operation	Location	programs	2021		2022		2023		2023
Hengshizhong Education Tutorial School	July 2019	Kunming, Yunnan	Tutorial School		1,174		611		915		800
Shaanxi Hengshi Tutorial School	September 2021	Yangling, Shaanxi	Tutorial School		111		324		232		900

Student

enrollment

School

capacity

Commencement

Education

As of December 31,

As of

December 31,

School Management Service Programs

date of operation

Location

programs

2021

2022

2023

Zunyi Huichuan Secondary School

August 2021

Zunyi, Guizhou

High School

457

677

952

N/A

Xishuangbanna Long-Spring Experimental Secondary School

August 2022

Kunming,
Yunnan

Middle
School

875

696

694

N/A

Yuanjiang County District High School

August 2022

Yuxi, Yunnan

Middle School and High School

1,860

1,657

1900

N/A

Shangcai County District High School

August 2023

Zhumadian, Henan

Middle School and High School

—

2,458

3307

N/A

Luoping County District High School

August 2023

Qujing, Yunnan

Middle School and High School

—

3,399

3,366

N/A

Honghe Long-Spring Experimental Secondary School

August 2023

Honghe, Yunnan

High School

—

277

547

N/A

Mengzi Long-Spring Experimental Secondary School

August 2023

Mengzi, Yunan

High School

—

790

N/A

Anshun Long-Spring Experimental School

August 2023

Anshun, Guizhou

Middle School and High School

—

1,337

N/A

Qingdao Jimo Foreign Languages School

August 2023

Qingdao, Shandong

Middle School and High School

—

135

N/A

As part of the VIE’s cooperation with local governments of communities, the VIE admits a certain number of local students on behalf of the government as publicly-sponsored students. As of December 31, 2021, 2022 and 2023, the number of publicly-sponsored students in the VIE’s schools for our continuing operations was 7,993, 8,293 and 7,780, respectively, accounting for 47.1%, 47.8% and 41.2% of the VIE’s total students for our continuing operations as of the same dates. The VIE allows publicly-sponsored students to pay lower tuition, typically at the level of public schools, and receive price difference or other forms of support from local governments for such publicly-sponsored students.

The VIE has cooperated with certain local governments and private school operators in China to provide management services for schools, including the followings.

	●	Cooperation with a private school operator in Zunyi, Guizhou province since August 2021, to provide management services for Zunyi Huichuan Secondary School, a local private school.

	●	Cooperation with the local government of Xishuangbanna, Yunnan province since September 2020, to provide management services for Xishuangbanna International Resort District Middle School, a local public school.

●

Cooperation with the local government of Yuanjiang county, Yunnan province since August 2021, to provide management services for Yuanjiang County District High School, a local public school.

●

Cooperation with the local government of Honghe autonomous prefecture and Luoping county, respectively in Yunnan province since August 2022, to provide management services for Honghe Long-Spring Experimental Secondary School, a local private school, and Luoping County District High School, a local public school.

●

Cooperation with a private school operator in Shangcai county, Henan province since August 2022, to provide management services for Shangcai District High School, a local private school.

●

Cooperation with the local government of Honghe autonomous prefecture, Yunnan province since August 2023, to provide management services for Mengzi Long-Spring Experimental Secondary School, a local private school.

●

Cooperation with a private school operator in Anshun county, Guizhou province since August 2023, to provide management services for Anshun Long-Spring Experimental School, a local private school.

●

Cooperation with a private school operator in Qingdao, Shandong province since August 2023, to provide management services for Qingdao Jimo Foreign Languages School, a local private school.

The VIE’s high schools

The VIE operates 14 high schools in Yunnan province and Shaanxi province with a total of 17,753 students, and 1,338 teachers and supporting staff as of December 31, 2023.

All of the VIE’s high schools are boarding schools, and the VIE has implemented strict daily study schedules on the students, aimed to improve their intellectual and well-rounded development.

Curriculum design

The VIE’s high schools deliver core curriculum designed primarily pursuant to the standards set by national, provincial and local education authorities. Mandatory courses at our high schools include Chinese, mathematics, English, physics, chemistry, biology, history, geography, politics, music, sports, arts, student psychology and information technology. In addition to government-mandated core curriculum, the VIE also delivers supplemental courses to enrich the interests and dimensions of our students. The VIE offers over 20 elective courses and extracurricular activities at our high schools, including model airplane crafting, soilless cultivation, martial arts, African drums, start-up simulation, electric engineering mini-lab, Chinese literature, robotic engineering, law, music and drawing, as well as various sports courses and foreign languages courses. The VIE uses course materials written and compiled by our centralized curriculum development team for our elective courses, and exercise close supervision and offer generous support to students attending our extracurricular activities.

Academic assessment and achievement

The final grades for students in the VIE’s high schools for each course represent a combination of written and oral exam results, class participation, and grades for quizzes, reports and homework assignments. The VIE conduct formal written and oral exams on a monthly basis, in addition to mid-term and final exams. The VIE sometimes participates in city-wide and regional mid-term and final exams where students from all schools in the community use the same set of exam questions.

Trained with standardized teaching methodologies and centrally designed curricula and course materials, the VIE’s students consistently achieve outstanding academic results. Many graduates were admitted into first-tier universities in China and the world, including among others, Tsinghua University, Peking University, Zhejiang University, Shanghai Jiao Tong University, Fudan University, University of College London, University of Edinburgh and University of Melbourne.

Bilingual programs

The VIE has established Chinese-English bilingual programs at Yunnan Long-Spring Foreign Language Secondary School for students interested in pursuing higher education overseas. The VIE has implemented a dual-track parallel education system which allows students to access both Australian and Chinese curricula and to choose between domestic and overseas higher education. For the VIE’s Australian program, its three-year curriculum consists of six modules, including South Australian international high school curriculum module, Chinese high school curriculum module, academic English curriculum module, overseas school application preparation module, extracurricular activities module, and school-based elective curriculum module. For the VIE’s South Australian international high school curriculum module, the VIE entered into various cooperative arrangements with the SACE Board of South Australia, an independent statutory authority of the South Australian government, to provide curricula that meet the requirements of South Australian Certificate of Education, or SACE, an internationally recognized qualification that paves the way for its graduates to gain admissions into overseas universities with greater ease. The VIE’s cooperation with the SACE Board of South Australia enables it to offer education service and deliver curricula to the students in the same way and at the same quality as high schools in South Australia.

In addition, Yunnan Long-Spring Foreign Language Secondary School has been authorized to offer the UK Advanced Levels courses (the “A-Level courses”), the Global Assessment Certificate program (the “GAC program”), and the Advanced Placement courses (the “AP courses”), for students interested in pursuing higher education in the United Kingdom and the United States. Yunnan Long-Spring Foreign Language Secondary School is also an authorized ACT test center available for students to take the standardized test for college admissions in the United States.

The VIE’s tutorial schools

The VIE operates two tutorial schools in Yunnan province, and Shaanxi province, dedicated to providing full-time education to train Gaokao repeaters who wish to improve their performance in their second Gaokao attempt. As of December 31, 2023, the VIE’s tutorial schools had 1,147 students, and 23 full-time teachers and supporting staff, with a number of part-time teachers and staffs shared with high school programs. The VIE generally require enrolled students to live in student dormitories during their course of study.

Curriculum design

The VIE’s tutorial schools deliver core curriculum designed primarily pursuant to the standards set by national, provincial and local education authorities. Students enrolled in our tutorial schools typically have a singular educational goal, which is to achieve improved academic performances on their second Gaokao attempts. Therefore, the VIE’s curriculum places a heavier emphasis on Gaokao subjects. Apart from Chinese, mathematics and English, which are mandatory exam subjects for all students, the VIE also offers courses on political science, history and geography to students pursuing the social sciences track, and physics, chemistry and biology to those pursuing the natural sciences track.

Academic assessment and achievement

The VIE’s tutorial schools organize formal monthly exams and final exams at the end of each semester. The monthly exams and final exams simulate the real Gaokao by using the same exam papers, exam time, and adopting the same grading standards. Compared to high schools in the VIE’s network, tutorial schools focus more on adopting monthly and final exams as means to assess student performances, instead of using homework assignments, quizzes or other forms of informal assessments.

In addition, the VIE also participates in regional and city-wide standard exams which simulate the exam structure and competitiveness of Gaokao. These cross-school assessments offer students a better understanding of their competitiveness among students both within and outside its school network against whom its students must ultimately compete in the real Gaokao. The VIE was able to help over 85.8% of its students raised points in their second Gaokao attempt in 2023 through one-year tutoring with us, as compared to their initial Gaokao scores in 2022.

The VIE’s school management service programs

Leveraging our and the VIE’s established brand recognition and proven track record in school operation, the VIE serves public or private schools which are in need to improve their school operation efficiency. Its services are tailored to the unique needs of the specific school in light of its local conditions. The VIE provides services primarily in five key areas, including student admission, teacher training, academic guidance, catering and lodging management, and teaching materials supply services. As of December 31, 2023, the VIE operated nine school management service programs in Yunnan province, Guizhou province, Henan province and Shandong province. As of December 31, 2023, under its school management service programs, the VIE had 13,028 students under management, and 453 teachers and supporting staff providing services.

For student admission service, the VIE works as consultants to the local school’s recruitment team to provide guidance on marketing through various media formats, communication with students and parents, and the proper procedures in applying for relevant governmental approvals. For teacher training, the VIE provides both online and offline training programs to the local school teachers, sharing experience in curriculum design, test design and other lecturing practices. For academic guidance, the VIE sends out accredited teachers to participate in semester-long exchange programs. The VIE’s teachers teach and lead key classes to guide both local students and their teachers with its refined curriculum contents and design. For catering and lodging management, the VIE provides management services related to cafeteria, lodging, landscaping and other operational services. In addition, the VIE also supplies teaching materials to their schools, including its test preparation books and other student related study materials.

Discontinued Operations

Due to the effectiveness of the Implementation Rules, we have concluded that we have lost control over the Affected Entities as from September 1, 2021, which primarily include the middle schools providing compulsory education and the sponsor entities within China that are affected by the Implementation Rules. Consequently, we classified the operation for the Affected Entities as discontinued operations. We have determined that, in substance, we had ceased to recognize revenues for all activities related to the Affected Entities and had discontinued all business activities with such entities by September 1, 2021 except for the continued provision of essential services to keep these schools in normal operations.

As of December 31, 2023, the Affected Entities included ten middle schools in Yunnan province and Shaanxi province with a total of 6,905 students and 570 teachers. The following table sets forth the student enrollment, capacity and utilization rate of the schools of our discontinued operations.

	Student enrollment						School capacity						School utilization rate⁽¹⁾
	As of December 31,						As of December 31,						As of December 31,
	2021		2022		2023		2021		2022		2023		2021			2022			2023
Middle schools		9,552		8,434		6,905		11,750		12,133		12,133		81.3	%		69.5	%		56.9	%

(1)	School utilization rate is calculated by dividing student enrollment with school capacity.

The following table sets forth certain key information about each of the schools of our discontinued operations.

				Student enrollment						School capacity
	Commencement		Education	As of December 31,						As of December 31,
Schools	date of operation	Location	programs	2021		2022		2023		2023
Kunming Xishan Long-Spring Experimental Secondary School	September 2014	Kunming, Yunnan	Middle School		1,064		938		807		963
Kunming Chenggong Long-Spring Experimental Secondary School⁽¹⁾	September 2015	Kunming, Yunnan	Middle School		1,786		1,681		1,525		2,030
Yiliang Long-Spring Experimental Secondary School	September 2016	Kunming, Yunnan	Middle School		1,436		1,320		1,171		1,500
Yunnan Hengshui Experimental Secondary School—Xishan School	September 2016	Kunming, Yunnan	Middle School		1,748		1,208		—		1,800
Qujing Hengshui Experimental Secondary School	September 2017	Qujing, Yunnan	Middle School		1,466		961		444		2,440
Yunnan Long-Spring Foreign Language Secondary School	September 2017	Kunming, Yunnan	Middle School		750		541		154		700
Xinping Hengshui Experimental Middle School	September 2019	Yuxi, Yunnan	Middle School		980		912		881		1,000
Zhenxiong Long-Spring Advanced Secondary School	September 2020	Zhenxiong, Yunan	Middle School		—		116		748		500
Shaanxi Hengshui Experimental Middle School	September 2021	Xianyang, Shaanxi	Middle School		—		757		1,175		1,200

The VIE’s Online Education Services

As a supplement to conventional school programs, the VIE provides online education services on third-party platforms to students on a complimentary basis. Since 2018, the VIE has collaborated with third parties to build its online learning platform to implement online classes during school holidays, provide online tutorials relating to college admission and online trainings for students participating in competitions. The VIE’s online learning platform also connects parents with teachers and schools to enhance parent involvement.

During the COVID-19 outbreak, the VIE expanded its online courses based on its online learning platform. For example, the VIE provides online tri-teacher lectures to promote online educational resources sharing and synchronous teaching for the students from different locations within its school network. In its online tri-teacher lectures, the VIE invites external education consultants and experts to provide interdisciplinary online lectures to inspire students. In collaboration with these consultants and experts, the VIE’s teachers prepare the course materials and live-stream the courses to students. In this process, the VIE’s teachers also ensure the implementation of teaching plans, instruct students with their after-class exercises to supervise the progress of their study plans and offer guidance to the moral development of students. The VIE’s teachers for graduating classes in our high schools recorded a series of courses to assist the self-study of our graduating high school students during the winter break. The VIE also provided graduating high school students with guidance in college admission and college major selection through its online tutorials. In addition, the VIE collaborated with People’s Daily Online to produce a live broadcast entitled “The Same Class” to share the knowledge of COVID-19 prevention and control and the arrangement of online teaching during the extended winter break for all of its students, their parents and its employees.

The VIE’s online education services have become an important enhancement to its schools and programs to diversify its teaching methods, encourage independent learning and enhance parent involvement. The VIE currently provides online education services and online tri-teacher lectures for nine of its schools, specifically Qiubei Long-Spring Experimental Secondary School, Zhenxiong Long-Spring Advanced Secondary School, Xishuangbanna Long-Spring Experimental Secondary School, Mengla Long-Spring Experimental Secondary School, Xinping Long-Spring Advanced Secondary School, Yunnan Yuxi Hengshui Experimental Secondary School, Qujing Hengshui Experimental Secondary School, Wenshan Long-Spring Experimental Secondary School and Yuanjiang County District High School. The VIE has eight schools offering all the courses and one school offering a majority of the courses. For the online tri-teacher lectures provided at these schools, the VIE cooperates with many external education consultants and experts who graduated from Peking University or Tsinghua University with more than ten years of work experience on average and in-depth knowledge in the area of secondary education. These external education consultants and experts provide online lectures and are responsible for a total of 2,200 students at these schools as of December 31, 2023. Leveraging its online learning platform and the application of information technology, the VIE has optimized our staff costs incurred at the relevant schools.

The VIE’s experience in offering online education services allows it to provide high-quality and effective education services and promote educational resources sharing. The VIE may cooperate with other online education service providers to deliver high-quality online courses to aspiring students in China, especially in Western China and other regions with relatively inadequate high-quality public educational resources.

Cooperative Arrangements with Third Parties

We and the VIE have a highly scalable, asset-light business model premised on collaboration with third parties, including local governments and real estate developers. The VIE’s partners typically contribute the land and school facilities. The VIE’s government partners also provide other forms of support, such as subsidies and preferential tax treatment. In return, we provide educational resources, teachers and staff, and school management expertise Pursuant to the VIE’s cooperative arrangements with local governments, the VIE admits a certain number of local students on behalf of the government as publicly-sponsored students. These students pay tuition typically at the level of public schools, lower than the normal tuition the VIE charges, and the VIE receives the tuition difference or other forms of support from local governments. The VIE believes the local governments are willing to cooperate with it because of its ability to provide high-quality educational resources to the local community as well as its strong management expertise and solid reputation. The VIE’s services raise local education standards for the under-developed areas and often invigorate the local economy by attracting more talents to live and work in the area.

The VIE has established stable cooperative relationships with several local governments, which have an average term of approximately 16 years. Operating private secondary schools under the current regulatory regime requires stringent approvals from the relevant governments. As such, we believe that, with our proven track record, our and the VIE’s ability to maintain cooperative relationship with local governments to obtain not only the approval but also the support to operate schools has created strong entry barriers and underpins our and the VIE’s long-term growth.

In addition to collaborating with local governments, the VIE currently operates two schools by leasing lands from third parties. The VIE expects to launch or provide management services for new schools in the second half of 2024, including high schools and vocational schools. The VIE’s synergistic relationship with third parties allows it to launch new schools with relatively lower upfront capital expenditures.

The VIE’s School Management System

Standardization

The VIE has developed a series of standardized measures and protocols for each stage in a school’s development and for a wide variety of scenarios in school management and operation, which the VIE requires all of its schools to consistently adhere to. These measures and protocols generally set out key operating procedures on topics such as curriculum design and delivery, student admission and administration, teacher training, parent communication, logistics, student affairs, finance, human resources, internal control and quality control.

For example, the VIE adopted a set of standardized teaching protocol named the “Three-Three-One Teaching Method,” pursuant to which teachers follow a seven-step streamlined teaching protocol to offer education services related to student motivation (Guide and Think), course delivery (Discuss and Present), and student feedback (Comment, Test, and Practice). Other teaching methods include the “Five-step Review Process,” which helps students review course materials efficiently. These standardized measures play a critical role in assisting the VIE’s school management teams in monitoring and supervising the various aspects of the schools’ daily operations. The VIE’s school management teams apply standardized guidelines designed for each aspect of school operations, and are required to report the results generated from the application of these standardized guidelines to the senior management team on a regular basis via teleconferences or in-person meetings.

Centralization

The VIE has assembled experienced teaching talents in its centralized curriculum development team to prepare curriculum offerings and course materials, which are adopted by every school in its network. By centralizing curriculum development activities, the VIE ensures the consistency of quality of its education service across all schools within its school network.

The VIE’s centralized school management system also encompasses its centralized oversight and implementation of strict quality control measures. Since 2017, the VIE has established nine management centers: (1) Center for School Supervision, (2) Information Center, (3) Center for Curriculum Reform and Development, (4) Center for Admission and Graduation, (5) Center for Teaching Materials, (6) Center for Student Development, (7) Center for Teacher Development, (8) Center for Three-Three-One Teaching Method Research, and (9) Center for Online Tri-Teacher Lectures. Each center is headed by seasoned professionals with extensive experience in their respective areas of expertise. These centers ensure that the VIE’s schools are under effective and efficient management according to its standardized operating measures and protocols.

The VIE’s standardized and centralized management model also allows it to secure control over key resources, including teaching methods, education contents and school management experience, making its business highly replicable. We believe that the VIE’s standardized and centralized management system enables it to quickly ramp up newly opened schools which often lack know-hows and talents to independently achieve the operational results and student academic performances of established schools. Unified application of our standardized and centralized measures and protocols also preserves its culture and teaching methods in the newly opened schools and is also conducive to efficiently achieve success in school operations and student academic performances.

In April 2018, the VIE established Long-Spring Educational Science and Research Academy to manage all of its schools, develop and implement corporate strategies, design and optimize our education service offerings, train teachers, and discharge other managerial functions. The Long-Spring Educational Science and Research Academy also established several teaching research groups and course preparation groups to develop standardized course materials and teaching methods in order to maintain consistent teaching quality of its education programs across all schools in its network.

Digitization

The VIE’s school management system also features the concept of “digital campus” where the VIE digitizes various activities of campus administration and streamline every process of school operations. We believe that our investment in educational technology distinguishes us from education service providers who only observe traditional school management and teaching methods. We also believe that by pursuing and developing alternative school management and teaching methods, we and the VIE are better equipped to face the challenges in the marketplace, capitalize on new opportunities and deliver higher quality education services.

The VIE’s Students

The VIE primarily admits students from local communities where its schools are located. The number of students the VIE admits is largely limited by the quota set by national, provincial, and local education authorities. For its high schools, the quotas are generally based on the governments’ evaluation of the capacity of each of the VIE’s schools.

The VIE has implemented a selective admission process for applicants to all of its schools. The VIE’s high schools participate in the unified admission procedure administered by local education authorities and generally admit middle school graduates who applied for its schools through the unified admission procedure and who reach or exceed its required Zhongkao exam scores. The VIE’s tutorial schools generally admit high school graduates who obtained its required scores in their first Gaokao attempt but decided to try again in the following year instead of applying for colleges immediately.

Each of the VIE’s high school is staffed with admission managers who are deeply involved in its student admission processes, and are generally responsible for conducting market research and attending various admission and marketing training programs, and preparing promotional materials. The VIE also has an admission hotline dedicated to answering any questions applicants may have about its schools and programs.

The VIE’s Teachers

The VIE has an excellent and committed team of teachers. The VIE’s teachers are knowledgeable in their respective subject areas and the development trends in China’s education environment, which enable them to design curricula and exam preparation programs that help students achieve satisfactory exam results. As of December 31, 2023, the VIE had a total of 1,814 teachers in its schools for our continuing operations, 99.2% of whom had a bachelor’s degree. The VIE requires all its teachers of high schools and tutorial schools to obtain the qualifications required by PRC regulatory authorities. The VIE also has teachers with work experience at many nationally well-regarded secondary schools in China, to coach its teachers to ensure the consistent implementation of effective teaching methods within its school network.

The VIE has a professional and dedicated team of principals, who are responsible for the strategic development and operation of its schools. In addition to lateral hiring of experienced principals, many of the VIE’s school principals have grown with it and have acted in several capacities within its school network, often starting as teachers. As of December 31, 2023, the VIE had a total of 55 principals and deputy principals across its school network for our continuing operations, among whom eight principals had a master’s or higher degree. As of the same date, 11 of the VIE’s high school principals were recognized as Advanced Secondary School Teachers.

Teacher recruitment

As a part of the VIE’s centralized management system, the VIE has established the Center for Human Recourses which is in charge of recruiting teachers and ensuring the overall teaching quality of the newly recruited teachers. The VIE recruits both college graduates and experienced teachers. Candidates without prior teaching experience must hold a minimum of bachelor’s degree in the subject area they intend to teach, and score higher than the tier-1 university cutoff score in Gaokao. Experienced teachers must hold a minimum of bachelor’s degree in the subject they intend to teach, and bear the recommendations of reputable schools. The VIE’s Center for Human Resources evaluates their teaching skills and ethics through trial lectures.

To recruit top college graduates, the VIE organizes on-campus job fairs and post job openings online. The VIE has also cooperated with reputable universities to ensure a steady supply of high-quality teachers for its high schools. For example, the VIE currently intends to recruit 230 teachers, with at least 30% holding a master’s degree or above, from universities designated under the national Double First Class University Plan in China by 2024. The VIE has also designated top-tier universities, including among others, Peking University, Tsinghua University, Beijing Normal University, Southwest University and Central China Normal University, as its target universities on which it focuses recruitment efforts. In addition, the VIE entered into agreements with 19 universities in China, such as Xi’an Jiaotong University, Shaanxi Normal University, Yunnan University, Yunnan Normal University, Harbin Institute of Technology, Sichuan Normal University and Lanzhou University, and provided exclusive internship and externship opportunities for their students and graduates.

Teacher compensation

The VIE offers competitive compensation packages to its teachers. In addition to base salary, its teachers in graduating classes in its high schools also are entitled to performance-based bonuses determined by the academic results achieved by their students. The average annual salary of the VIE’s teachers of its high schools and tutorial schools in Yunnan province and Shaanxi province were RMB129,984 and RMB143,928 in 2023, respectively.

With the aid of the VIE’s cooperative arrangements with local governments, teachers in most of its high schools may also receive various forms of financial supports and perks from the local governments in addition to compensation from us. See “—Cooperative Arrangements with Third Parties” for details. We believe the competitive compensation packages and perks help the VIE recruits and retains talented teachers who play a critical role in carrying out our and the VIE’s strategies, delivering curricula, and helping students succeed.

Teacher training

We and the VIE attach great importance to training teachers and established the Long-Spring Educational Science and Research Academy to facilitate teacher trainings across the VIE’s school network. In addition to solidifying their teaching skills and widening their knowledge pool, the VIE’s trainings also focus on developing its teachers’ professional responsibilities and ethics. Each newly-hired teacher is required to participate in a month-long training session which focuses on ethics, student and classroom management, and teaching skills and methodologies. Specifically, the VIE implements a three-phase approach for the training of its newly-hired teachers:

●

Phase I: the VIE holds seminars on pedagogy and educational psychology, conduct teaching skill evaluation, and introduce its teaching methodologies and protocols. During this phase, the VIE generally organizes trainings at its headquarters.

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Phase II: the VIE offers shadowing opportunities where newly-hired teachers observe experienced teachers’ course delivery.

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Phase III: the VIE assigns a mentor for each newly-hired teacher to improve their teaching skills.

The VIE also provides various training opportunities to its teachers and principals, both at its headquarters and at the individual school level. For example, the VIE has recently cooperated with Tsinghua University to host training programs for its principals. The VIE also plans to establish education research centers in Yunnan province and Beijing to host training programs for teachers and promote research and development of educational methodologies. The VIE requires its teachers to research and prepare for each class session. To ensure consistency across classrooms, its teachers must adhere to the curriculum requirements developed by its centralized curriculum development team, and groups of teachers of the same subject attend joint class-preparation sessions to ensure consistency in the content they deliver. In addition, the VIE collaborates with well-known education and/or research institutions to improve its teacher training capabilities.

Teacher evaluation and promotion

The VIE has set up a performance-based teacher compensation system where teachers’ compensation level is partially dependent on their performance. Various factors are considered in evaluating the performance for each teacher, including student average scores in the monthly exams, seniority, ethical behaviors and the managerial functions they undertake.

In addition, the VIE put in place a well-established career path for its teachers, which we believe further incentivizes the teachers to improve their teaching skills and encourage loyalty. The VIE’s decisions to promote teachers are based on each teacher’s individual performance and evaluation under the guidance issued by local governments. Specifically, the VIE considers its teachers’ educational backgrounds, seniority, research capabilities, and knowledge in teaching methodologies.

The VIE’s Tuition

The VIE typically charges students tuition, boarding fees, and other miscellaneous fees for meals, books, uniforms and other school supplies. Subject to applicable regulatory approvals, the VIE plans to adjust tuition in the future as its competitive positions change in the relevant markets. The following table sets forth the average tuition per student for our continuing operations by school type for the periods indicated.

	For the Year ended December 31,
	2021		2022		2023
	(in RMB)
Average tuition per student of the VIE’s schools⁽¹⁾
High schools		15,072		10,997		15,899
Tutorial schools for Gaokao repeaters		23,170		19,853		16,553

(1)

The average tuition per student equals to the total tuition income of the VIE’s schools during a certain calendar year divided by the average student enrollment of such calendar year, which is arrived at by averaging the number of students enrolled as of the end of the previous and the concerned calendar years/periods.

In determining the amount of tuition, we and the VIE considers factors including the demand for the VIE’s education programs, the cost of our operations, the geographical markets where the VIE’s schools are located, the tuition charged by our competitors, and our pricing strategy to gain market share. For details of the VIE’s tuition, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Key Components of Our Results of Operations—Revenues.”

The VIE has established refund policies at each of its schools for students who withdraw from its schools or transfer to a school outside its network. In general, prepaid tuition fees and boarding fees can be refunded proportionately for the remaining year.

Marketing

The VIE primarily markets its schools to students and parents located near the regions where its respective schools are located. To attract high-quality students and increase student enrollment, the VIE utilizes a variety of marketing methods, including:

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Referrals. As the VIE has developed a reputation for offering quality education, it relies strongly on word-of-mouth referrals by former students and their parents who are satisfied with our education services. We believe that the VIE’s extensive and expanding alumni network will continue to offer a solid platform for referrals.

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Media advertising. To reach a larger base of audience efficiently, the VIE places advertisements about its schools through various media platforms, including newspapers, radio and online and mobile platforms.

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Promotional events. From time to time, the VIE introduces its programs to potential feeder schools, distribute information booklets and invite prospective students and their parents to visit its campuses, which allows it to reach potential students directly and enable the active engagement with them.

Competition

The education service market in China is rapidly evolving and highly competitive. We and the VIE compete primarily with public and private schools outside our network, especially those operating in the same communities as the VIE’s schools. We believe we and the VIE are well-positioned to succeed in this market primarily due to our extensive operational experiences, scalable asset-light business model, and the VIE’s standardized and centralized school management system. The VIE’s competitive compensation packages, supplemented by various forms of subsidies from local governments, enable the VIE to recruit and retain talented teachers. The VIE’s students’ past success in Gaokao demonstrates the outstanding quality of our education services, and helps us and the VIE build a strong and favorable reputation among prospective students, which improved the VIE’s ability to admit top students in the local communities.

Properties and Facilities

All of the VIE’s properties are located in China. The VIE currently occupies a total combined gross floor area of approximately 821,257 square meters of facilities for 12 properties provided by local governments or entities through the VIE’s cooperative arrangements with them. The terms of such properties range from eight to 20 years. By utilizing the properties developed by local governments, we and the VIE avoid significant capital expenditures in connection with land procurement and facilities construction. See “—Cooperative Arrangements with Third Parties.” For relevant risks, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Any unfavorable changes in our and the VIE’s cooperative relationships with third parties or favorable government policy treatment may adversely affect our and the VIE’s business.”

The VIE also leases two properties with a total combined gross floor area of approximately 102,962 square meters in Yunnan province, and Shaanxi province from third parties to operate its schools. Such leases have terms of 18 years to 20 years.

We believe that the facilities which we and the VIE currently lease and occupy are adequate to meet our and the VIE’s needs for the foreseeable future, and we believe that we and the VIE will be able to obtain adequate facilities, principally through leasing of additional properties, to accommodate our future expansion plans. For relevant risks, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Failure to control rental costs, control the quality, maintenance and management of the leased school premises, obtain leases at desired locations at reasonable prices or failure to comply with the applicable PRC property laws and regulations regarding certain of our leased and owned premises could materially and adversely affect our business.”

Employees

We and the VIE had 2,194 full-time employees for our continuing operations as of December 31, 2023. All of our and the VIE’s full-time employees are located in China. The following table sets forth the number of the full-time employees for our continuing operations, categorized by function, as of December 31, 2023.

Teachers			1,814
Administrative staff			380
Total			2,194

Our and the VIE’s administrative staff primarily comprise our management and administrative personnel and principals. Our and the VIE’s supporting staff primarily comprise personnel providing support and services in connection with our students’ campus life.

As required by PRC laws and regulations, we and the VIE participate in various employee social security plans for our employees that are administered by local governments, including housing, pension, medical insurance and unemployment insurance. We believe we and the VIE maintain a good working relationship with our and the VIE’s employees.

Intellectual Property

The VIE schools hold copyrights to various course materials that have been developed internally and provide a basis for improving the quality of the VIE’s education service. Our and the VIE’s strategic plan calls for continued and extensive investment in maintaining and expanding these assets. We and the VIE owned 56 trademarks in China as of December 31, 2023. We and the VIE have registered 19 domain names, including www.longspringedu.com, as of the same date. To protect our and the VIE’s intellectual properties, we and the VIE rely on a combination of trademark, copyright and trade secret laws. From time to time, the VIE is required to obtain licenses with respect to course materials owned by third parties for its education service, in particular for its Chinese-English bilingual programs which require foreign-language educational materials.

Insurance

We and the VIE maintain various insurance policies, such as school liability insurance, student life insurance, auto insurance and key-man life insurance to safeguard against risks and unexpected events. We and the VIE do not maintain business interruption insurance. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We have limited insurance coverage with respect to our business and operations.” We consider our and the VIE’s insurance coverage to be in line with the industry practice as well as the customary practice in China.

Legal Proceedings

We and certain of our directors and officers have been named as defendants in a putative shareholder class action lawsuit in captioned Dagan Investments LLC v. First High-School Education Group Co., Ltd. (Case No. 1:22-cv-03831) filed on May 11, 2022 in the United States District Court for the Southern District of New York. The lead plaintiff alleged in the complaint, in sum and substance, that our IPO registration and prospectus (the “Offering Documents”) were false or misleading, in violation of Sections 11, 12(a)(2), and 15 of the Securities Act, in that the Offering Documents allegedly failed adequately to warn investors, among other things, that the new rules, regulations and policies regarding private education to be implemented by the Chinese government posed a material adverse threat to the Company and its business. The lead plaintiff purported to bring this action on behalf of a class of similarly situated investors and seek monetary damages on behalf of the class. On December 6, 2023, upon the defendants’ motion to dismiss the second amended complaint, the United States District Court for the Southern District of New York granted the defendants’ motion to dismiss and declined a further opportunity to amend. On February 13, 2024, the case was dismissed with prejudice.

In addition, from time to time, we may and the VIE become a party to various legal or administrative proceedings arising in the ordinary course of our business, including actions with respect to intellectual property infringement, breach of contract, labor and employment claims. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We and the VIE may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our and the VIE’s business and operations”, “—We and the VIE may be involved in labor and employment related disputes and legal claims from time to time arising out of our and the VIE’s operations”, and “—We and certain of our directors and officers have been named as defendants in a putative shareholder class action lawsuit, which could have a material adverse impact on our business, financial condition, results of operations, cash flows and reputation.” We and the VIE are currently not a party to, and we are not aware of any threat of, any legal or administrative proceedings that, in the opinion of our management, are likely to have any material and adverse effect on our and the VIE’s business, financial condition, cash-flow or results of operations. However, litigation or any other legal or administrative proceeding, regardless of the outcome, could result in substantial cost and diversion of our and the VIE’s resources, including our management’s time and attention.

Regulations

Regulations on Foreign Investment in Education in the PRC

Regulations on Foreign Investment

Pursuant to the PRC Law on Wholly Foreign-invested Enterprises, which was promulgated by the SCNPC on April 12, 1986, last amended on September 3, 2016 and became effective on October 1, 2016, where the incorporation of wholly foreign-invested enterprises does not involve the implementation of special administrative measures for foreign investment access, the incorporation, separation, merger, or any other major change and the operation period of such enterprises are subject to record-filing administration.

The Implementation Rules on Wholly Foreign-invested Enterprises of the PRC (the “Implementation Rules on Wholly Foreign-invested Enterprises”) was promulgated by the Ministry of Foreign Trade and Economic Cooperation of the PRC (currently known as MOFCOM) on December 12, 1990, amended by the State Council on February 19, 2014, and became effective on March 1, 2014. According to the Implementation Rules on Wholly Foreign-invested Enterprises, industries in which foreign investment is prohibited or restricted shall be regulated in accordance with the Provisions on Guiding the Orientation of Foreign Investment and the Foreign Investment Industries Guidance Catalog.

According to the Foreign Investment Law of the PRC (the “Foreign Investment Law”), adopted by the NPC on March 15, 2019 and came into effect on January 1, 2020, China shall implement a management system of pre-establishment national treatment and a negative list for foreign investment. Under the pre-establishment national treatment, the treatment given to foreign investors and their investments during investment access stage will not be lower than that given to their domestic counterparts. The negative list refers to special administrative measures for foreign investment access in specific industries as stipulated. China shall give national treatment to foreign investment beyond the negative list. The organization form, institutional framework and standard of conduct of foreign-invested enterprises shall be subject to the provisions of the Company Law and the Partnership Enterprise Law of the PRC, and other laws. Foreign investors shall not invest in any industry prohibited by the negative list for foreign investment access. For any industry restricted by the negative list foreign investors shall conform to the investment conditions as required in the negative list.

The Implementing Regulation for the Foreign Investment Law of the PRC, adopted at the 74th executive meeting of the State Council on December 12, 2019 which came into effect on January 1, 2020, provides implementing measures and detailed rules to ensure the effective implementation of the Foreign Investment Law of the PRC.

The PRC Law on Sino-Foreign Equity Joint Ventures, the PRC Law on Wholly Foreign-invested Enterprises and the PRC Law on Sino-Foreign Cooperative Joint Ventures were repealed simultaneously as the Foreign Investment Law came into effect, and foreign-invested enterprises which were incorporated in accordance with such laws before the implementation of the Foreign Investment Law may retain their original organization forms and other aspects for five years upon the implementation hereof.

Subject to the Measures for Reporting of Foreign Investment Information (the “Foreign Investment Information Measures”), which was jointly issued by MOFCOM and the State Administration for Market Regulation (the “SAMR”) on 30 December 2019 and came into effect on January 1, 2020. Beginning on January 1, 2020, when foreign investors carry out investment activities directly or indirectly in China, foreign investors or foreign invested enterprises shall submit investment information through the Enterprise Registration System and the National Enterprise Credit Information Publicity System operated by the SAMR. Specifically, foreign investors or foreign-invested enterprises shall report their establishments, modifications and cancellations and file their annual reports in accordance with the Foreign Investment Information Measures. When a foreign-invested enterprise has completed filing of such reports, the relevant information will be passed by the competent market regulation department to the competent commercial department, so the reports do not need to be submitted separately.

Special Administrative Measures for Foreign Investment Access (Negative List) (2021)

Under the 2021 Special Administrative Measures, which was promulgated by the NDRC and MOFCOM on December 27, 2021 and became effective on January 1, 2022, the Special Administrative Measures for Foreign Investment Access (Negative List) (2020) shall be repealed simultaneously as its implementation.

Pursuant to the 2020 Special Administrative Measures, high school education is a restricted industry for foreign investors, and foreign investors are only allowed to invest in high school education in cooperation with a domestic party and the domestic party shall play a dominant role in the cooperation, which means the principal or other chief executive officers of the school shall be PRC citizens and the representatives of the domestic party shall account for no less than half of the total members of the board of directors, the executive council or the joint administration committee of the Sino-foreign cooperative educational institution. In addition, pursuant to the 2021 Special Administrative Measures, foreign investors are not allowed to invest in compulsory education.

Regulations on Sino-Foreign Cooperation in Operating Schools

Sino-foreign cooperation in operating schools or training programs is specifically governed by the Regulation on Sino-Foreign Cooperative Education of the PRC (the “Sino-Foreign Regulation”), which was promulgated by the State Council on March 1, 2003 and last amended on March 2, 2019, and the Implementation Rules for the Regulation on Sino-Foreign Cooperative Education (the “Implementation Rules”), which was promulgated by the MOE on June 2, 2004 and became effective on July 1, 2004.

The Sino-Foreign Regulation and its Implementation Rules apply to the activities of educational institutions established in the PRC cooperatively by foreign educational institutions and PRC educational institutions, the students of which are to be admitted primarily among PRC citizens. The Sino-Foreign Regulation and its Implementation Rules encourage substantive cooperation between foreign educational institutions with relevant qualifications and experience in providing high-quality education and PRC educational institutions, to jointly operate various types of schools in the PRC, with such cooperation in the industries of higher education and occupational education being encouraged. The foreign educational institution must have relevant qualifications and experience at the same level and in the same category of education. Sino-foreign cooperation schools are not permitted, however, in compulsory education, namely primary schools and middle schools, and military, police, political and other kinds of education that are of a special nature in the PRC. Any Sino-foreign cooperation school and cooperation programs shall be approved by relevant education authorities and obtain the Permit for Sino-foreign Cooperation in Operating School. A Sino-foreign cooperation school established without the above approval or permit may be banned by relevant authorities, be ordered to refund the fees collected from its students and be subject to a fine of no more than RMB100,000, while a Sino-foreign cooperation program established without such approval or permit may also be banned and be ordered to refund the fees collected from its students.

On June 18, 2012, the MOE issued the Implementation Opinions of the MOE on Encouraging and Guiding the Entry of Private Capital in the Field of Education and Promoting the Healthy Development of Private Education to encourage private investment and foreign investment in the field of education. According to these opinions, the proportion of foreign capital in a Sino-foreign cooperative educational institution shall be less than 50%.

Regulations on Private Education in the PRC

Education Law of the PRC

On March 18, 1995, the NPC enacted the Education Law of the PRC (the “Education Law”), which became effective on September 1, 1995. The Education Law sets forth provisions relating to the fundamental education systems of the PRC, including a school education system comprising pre-school education, primary education, secondary education and higher education, a system of nine-year compulsory education, a national education examination system, and a system of education certificates. The Education Law stipulates that the government should formulate plans for the development of education, and establishes and operates schools and other educational institutions. Furthermore, it provides that, in principle, enterprises, social organizations and individuals are encouraged to establish and operate schools and other types of educational institutions in accordance with PRC laws and regulations. On December 27, 2015, the SCNPC published the Decision on Amendment of the Education Law, which became effective on June 1, 2016. The amended Educational Law narrowed the provision prohibiting the establishment or operation of schools or other educational institutions for profit to include only schools or other educational institutions founded with governmental funds or donated assets.

In addition, the Education Law stipulates the basic requirements to be fulfilled for the establishment of schools or any other educational institution. It also provides that the establishment, modification or termination of schools or any other educational institution shall, in accordance with the relevant PRC laws and regulations, go through the process of examination, verification, approval, registration or filing.

Law on Promoting Private Education

The Private Education Law was last amended and became effective on December 29, 2018. Pursuant to the Private Education Law, private schools that provide diploma- and degree-oriented education, preschool education, Self-Taught Higher Education Examination education and other cultural education shall be subject to examination and approval by education authorities at or above the county level within the limits of their powers. Sponsors of private schools may choose to establish non-profit or for-profit private schools at their own discretion. However, they may not establish for-profit private schools providing compulsory education.

Implementation Rules of the Law on Promoting Private Education

According to the Implementation Rules which became effective on April 1, 2004 and was amended on May 14, 2021 with an effective date of September 1, 2021, (1) foreign-invested enterprises established in China and social organizations whose actual controllers are foreign parties shall not sponsor, participate in or actually control private schools that provide compulsory education, (2) social organizations or individuals shall not control any private school that provides compulsory education or any non-profit private school that provides pre-school education by means of, among others, merger, acquisition and contractual arrangements; and (3) private schools providing compulsory education shall not conduct any transaction with any related party. Where a private school other than private schools providing compulsory education conducts transactions with any related party, it shall follow the principles of openness, fairness and equality, determine the reasonable fees and regulate the decision-making, and shall not do detriment to the state interests, the interests of the school or the rights and interests of the teachers and students, otherwise, there is a risk of being ordered to make corrections within a time limit, and the illegal gains, if any, shall be confiscated after the fees collected are returned; if the circumstances are serious, the sponsor, actual controller and member of the decision-making body or supervisory body shall not become the sponsor, actual controller or member of the decision-making body or supervisory body of other private school within one to five years; if the circumstances are especially serious with adverse social impact, the sponsor, actual controller and member of the decision-making body or supervisory body shall not become the sponsor, actual controller and members of the decision-making body or supervisory body of other private school permanently; if a violation of public security administration is constituted, the public security organ shall impose a public security administration punishment according to law; if a crime is constituted, criminal responsibility shall be investigated in accordance with the law.

Several Opinions on Encouraging Private Entities and Individuals to Operate Schools and Promoting the Healthy Development of Private Education

According to the Several Opinions on Encouraging Private Entities and Individuals to Operate Schools and Promoting the Healthy Development of Private Education, which was issued by the State Council on December 29, 2016, innovative institutional mechanisms shall be implemented in the field of private education, which include but are not limited to: (i) classified registration and management shall be applicable to private schools, and the sponsors of private schools may, at their own discretion, choose to establish non-profit or for-profit private schools; (ii) government support policies shall be applicable to private schools. The people’s government at all levels are responsible for formulating and improving support policies for non-profit private schools including but not limited to government subsidies, government procurement services, fund incentives, donation incentives and land allocation. Meanwhile, the people’s government at all levels may support the development of for-profit private schools by ways including but not limited to government procurement services and preferential tax treatments in accordance with economic and social development and public services requirements; and (iii) broaden the financing channels for private schools, encourage and attract private funds to enter into the field of private education. Financial institutions are encouraged to provide loans to private schools with the pledge of the schools’ future operating income or intellectual property rights, while individuals or entities are encouraged to make donations to non-profit private schools.

As of the date of this annual report, certain local governments, such as Yunnan province, Inner Mongolia Autonomous Region, Shaanxi province, Sichuan province, Guizhou province and Chongqing municipal, have promulgated their local regulations relating to legal person registration and administration for private schools and certain local governments, and have issued general guidance to encourage the development of private schools. Among these local regulations and guidance, some local governments, such as Yunnan province, Inner Mongolia Autonomous Region, Shaanxi province, Sichuan province, Guizhou province and Chongqing municipal, require the existing private schools to register either as for-profit or non-profit schools within a specific time period.

Implementation Rules on Classified Registration of Private Schools

According to the Implementation Rules on Classified Registration of Private Schools, which was issued jointly by the MOE, the Ministry of Human Resources and Social Security, the Ministry of Civil Affairs, the State Commission Office of Public Sectors Reform and the SAIC on December 31, 2016 and became effective on the same day, the establishment of private schools is subject to approval. Private Schools approved to be established shall apply for registration certificate or business license in accordance with the classified registration regulations after they obtain the license for school operations by competent government authorities.

Implementation Rules on the Supervision and Administration of For-profit Private Schools

According to the Implementation Rules on the Supervision and Administration of For-profit Private Schools, which was issued jointly by the MOE, the Ministry of Human Resources and Social Security and the SAIC on December 31, 2016 and became effective on the same day, social organizations and individuals are permitted to operate for-profit private colleges and universities and other universities, high schools and kindergartens while are prohibited from operating for-profit private schools providing compulsory education.

According to the Implementation Rules on the Supervision and Administration of For-profit Private Schools, social organizations and individuals operating for-profit private schools shall have the financial resources appropriate to the level, type and scale of the school, and their net assets or monetary funds shall be able to satisfy the costs of the school construction and development. Furthermore, social organizations operating for-profit private schools shall be a legal person who is in good credit standing, and shall not be listed as an enterprise operating abnormally, in material non-compliance with the laws, or being dishonest. Individuals operating for-profit private schools shall be PRC citizens who reside in China, be in good credit standing without any criminal record and enjoy political rights and complete civil capacity.

Notice on the Registration and Administration of the Name of For-profit Private Schools

According to the Notice of the SAIC and the MOE on the Registration and Administration of the Name of For-profit Private Schools, which was issued on August 31, 2017 and became effective on September 1, 2017, for-profit private schools shall be registered as limited liability companies or joint-stock limited companies according to the Company Law of the PRC and the Law on Promoting Private Education, and its name shall comply with the relevant laws and regulations on company registration and education.

Interim Measures on the Management of the Collection of Private Education Fees

The Interim Measures on the Management of the Collection of Private Education Fees, or Private Education Fees Collection Measures, was promulgated by the NDRC, the MOE and the Ministry of Labor and Social Security (currently known as the Ministry of Human Resources and Social Security) on March 2, 2005. According to the Private Education Fees Collection Measures and the Implementation Rules of the Law on Promoting Private Education, the types and amounts of fees charged by private schools providing diploma- or degree-oriented education shall be examined by education authorities or labor and social welfare authorities and approved by governmental pricing authorities; and, other private schools shall file its pricing information with the governmental pricing authorities and publicly disclose such information. If a school raises its tuition levels without obtaining proper approval or making the requisite filing with the relevant government pricing authorities, such school would be required to return the additional tuition fees obtained through such raise and be held liable for compensation of any losses caused to the students in accordance with relevant PRC laws.

The Several Opinions of the Central Committee of the Communist Party of China and the State Council on Promoting the Price Mechanism Reform, which was issued on October 12, 2015, allows for-profit private schools to determine their prices on their own, while the tuition-collecting policies of non-profit private schools shall be determined by the provincial governments in a market-oriented manner and based on the local situations.

On July 12, 2016, Yunnan Development and Reform Commission, Department of Education of Yunnan Province as well as Yunnan Provincial Department of Human Resources and Social Security issued the Notice on the Implementation of Independent Pricing on Private Schools in Yunnan Province. According to this Notice, tuition and boarding fees of the private schools in Yunnan province may be independently determined by the private schools according to the school-operating cost, market demand and other factors, and be made available to the public.

On January 2, 2018, People’s Government of Inner Mongolia Autonomous Region issued the Opinions on Encouraging Social Forces to Establish Education and Promoting the Healthy Development of Private Education. Pursuant to this Opinions, fees of private schools are regulated by the market. Specific fee standards are determined by the schools independently and implemented according to laws after being publicized to the public. Relevant authorities shall strengthen the supervision during and after the event on the charging practices of private schools.

On July 16, 2018, People’s Government of Guizhou province issued the Opinions on the Implementation of Supporting and Regulating Education by Social Forces and Promoting the Healthy Development of Private Education. According to this Opinions, subject to the principles of fairness, openness, legitimacy and good faith, the private schools providing academic education are entitled to determine the education fee rates on their own.

On January 14, 2018, People’s Government of Shaanxi province issued the Opinions on the Implementation of Encouraging Social Forces to Establish Education and Promoting the Healthy Development of Private Education. Pursuant to this Opinions, fees charged by non-profit private primary and secondary schools shall be determined by local government in a market-oriented manner and based on the local situations, while for-profit private schools are allowed to determine their prices on their own according to the market demand.

On August 17, 2020, MOE, NDRC, the Ministry of Finance, and the State Administration for Industry and Commerce or the SAMR, and the General Administration of Press and Publication jointly released the Opinions on Further Strengthening and Regulating the Administration of Education Fees (the “Opinions”), effective as of the same date. The Opinions mainly stipulate the specific methods for non-profit private school’s fees shall be formulated by the provincial people’s government; the fees of for-profit private schools shall be regulated by the market and determined by the school themselves. For private schools established before November 7, 2016, the charging policies shall be managed as non-profit private schools before the relevant procedures for classification registration are completed. In particular, it is strictly forbidden for the sponsors of non-profit private schools and non-profit private Sino-foreign cooperative school sponsors to obtain proceeds from school-running such as tuition income, distributing school balances (residual assets) or transferring proceeds from school running through related-party transactions or affiliated parties or other means.

Yunnan Province Private School Financial Management and School Fund Supervision Measures

On August 24, 2023, the Yunnan Provincial Department of Education, together with the Yunnan Provincial Development and Reform Commission, the Yunnan Provincial Department of Finance, the Yunnan Provincial Market Supervision Administration, the Yunnan Provincial Local Financial Supervision Administration, and the Kunming Central Branch of the People’s Bank of China issued the Fund Supervision Measures. The Fund Supervision Measures require that, among others, (1) all operational private schools (including kindergartens, elementary, middle, secondary level schools, as well as vocational schools and universities), should enter into a supervision agreement with their custodian banks, and such banks should supervise the supervision account and report to the relevant education supervising authorities; (2) except for grants or special purpose funds from the government, the balance in the supervision accounts of private schools should not be less than 15% of the total tuition fees collected for the academic year. The proportion of the minimum operating guarantee fund balance is determined by the relevant education supervising authorities together with other relevant administrative departments based on the actual situation of the schools. The minimum operating guarantee amount of 15% for private schools is calculated based on the total amount of tuition fees collected, and shall be reported by the schools to the education authorities for review and approval within 10 working days after the collection of fees, and also reported to the regulatory and custodian bank. If the next tuition collection date is less than three months away, the minimum operating guarantee balance can be lower than the approved amount.

Regulations on Compulsory Education

According to the Law for Compulsory Education of the PRC, which was promulgated by the NPC on April 12, 1986 and last amended on December 29, 2018, a nine-year system of compulsory education, including six years of primary school and three years of middle school, was adopted.

Further, the MOE issued the Reform Guideline on the Curriculum System of Fundamental Education (Trial) on June 8, 2001, which became effective on the same day, pursuant to which schools providing fundamental education shall follow a “state-local-school” three-tier curriculum system. In other words, schools must follow the state curriculum standard for state courses while local education authorities have the power to determine the curriculum standard for other courses, and schools may develop curriculums that are suitable for their specific needs.

Regulations on After-School tutoring

On July 24, 2021, the General Office of State Council and the General Office of Central Committee of the Communist Party of China jointly promulgated the Alleviating Burden Opinion, which provides that, among other things, (1) local government authorities shall no longer approve new after-school tutoring institutions providing tutoring services on academic subjects for students in compulsory education, and the existing after-school tutoring institutions providing tutoring services on academic subjects shall be registered as non-profit; (2) Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities and listed companies are prohibited from investing in Academic AST Institutions through capital markets fund raising activities, or acquiring assets of Academic AST Institutions by paying cash or issuing securities; and (3) 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.

Any violation of the foregoing shall be rectified. Moreover, the Alleviating Burden Opinion specifies a series of operating requirements that after-school tutoring institutions must meet, including, among other things, 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.

PRC Company Law

The PRC Company Law, promulgated by the SCNPC on December 29, 1993, was recently amended on December 29, 2023 and will become effective on July 1, 2024. The New Company Law introduces new requirements on capital contributions, corporate governance, liabilities of directors, supervisors and senior executives, protection of minority shareholders, share transfer and liquidation process, among others. The New Company Law requires shareholders of limited liability companies to fully pay the subscribed capital within five years of the company’s establishment. Failure to comply with such requirements may lead to a loss of equity in the unpaid capital contribution. In certain situations, a company or its creditors can demand immediate fulfilment of the capital contribution obligation from shareholders who have not fully paid, even if the deadline for capital contribution has not yet passed. In addition, the State Administration for Market Regulation issued the draft Provisions on the Implementation of the Registration Capital Registration Management System on February 6, 2024 for public comments, which allows a three-year transition period for existing companies to adjust its subscribed capital to comply with the New Company Law. The capital contribution of certain of the principal subsidiaries of the variable interest entity have not been fully paid. We and the VIE will pay the outstanding subscribed capital or take relevant measures to comply with the New PRC Company Law and relevant regulations.

Regulations on Intellectual Property in the PRC

Copyright

Pursuant to the Copyright Law of the PRC (the “Copyright Law”), which was last amended on November 11, 2020 and became effective from June 1, 2021, copyrights include personal rights such as the right of publication and attribution as well as property rights such as the right of production and distribution. Reproducing, distributing, performing, projecting, broadcasting or compiling a work or communicating the same to the public via an information network without permission from the owner of the copyright therein shall constitute copyright infringement unless otherwise provided in the Copyright Law. The infringer shall, according to the circumstances of the case, undertake to cease the infringement, take remedial actions, offer an apology, pay damages, etc.

Trademark

Pursuant to the Trademark Law of the PRC (the “Trademark Law”), which was amended on August 30, 2013 and became effective on May 1, 2014, and last amended on April 23, 2019 and became effective on November 1, 2019, the right to exclusive use of a registered trademark shall be limited to trademarks which have been approved for registration and to goods for which the use of trademark has been approved. The validity period of a registered trademark shall be ten years, counted from the date of approval of the registration. According to the Trademark Law, using a trademark that is identical with or similar to a registered trademark in connection with the same or similar goods without the authorization of the owner of the registered trademark constitutes an infringement. The infringer shall, in accordance with the relevant laws, undertake to cease the infringement, take remedial actions, pay damages, etc.

Domain Name

In accordance with the Measures on the Administration of Internet Domain Names, which was promulgated by Ministry of Industry and Information Technology of the PRC (the “MIIT”), on August 24, 2017 and came into effect on November 1, 2017, the Implementation Rules of China Internet Network Information Center on Domain Name Registration, which was promulgated by China Internet Network Information Center on May 28, 2012 and came into effect on May 29, 2012, domain name registrations are conducted through domain name service agencies established under relevant regulations, and the applicant becomes a domain name holder upon successful registration. Pursuant to the Measures of the China Internet Network Information Center on Domain Name Dispute Resolution, which was promulgated by China Internet Network Information Center on September 1, 2014 and came into effect on the same date, domain name disputes shall be submitted to an organization authorized by China Internet Network Information Center for resolution.

Regulations on Foreign Exchange in the PRC

Pursuant to the Foreign Exchange Administration Regulations of the PRC, as amended on August 5, 2008, RMB is freely convertible for current account items, including dividend distributions, interest payments, trade-and service-related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside China, unless prior approval of the SAFE, is obtained and prior registration with SAFE is made. On May 10, 2013, SAFE promulgated the Circular of SAFE on Printing and Distributing the Administrative Provisions on Foreign Exchange in Domestic Direct Investment by Foreign Investors and Relevant Supporting Documents (the “SAFE Circular 21”), which was amended on October 10, 2018. It provides for and simplifies the operational steps and regulations on foreign exchange matters related to direct investment by foreign investors, including foreign exchange registration, account opening and use, receipt and payment of funds, and settlement and sales of foreign exchange.

Pursuant to the Circular of the SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment (the “SAFE Circular 59”), which was promulgated on November 19, 2012 and became effective on December 17, 2012, and was further amended on May 4, 2015 and October 10, 2018, approval is not required for the opening of an account entry in foreign exchange accounts under direct investment. The SAFE Circular 59 also simplifies the capital verification and confirmation formalities for foreign-invested entities, the foreign capital and foreign exchange registration formalities required for the foreign investors to acquire equities from PRC parties, and further improves the administration on exchange settlement of foreign exchange capital of foreign-invested entities.

Pursuant to the SAFE Circular 37, promulgated and becoming effective on July 4, 2014, (1) a PRC resident shall register with the local SAFE branch before he or she contributes assets or equity interests in an overseas special purpose vehicle (the “SPV”), that is directly established or controlled by the PRC resident for the purpose of conducting investment or financing; and (2) following the initial registration, the PRC resident is required to register with the local SAFE branch for any major change, in respect of the SPV, including, among other things, a change in the SPV’s PRC resident shareholder(s), name of the SPV, term of operation, or any increase or reduction of the SPV’s registered capital, share transfer or swap, and merger or division. Pursuant to the SAFE Circular 37, failure to comply with these registration procedures may result in penalties.

Pursuant to the SAFE Circular on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies (the “SAFE Circular 13”), which was promulgated on February 13, 2015 and became effective on June 1, 2015, the foreign exchange registration under domestic direct investment and under overseas direct investment is directly reviewed and conducted by banks in accordance with the SAFE Circular 13, and the SAFE and its branches shall perform indirect regulation over the direct investment-related foreign exchange registration through banks.

Regulations on Loans to and Direct Investment in the PRC Entities by Offshore Holding Companies

According to the Implementation Rules on the Provisional Regulations on Statistics and Supervision of Foreign Debts promulgated by the SAFE on September 24, 1997 and the Interim Provisions on the Management of Foreign Debts promulgated by the SAFE, the State Development Planning Commission (currently known as the NDRC) and the MOF and becoming effective from March 1, 2003, loans by foreign companies to their subsidiaries in China, which accordingly are foreign-invested enterprises, are considered foreign debts, and such loans must be registered with the local branches of the SAFE. Under its provisions, the total amount of accumulated medium-term and long-term foreign debts and the balance of short-term debts borrowed by a foreign-invested enterprise is limited to the difference between its total investment and the registered capital.

Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors (Revised in 2009) and Overseas Listings

Under the M&A Rules, a foreign investor is required to obtain necessary approvals when (1) such foreign investor acquires equity interests or subscribes for new equity interests in a domestic enterprise through an increase of registered capital in the domestic enterprise and thereby converting it into a foreign-invested enterprise, or (2) such foreign investor establishes a foreign-invested enterprise which purchases and operates the assets of a domestic enterprise, or which purchases the assets of a domestic enterprise and injects such assets to establish a foreign-invested enterprise. According to Article 11 of the M&A Rules, where a domestic enterprise or individual, through foreign enterprise established or controlled by it/him/her, acquires a domestic enterprise which is related to or connected with it/him/her, approval from MOFCOM is required.

According to the Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises, the merger and acquisition of domestic enterprises by foreign investors shall, if not involving special administrative measures for foreign investment access and affiliated mergers and acquisitions, be subject to the record filing measures.

Pursuant to the Manual of Guidance on Administration for Foreign Investment Access, which was issued and became effective on December 18, 2008 by the Department of Foreign Investment Administration of MOFCOM, notwithstanding the fact that (1) the domestic shareholder is connected with the foreign investor or not, or (2) the foreign investor is existing or new investor, the M&A Rules shall not apply to the transfer of equity interests in an incorporated foreign-invested enterprise from the domestic shareholders to the foreign investors.

On July 6, 2021, the relevant PRC government authorities issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law”, which were made available to the public on July 6, 2021. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. As these opinions were recently issued, official guidance to act upon, and interpretation thereof remain unclear in several respects at this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all.

On February 17, 2023, the CSRC promulgated the Overseas Listing Trial Measures and the related guidelines, which became effective on March 31, 2023. According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant information. The Overseas Listing Trial Measures provides that an overseas listing or offering is explicitly prohibited, if any of the following: (1) such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (2) the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) the domestic company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual controller, have committed relevant crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years; (4) the domestic company intending to make the securities offering and listing is currently under investigations for suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (5) there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.

Regulations Relating to Internet Information Security and Privacy Protection

Internet information in China is regulated from a national security standpoint. On June 10, 2021, the SCNPC promulgated the PRC Data Security Law, which took effect on September 1, 2021. The PRC Data Security Law, among other things, requires data collection to be conducted in a legitimate and proper manner, and stipulates that, for the purpose of data security, data processing activities must be conducted based on data classification and hierarchical protection system. Furthermore, along with the promulgation of the Opinions on Strictly Combating Illegal Securities Activities, overseas-listed China-based companies are experiencing a heightened scrutiny over their compliance with laws and regulations regarding data security, cross-border data flow and management of confidential information from PRC regulatory authorities.

On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law, which became effective on November 1, 2021. The Personal Information Protection Law aims at protecting the personal information rights and interests, regulating the processing of personal information, ensuring the orderly and free flow of personal information in accordance with the law, and promoting the reasonable use of personal information. According to the Personal Information Protection Law, personal information includes all kinds of identified or identifiable information related to natural persons recorded by electronic or other means, but excludes de-identified information. The Personal Information Protection Law also specified the rules for handling sensitive personal information, which includes biometrics, religious beliefs, specific identities, medical health, financial accounts, trails and locations, and personal information of teenagers under fourteen years old and other personal information, which, upon leakage or illegal usage, may easily infringe the personal dignity or harm safety of livelihood and property. Personal information handlers shall bear responsibility for their personal information handling activities, and must adopt necessary measures to safeguard the security of the personal information they handle. Otherwise, the personal information handlers will be ordered for rectification or suspension or termination of provision of services, confiscation of illegal income, subject to fines or other penalties.

On November 14, 2021, the CAC publicly solicited opinions on the Draft Data Security Regulations. According to the Draft Data Security Regulations, data processors shall, in accordance with relevant state provisions, apply for cyber security review when carrying out the following activities: (1) the merger, reorganization or separation of internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests, which affects or may affect national security, (2) data processors that handle the personal information of more than one million people intends to be listed abroad, (3) the data processor intends to be listed in Hong Kong, which affects or may affect national security, and (4) other data processing activities that affect or may affect national security. However, the Draft Data Security Regulations provides no further explanation or interpretation for “affects or may affect national security.” The PRC government authorities may have wide discretion in the interpretation of “affects or may affect national security.”

On December 28, 2021, the Cyberspace Administration of China jointly with other 12 government authorities, issued the Measures for Cybersecurity Review (2021), which became effective on February 15, 2022, and repealed the Cybersecurity Review Measures (2020) simultaneously. The Measures for Cybersecurity Review (2021) provide that critical information infrastructure operators purchasing network products and services and data processors carrying out data processing activities, which affect or may affect national security, shall apply for cybersecurity review to the cyberspace administrations in accordance with the provisions thereunder. However, the scope of operators of “critical information infrastructure” and the interpretation for “affect or may affect national security” under the current regulatory regime remain unclear and are subject to the decisions of competent PRC regulatory authorities.

On July 7, 2022, the CAC promulgated the Security Assessment Measures to regulate outbound data transfer activities, protect the rights and interests of personal information, safeguard national security and social public interests, and promote the cross-border security and free flow of data. Furthermore, the Security Assessment Measures provide that the security assessment for outbound data transfers shall follow principles of the combination of pre-assessment and continuous supervision and the combination of risk self-assessment and security assessment, so as to prevent the security risks arising from outbound data transfers, and ensure the orderly and free flow of data according to the law. For outbound data transfers that have been carried out prior to the implementation of the Security Assessment Measures, if not in compliance with the Security Assessment Measures, rectification shall be completed within six months from the implementation of the Security Assessment Measures.

C. Organizational Structure

We are a holding company that does not have any substantive operations. We conduct our operations primarily through our subsidiaries and affiliated entities in China. For more information, see “—Our Contractual Arrangements.”

The following diagram illustrates our simplified corporate structure, including our principal subsidiaries, the VIE and other principal affiliated entities, as of the date of this annual report.

(1)	Mr. Shaowei Zhang and Ms. Yu Wu hold 86.76% and 9.64% equity interests in Long-Spring Education, respectively. The remaining 3.6% equity interests of Long-Spring Education are held by five limited partnerships established to hold interests for certain of our employees.

(2)

(3)

(4)	As the private school operation permit for Hengshizhong Education Tutorial School has been cancelled, we diverted its Gaokao repeater program and extra-curricular services related programs to Yunnan Long-Spring Education Holding Group Hengshui Experimental Middle School Management Co., Ltd. We have registered Shaanxi Hengshi Tutorial School as Shaanxi Hengshi Hengzhong Education Technology Co., Ltd.

(5)	Long-Spring Education Holding Group Limited is the sole sponsor for Wenshan Long-Spring Experimental Secondary School.

Under the PRC laws, for-profit private schools are registered as companies and the entities and individuals who establish them are registered as shareholders of such schools and non-profit private schools are registered as private non-enterprise units and the entities and individuals who establish them are referred to as “sponsors” rather than “owners” or “shareholders.” The rights of sponsors vis-à-vis schools are similar to the rights of shareholders vis-à-vis companies with regard to legal and regulatory matters, but differ with regard to the right of a sponsor to receive proceeds on investment and the right to the distribution of residual properties upon termination and liquidation. For more information regarding school sponsorship and the difference between sponsorship and ownership under relevant laws and regulations, see “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Private Education in the PRC.”

The following table sets forth the details of our significant subsidiaries, the VIE and schools/subsidiaries held by the VIE from our continuing operations.

Subsidiaries		Place of Incorporation
First High-School Education Group BVI		BVI
First High-School HK		Hong Kong
Yunnan Century Long-Spring Technology Co., Ltd.		PRC
Yunnan Long-Spring Logistics Service Co., Ltd.		PRC

VIE			Place of Incorporation
Long-Spring Education Holding Group Limited			PRC

Subsidiaries/schools held by the VIE			Place of Incorporation
Kunming Xishan Long-Spring Experimental Secondary School			PRC
Kunming Chenggong Long-Spring Experimental Secondary School			PRC
Yiliang Long-Spring Experimental Secondary School			PRC
Qujing Hengshui Experimental Secondary School			PRC
Yunnan Yuxi Hengshui Experimental Secondary School			PRC
Yunnan Hengshui Experimental Secondary School—Xishan School			PRC
Yunnan Long-Spring Foreign Language Secondary School			PRC
Zhenxiong Long-Spring Advanced Secondary School			PRC
Qiubei Long-Spring Experimental Secondary School			PRC
Mengla Long-Spring Experimental Secondary School			PRC
Xinping Long-Spring Advanced Secondary School Co., Ltd.			PRC
Xishuangbanna Long-Spring Experimental Secondary School Co., Ltd.			PRC
Wenshan Long-Spring Experimental Secondary School			PRC
Yangling Hengshui Experimental Secondary School			PRC
Shaanxi Hengshi Hengzhong Education Technology Co., Ltd.			PRC
Yunnan Long-Spring Education Holding Group Hengshui Experimental Middle School Management Co., Ltd			PRC
Yunnan Hengshun Property Service Co., Ltd.			PRC
Beijing Green Carbon Future Intelligent Technology Co., Ltd.			PRC

Our Contractual Arrangements

Current PRC laws and regulations restrict foreign ownership in the private education industry in China. We are a company registered in the Cayman Islands. Yunnan WFOE is our PRC subsidiary and a foreign-invested enterprise under PRC laws. To comply with PRC laws and regulations, we primarily operate in China through the affiliated entities, based on a series of contractual arrangements by and among Yunnan WFOE, the affiliated entities, and the shareholders of Long-Spring Education.

Our contractual arrangements with the affiliated entities and the shareholders of Long-Spring Education permit us to (1) exercise effective control over the affiliated entities, (2) receive substantially all of the economic benefits of the affiliated entities, and (3) have an exclusive call option to purchase all or part of the equity interests in the affiliated entities when and to the extent permitted by PRC law.

We do not have any equity interest in the affiliated entities. However, as a result of these contractual arrangements, we control the affiliated entities through our PRC subsidiary, Yunnan WFOE. As a result of our direct ownership in Yunnan WFOE and the contractual arrangements with the affiliated entities, we are the primary beneficiary of the affiliated entities, and we have also consolidated their financial results in accordance with U.S. GAAP. For a detailed description of the risks associated with our corporate structure, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure” and “—Risks Related to Doing Business in China.”

The following is a summary of the material provisions of these contractual arrangements with the affiliated entities and the shareholders of Long-Spring Education executed in December 2018.

Exclusive Call Option Agreement. Pursuant to the exclusive call option agreement, the shareholders of Long-Spring Education unconditionally and irrevocably granted Yunnan WFOE or its designated entity the right to purchase at any time all or part of their equity interests in the affiliated entities at the lowest price applicable under PRC laws and regulations. Without Yunnan WFOE’s prior written consent, the shareholders of Long-Spring Education also refrain from (1) selling, assigning, transferring, or otherwise disposing of the equity or sponsorship interest, (2) increasing or reducing the capital investment, (3) dividing the affiliated entities into or merging it with other entities, (4) disposing of any of the assets of the affiliated entities, (5) terminating or contradicting any material contract entered into by the affiliated entities, (6) procuring the affiliated entities to enter into transactions that may have material impact on their assets, liabilities, operations, equity structure, or other legal rights, (7) procuring the affiliated entities to declare or distribute profits and/or returns, (8) amending the article of association of the affiliated entities, and (9) allowing the affiliated entities to undertake any material obligation beyond normal business activities.

School Sponsor’s and Directors’ Rights Entrustment Agreement. Pursuant to the school sponsor’s and directors’ rights entrustment agreement, the school sponsors irrevocably authorized and entrusted Yunnan WFOE or its designated personnel to exercise all their rights as the school sponsor of each school, including but not limited to the right to appoint and/or elect directors, council members, and supervisors of the school, right to review the resolutions of the board of directors and the financial statement of the school, right to transfer school sponsor’s interest, and right to decide whether the school would be for-profit or non-profit. Each director appointed by the sponsor of each school unconditionally and irrevocably authorized and entrusted Yunnan WFOE to exercise all the rights as a director of the school, including but not limited to the right to attend meetings of the board of directors and vote, right to sign board resolutions and other legal documents and other rights of directors under the school’s articles of association and the applicable PRC laws.

Shareholders’ Rights Entrustment Agreement. Pursuant to the shareholders’ rights entrustment agreement, each shareholder of Long-Spring Education irrevocably authorized and entrusted Yunnan WFOE to exercise all the respective rights as shareholders of the affiliated entities, including but not limited to the right to attend shareholder’s meeting and vote, right to sign shareholders’ resolutions and other legal documents, right to instruct the directors and other rights of shareholders under the school’s articles of association and the applicable PRC laws.

Exclusive Technical Service and Management Consultancy Agreement and Business Cooperation Agreement. Pursuant to the exclusive technical service and management consultancy agreement and business cooperation agreement, Yunnan WFOE provides exclusive technical services to the affiliated entities, including software, website, and on-site technical support and training. It also provides exclusive management consultancy services such as staff training, student admission support, internal management advisory, and market research and public relations. Each of the affiliated entities pays Yunnan WFOE a service fee equal to the total amount of surplus of its operation. Yunnan WFOE also reserves the exclusive proprietary rights to any technology or intellectual property developed in the course of the provision of services under the agreements. Without the prior written consent of Yunnan WFOE, the affiliated entities cannot accept services provided by or establish similar cooperation relationship with any third-party. The agreements will remain effective unless Yunnan WFOE and/or the designated entity fully exercised its purchase rights pursuant to the exclusive call option agreement or unilaterally terminated by Yunnan WFOE with a 30-day advance notice. Unless otherwise required by applicable PRC laws, the affiliated entities do not have any right to terminate the agreements.

Equity Pledge Agreement. Pursuant to the equity pledge agreement, the shareholders of Long-Spring Education unconditionally and irrevocably pledged and granted first priority security interests over all of his/her/its equity interest in the affiliated entities, as well as all related rights, to Yunnan WFOE as security for performance of all the contractual arrangements. Without Yunnan WFOE’s prior written consent, the shareholders of Long-Spring Education must not transfer the equity interest or create further pledge or encumbrance over the pledged equity interest. They also waived any pre-emptive rights upon enforcement, and Yunnan WFOE can enforce upon default by transferring all or part of the equity interest, selling the pledged equity interest, or disposing of the pledged equity interest in any other way to the extent permitted by PRC laws and regulations.

Spousal Undertaking. Pursuant to the spousal undertaking executed by the spouses of the shareholders of Long-Spring Education, the signing spouses consented to the contractual arrangements with respect to the equity interest in Long-Spring Education, including its pledge, transfer, and disposal in any other forms. The spouses will not participate in the operation, management, liquidation, or any other matters in relation to the affiliated entities. They authorized the shareholders of Long-Spring Education to exercise their shareholding rights on behalf of them to ensure the interest of Yunnan WFOE. This undertaking will not terminate until Yunnan WFOE and the spouses terminate it in writing.

Loan Agreement. Pursuant to the loan agreement, Yunnan WFOE agreed to provide interest-free loans to Long-Spring Education. Each loan will be for an infinite term until termination at the sole discretion of Yunnan WFOE. This agreement will terminate when all equity interests of the Long-Spring Education are transferred to Yunnan WFOE.

In the opinion of our PRC legal counsel:

●

except for the Affected Entities, the ownership structures of Yunnan WFOE and the affiliated entities in China, as of the date of this annual report, are not in violation of applicable PRC laws and regulations currently in effect; and

●

the contractual arrangements among Yunnan WFOE, the affiliated entities, and the shareholders of Long-Spring Education, governed by PRC law are legal, valid and binding, and will not result in any violation of applicable PRC laws and regulations currently in effect, except that the clause or provision of the Exclusive Technical Service and Management Consultancy Agreement and Business Cooperation Agreement, in relation to related party transactions between a private school providing compulsory education and Yunnan WFOE, have been rendered not legally enforceable since September 1, 2021.

However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or our contractual arrangements are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. For a detailed description of the risks associated with our corporate structure, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure” and “—Risks Related to Doing Business in China.”

D. Property, Plant and Equipment

Our principal executive offices are in Yunnan, China. All of our and the VIE’s properties are located in China. The VIE currently occupy a total combined gross floor area of approximately 821,259 square meters of facilities for 12 properties provided by local governments or entities through the VIE’s cooperative arrangements with them. The terms of such properties range from eight to 20 years. By utilizing the properties developed by local governments, we avoid significant capital expenditures in connection with land procurement and facilities construction. The VIE also leased two properties with a total combined gross floor area of approximately 102,962 square meters in Yunnan province, and Shaanxi province from third parties to operate the VIE’s schools. The VIE’s leases have terms of 18 to 20 years. We believe that the facilities which we and the VIE currently lease and occupy are adequate to meet our needs for the foreseeable future, and we believe that we and the VIE’s will be able to obtain adequate facilities, principally through leasing of additional properties, to accommodate our and the VIE’s future expansion plans.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes included elsewhere in this annual report. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section of this annual report captioned “Item 3. Key Information—D. Risk Factors” and in other parts of this annual report. Our fiscal year ends on December 31.

A. Operating Results

Overview

We are an education service provider primarily focusing on high schools in Western China. We aspire to become a leader and innovator of private high school education in China, dedicated to a comprehensive education management integrating education information consulting, education research project development, education talent management, education technology management, education service management, and general vocational integration development services. First High-School Education, our ultimate Cayman Islands holding company, does not have any substantive operations other than indirectly controlling the affiliated entities through certain contractual arrangements. We, together with the VIE, trace our history back to August 2012 when the VIE established its first school to provide after-school tutoring services. The VIE has since developed a network of 25 schools for continuing operations, offering 14 high school programs and two tutorial school programs for Gaokao repeaters, and nine school management service programs as of December 31, 2023. The VIE has also collaborated with local governments and other third parties in China and expect to launch or provide management services for new schools offering high school programs and vocational programs in the second half of 2024. In addition, the VIE has also established Chinese-English bilingual programs for students interested in pursuing higher education overseas. As of December 31, 2023, the VIE had 18,900 high school students (including Gaokao repeaters) across its school network, and 13,028 public school students at schools to which the VIE provides management services, for our continuing operations.

On May 14, 2021, the PRC State Council promulgated the amended Implementation Rules, which became effective on September 1, 2021. Pursuant to the Implementation Rules, (1) foreign-invested enterprises established in China and social organizations whose actual controllers are foreign parties shall not sponsor, participate in or actually control private schools that provide compulsory education, (2) social organizations or individuals shall not control any private school that provides compulsory education or any non-profit private school that provides pre-school education by means of, among others, merger, acquisition and contractual arrangements, and (3) private schools providing compulsory education shall not conduct any transaction with any related party.

The Implementation Rules have had significant impacts on our business and our results of operations. As a result of the effectiveness of the Implementation Rules, we have lost control over the Affected Entities as from September 1, 2021, which primarily include the middle schools providing compulsory education and the sponsor entities within China that are affected by the Implementation Rules. Consequently, we classified the operation for the Affected Entities as discontinued operations. We have determined that, in substance, we had ceased to recognize revenues for all activities related to the Affected Entities and had discontinued all business activities with such entities by September 1, 2021 except for the continued provision of essential services to keep these schools in normal operations.

For our continuing operations, our revenues were RMB337.3 million, RMB342.5 million and RMB266.3 million (US$37.5 million) in 2021, 2022 and 2023, respectively. Our net income was RMB52.7 million and RMB38.4 million in 2021 and 2022, respectively. We recorded net loss of RMB70.6 million (US$10.0 million) in 2023. Our adjusted net income was RMB52.7 million and RMB38.4 million in 2021 and 2022, respectively We recorded adjusted net loss of RMB18.6 million (US$2.6 million) in 2023. For a detailed description of our non-GAAP measure, see “—Results of Operations—Non-GAAP financial measure.”

Major Factors Affecting Our Results of Operations

We believe that our results of operations are affected by general factors affecting the private education industry in China and company-specific factors, including the following.

Level of student enrollment

Our revenues for our continuing operations consist primarily of tuition and boarding fees from students enrolled at the VIE’s schools. The level of students enrolled at the VIE’s schools directly affects our revenues and profitability. The total number of students enrolled at the VIE’s schools for our continuing operations was 16,972, 17,336 and 17,753 as of December 31, 2021, 2022 and 2023, respectively. The VIE’s student enrollment largely depends on a number of factors, including without limitation, (1) the VIE’s schools’ reputation, which primarily reflects our education quality and our student academic results, (2) the VIE’s admission quotas as approved by the relevant government authorities from year to year, subject to adjustments by the relevant government authorities, and (3) the ramp-up stage of the VIE’s schools and the capacity for student enrollment at each of the VIE’s schools. With the increase in the utilization of the VIE’s schools in the ramp-up stage and the expansion of the VIE’s school network, we expect that the VIE’s student enrollment will continue to increase in the foreseeable future.

Tuition and boarding fees

Our results of operations are affected by the level of tuition and boarding fees the VIE charges the students. The tuition rate the VIE charges is typically based on the demand for its education programs, the cost of our operations, the geographical markets where the VIE operates its schools, the average tuition level in the markets, and its pricing strategy to gain market share. The VIE generally seeks to gradually increase the VIE’s tuition and boarding fees without compromising its student enrollment. While the VIE is not required to obtain pre-approval from relevant authorities before raising tuition and boarding fees, the VIE is generally required to file and record its price increase for its high schools with local governments, who in turn still maintain certain level of control and oversight of its operation. The VIE generally has more discretion in determining the tuition levels for its tutorial schools. The average tuition per student of the VIE’s high schools was RMB10,997 and RMB15,899 in 2022 and 2023, respectively, and average tuition per student of the VIE’s tutorial schools for Gaokao repeaters was RMB19,853 and RMB16,553 in 2022 and 2023, respectively. The increase of average tuition per student of the VIE’s high schools was primarily because we raised tuition for some of our existing schools. The decrease of average tuition per student of the VIE’s tutorial schools was primarily because we granted discounts to promote enrollment.

Utilization rate of the VIE’s schools

School utilization rate, which is calculated as the number of students enrolled in a school divided by the capacity of the school, has a direct impact on our profitability. Most of the VIE’s schools for our continuing operations have an operating history of less than five years, and most of them are still undergoing the ramp-up process. The unutilized capacity at the VIE’s recently-opened schools, which are still at the ramp-up stage, allows the VIE to readily increase student enrollment without incurring significant additional investment. For newly established schools, the VIE only admits students for the entry classes, such as the tenth grade for high schools, but not higher grades, upon the establishment of a new school, which leads to a relatively lower utilization rate for such schools. With the VIE’s existing students progressing into the next grades in school and as we fill up new entry classes, the utilization rates of the VIE’s newly established schools will increase accordingly. The VIE is generally able to fully ramp up the VIE’s schools within three years of establishment. With the increase in the utilization of the VIE’s schools in the ramp-up stage, we expect that the VIE’s student enrollment will continue to increase in the foreseeable future.

Ability to control costs and expenses

Our profitability also depends on our ability to control operating costs and expenses. Our and the VIE’s ability to drive the productivity of the VIE’s teachers and enhance our and the VIE’s operating efficiency affects our profitability. Our cost of revenues for our continuing operations increased by 3.3% from RMB206.8 million in 2021 to RMB213.6 million in 2022, and decreased by 8.7% to RMB195.0 million (US$27.5 million) in 2023. Our cost of revenues for our continuing operations primarily comprises staff costs, rental fees, student-related expenses, depreciation and amortization. Our staff costs mainly consist of the salaries and other benefits for our teachers, and accounted for 66.5%, 66.7% and 74.3% of our cost of revenues in 2021, 2022 and 2023, respectively. Our staff costs increased primarily due to (1) increases in the headcount of publicly-sponsored teachers to (i) accommodate more publicly-sponsored students enrolled in the VIE’s existing schools as the VIE’s students progressed into next grades and new entry classes were filled up; and (ii) support the ramp-up of certain recently-opened new schools; and (2) increases in compensation levels of the VIE’s teachers. The total number of the VIE’s teachers in its schools for our continuing operations was 1,617, 1,358 and 1,814 as of December 31, 2021, 2022 and 2023, respectively. As the VIE continues to ramp up its existing schools and expand its school network, we expect to continue to expand the headcount of the VIE’s teachers and other staff and provide competitive compensation to attract and retain teaching talents so as to support the VIE’s growing school operations. As a result, our staff costs could continue to increase in the foreseeable future.

Furthermore, our operating expenses include two major components, selling and marketing expenses, and general and administrative expenses. We expect that we will incur additional expenses associated with our overall growth and status as a public company. We also expect that we will benefit from economies of scale as we and the VIE continue to grow our business and increase the VIE’s student base.

Our and the VIE’s ability to drive the productivity of the VIE’s teachers and enhance our and the VIE’s operating efficiency affects our profitability. We and the VIE focus on providing quality education to the VIE’s students and have developed and implemented a standardized and centralized school management system to improve operating efficiency and profitability.

Ability to expand our and the VIE’s operations cost-effectively

We and the VIE intend to expand our school network and enter into new geographical markets with our asset-light business model. We and the VIE seek to achieve this goal by establishing collaboration with more local governments and other third parties, such as real estate developers. For our continuing operations, the VIE currently operates 12 schools pursuant to cooperative arrangements with local governments, operate two schools by leasing lands from third parties and expect to launch or provide management services for new schools in the second half of 2024, which consist of high schools and vocational schools. We believe that our and the VIE’s past performance in school operations and student academic achievements put us and the VIE in a favorable position in future negotiations with local governments. As local governments in different geographical markets may have different policies, such as pricing rules that govern the amount of tuition fees the VIE is able to charge, the VIE’s ability to manage the collaboration with local governments, efficiently procure land, construct school facilities and ramp up the school operation will impact our and the VIE’s ability to expand its school network.

In addition, we and the VIE intend to collaborate with more third parties and explore more school operation and management opportunities as a cost-effective way to diversify our business portfolio and spread positive word of mouth for our brand. Starting from September 2020 and up to December 31, 2023, the VIE has cooperated with local governments and a private school operator to provide management services for nine schools in Yunnan province, Guizhou province, Henan province and Shandong province for annual management service fees. Third-party school management services like this generally have a higher gross profit margin than operating the VIE’s own schools, and we may improve our overall profitability if we and the VIE continue to expand third-party school management services.

Strategic investments and acquisitions

We have expanded rapidly primarily through organic growth. The VIE has, in the past, acquired an underperforming high school and successfully turned it into a high-quality high school with solid academic results. Leveraging the VIE’s standardized and centralized school management system and quality education service, we and the VIE intend to continue to pursue similar acquisition targets in the future when practicable and in compliance with regulatory requirements. We and the VIE focus primarily on the acquisition of high schools due to the enlarging high school education services market with enormous and sustainable demand in high-quality high schools. We and the VIE also target to acquire education company. In May 2021, we acquired 51% equity interests in Beijing Tomorrow Future Plus Education Technology Co., Ltd., a technology-driven education company that provides premium full-time live AI online teaching services. In December 2022, for management and economic reasons, we divested our equity interest in Beijing Tomorrow Future Plus Education Technology Co., Ltd. Our overall financial condition and profitability could be affected by the different levels of profitability of our and the VIE’s acquisition targets.

Seasonality

Our and the VIE’s business is subject to seasonal fluctuations as our costs and expenses vary significantly and do not necessarily correspond with our recognition of revenues. We and the VIE generally require students to pay tuition and boarding fees for each semester upfront prior to the commencement of the semester, and recognize revenues for the tuition fees and boarding fees received proportionately over relevant period of the applicable program. We typically incur higher upfront operating expenses in the third fiscal quarter for the commencement of school operations. We have historically incurred lower net income in the first and third fiscal quarters, primarily due to the VIE’s schools being closed due to winter and summer holidays.

COVID-19 outbreak

Since the outbreak of COVID-19 throughout China and other countries and regions, a series of precautionary and control measures have been implemented worldwide to contain the virus. Many businesses and social activities in China and other countries and regions were severely disrupted, including school operations. As a result of the government-mandated quarantine measures following the COVID-19 outbreak, our operation was adversely impacted in 2021. In 2021, we experienced higher operating costs due to increased spending in COVID-19 related prevention and testing equipment. We paid additional subsidies for our staff working during irregular shifts to accommodate local preventive and partial lock-down measures. As the Chinese government has gradually lifted the travel restrictions and other quarantine measures in China and economic activities have begun to recover and return to normal nationwide, our and the VIE’s business has restored from the impact of COVID-19 outbreaks. Our tuition income increased by 7.9% from RMB261.1 million in 2021 to RMB281.8 million in 2022, and decreased by 22.2% to RMB219.2 million (US$30.9 million) in 2023.

We have not experienced material adverse impact to our liquidity and cash flows since the COVID-19 outbreak. Except for the impact discussed above, we do not anticipate any prolonged material adverse impact on our and the VIE’s business, results of operations and financial condition from the COVID-19 outbreak. We are nonetheless closely monitoring the development of the COVID-19 outbreak and continuously evaluating any potential impact on our business, results of operations and financial condition. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Any health pandemics, including the recent outbreak of COVID-19, and other natural disasters and calamities, could have a material adverse effect on our and the VIE’s business operations.”

Key Operating Metrics

	As of December 31,
	2021		2022		2023
Summary Operating Data for our Continuing Operations:
Total student enrollment		16,972		17,336		18,900
Total number of teachers		1,617		1,358		1,814
Total number of schools		20		16		16

Key Components of Our Results of Operations

Revenues

We derive our revenues primarily from tuition and boarding fees the VIE charges the students enrolled in its high schools and tutorial schools. The following table sets forth a breakdown of our revenues for our continuing operations by amounts and percentages for the periods presented.

	Year Ended December 31,
	2021				2022				2023
	RMB		%		RMB		%		RMB		US$		%
		(in thousands, except for percentages)
Tuition income⁽¹⁾		261,095		77.4		281,829		82.3		219,166		30,869		82.3
Income from student-related services⁽²⁾		40,468		12.0		21,205		6.2		18,593		2,619		7.0
Boarding fees⁽³⁾		19,248		5.7		7,609		2.2		16,975		2,391		6.4
Education and management service income⁽⁴⁾		15,104		4.5		30,868		9.0		10,628		1,497		4.0
Others		1,399		0.4		995		0.3		888		125		0.3
Total		337,314		100.0		342,506		100.0		266,250		37,501		100.0

(1)

Includes tuition from the VIE’s schools including revenue from government cooperative agreements of RMB50.9 million, RMB42.1 million and RMB4.7 million (US$0.7 million) in 2021, 2022 and 2023, respectively, which represents government subsidies aimed to make up for the tuition difference for publicly-sponsored students of certain of the VIE’s schools, and miscellaneous fees charged to students.

(2)	Includes primarily income from the sale of education materials and income from meal catering services.

(3)	Includes primarily income from our boarding services.

(4)	Includes (i) income from management services provided to the various vendors of student catering services on campus and (ii) annual service fees from the local governments in exchange for school operation and management services we provided.

The VIE generally requires students to pay tuition and boarding fees for each semester upfront prior to the commencement of the semester, and we recognize revenues for the tuition and boarding fees received proportionately over relevant period of the applicable program. The VIE offers a partial refund if a student withdraws during a semester. The following table sets forth the average tuition per student by school type for the periods indicated.

	For the Year ended December 31,
	2021		2022		2023
	(in RMB)
Average tuition per student of the VIE’s schools(1)
High schools		15,072		10,997		15,899
Tutorial schools for Gaokao repeaters		23,170		19,853		16,553

(1)

The average tuition per student equals to the total tuition income of the VIE’s schools during certain calendar year divided by the average student enrollment of such calendar year, which is arrived at by averaging the number of students enrolled as of the end of the previous and the concerned calendar years/periods.

The increase in the VIE’s student enrollment and the increase in the utilization of the VIE’s schools in the ramp-up stage should drive the growth of our revenues and generate cash inflows from our operations. We expect our staff costs to increase to support our and the VIE’s business growth, and we could become less profitable and experience a decrease in gross profit margin if our staff costs increase faster than our revenues, such as in the school ramp-up period. Despite the increase in the VIE’s student enrollment, any decrease in the average tuition per student could also negatively affect our revenue growth. Our profitability will depend on our ability to grow our and the VIE’s business cost-effectively by increasing the average tuition per student, improving our operational efficiency, continuing our expansion with an asset-light business model, and optimizing the cost structure of the VIE’s new schools.

Specifically, we expect the VIE’s student enrollment will continue to increase, in line with the expansion of its school operations. However, the VIE’s average tuition per student is greatly affected by the relative proportion of our students in different cities. As the level of student enrollment of the VIE’s schools located at lower-tier cities is expected to continue to increase in Yunnan province and elsewhere along with our expansion into these cities, we expect that the VIE’s average tuition per student will to be negatively affected. Moreover, with the ramp-up of the VIE’s existing schools and the expansion of the VIE’s school network, we expect that our staff costs will continue to increase, driven by an increase in teacher headcount and salary level. At the same time, our efforts to diversify our and the VIE’s business portfolio will contribute to our overall profitability positively. Starting from September 2020 and up to December 31, 2023, the VIE has also cooperated with the local governments and a private school operator to provide management services for nine schools in Yunnan province, Guizhou province, Henan province and Shandong province for annual management service fees. Third-party school management services like this generally have a higher gross profit margin than operating the VIE’s own schools.

Cost of revenues

Our cost of revenues consists of campus-related expenses (comprising primarily costs relating to teaching materials, supplies, low value consumables and campus repairs), staff costs (comprising primarily salaries and other benefits for our teachers), rental fees, student-related expenses (comprising primarily costs relating to grants and school supplies for students), depreciation and amortization of properties and equipment for our education function and other costs.

The following tables set forth a breakdown of our cost of revenues for our continuing operations by amounts and percentages for the periods presented.

	For the Year Ended December 31,
	2021				2022				2023
	RMB		% of Revenues		RMB		% of Revenues		RMB		US$		% of Revenues
	(in thousands, except for percentages)
Staff costs		137,199		40.7		142,497		41.6		144,941		20,415		54.4
Campus-related expenses		23,791		7.1		30,166		8.8		18,064		2,544		6.8
Student-related expenses		19,030		5.6		15,782		4.6		15,243		2,147		5.7
Rental fees		18,424		5.5		13,434		3.9		9,187		1,294		3.5
Depreciation and amortization		8,010		2.4		11,743		3.4		5,655		797		2.1
Others		-		-		-		-		1,901		268		0.7
Total		206,454		61.2		213,622		62.4		194,991		27,464		73.2

Operating expenses

Our operating expenses consist primarily of selling and marketing expenses, and general and administrative expenses. Our operating income consists primarily of government grants.

Selling and marketing expenses

Our selling and marketing expenses consist primarily of expenses relating to student admission, advertising and brand promotion. Our selling and marketing expenses were RMB6.4 million, RMB3.1 million and RMB3.1 million (US$0.4 million) in 2021, 2022 and 2023, respectively, accounting for 1.8%, 0.91% and 1.2% of our revenues for the same periods, respectively.

Our general and administrative expenses consist primarily of share-based compensation, salaries and benefits for our administrative and management personnel, depreciation and amortization of property and equipment for our management functions, and transaction costs in relation to previous financing activities. Our general and administrative expenses were RMB47.7 million, RMB54.6 million and RMB58.0 million (US$8.2 million) in 2021, 2022 and 2023, respectively, accounting for 14.1%, 15.9% and 21.8% of our revenues for the same periods, respectively.

Government grants

Our government grants consist primarily of general government subsidies relating to the VIE’s school operation. Our government grants were RMB2.1 million, RMB2.0 million and RMB0.4 million (US$57,300 ) in 2021, 2022 and 2023, respectively, accounting for 0.6%, 0.6% and 0.2% of our revenues for the same periods, respectively.

Results of Operations

The following tables set forth a summary of our consolidated results of operations by amount and as a percentage of total revenues for the periods indicated. 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 the results that may be expected for any future period.

	For the Year Ended December 31,
	2021						2022						2023
	RMB			% of Revenues			RMB			% of Revenues			RMB			US$			% of Revenues

Continuing Operations
Revenues
Revenue from customers		300,080			89.0			300,395			87.7			261,544			36,838			98.2
Revenue from government cooperative agreements⁽¹⁾		37,230			11.0			42,111			12.3			4,706			663			1.8
Total revenues		337,310			100.0			342,506			100.0			266,250			37,501			100.0
Cost of revenues		(206,454	)		(61.2	)		(213,578	)		(62.4	)		(194,991	)		(27,464	)		(73.2	)
Gross profit		130,856			38.8			128,928			37.6			71,259			10,037			26.8
Operating expenses and income
Selling and marketing expenses		(6,383	)		(1.9	)		(3,101	)		(0.9	)		(3,056	)		(430	)		(1.1	)
General and administrative expenses		(46,901	)		(13.9	)		(54,584	)		(15.9	)		(57,981	)		(8,166	)		(21.8	)
Government grants		584			0.2			2,032			0.6			406			57			0.2
Allowance for credit losses		(14	)		(0.0	)		(9	)		(0.0	)		(52,035	)		(7,329	)		(19.5	)
Income from operations		78,142			23.2			73,266			21.4			(41,407	)		(5,832	)		(15.6	)

Other income/ (expenses):
Interest income		1,128			0.3			1,422			0.4			1,454			205			0.5
Interest expense		(9,545	)		(2.8	)		(9,546	)		(2.8	)		(6,373	)		(898	)		(2.4	)
Foreign currency exchange (loss)/gain, net		(922	)		(0.3	)		(55	)		(0.0	)		-			-			-
Others, net		3,641			1.1			762			0.2			900			127			0.3
Income before income taxes		72,444			21.5			65,849			19.2			(45,426	)		(6,398	)		(17.1	)
Income tax expenses		(14,924	)		(4.4	)		(20,112	)		(5.9	)		867			122			0.3
Net income from continuing operations		57,520			17.1			45,737			13.4			(44,559	)		(6,276	)		(16.7	)
Income/(loss) from discontinued operations, net of tax		(4,827	)		(1.4	)		(14,616	)		(4.3	)		(37,260	)		(5,248	)		(14.0	)
Net income/(loss)		52,693			15.6			38,406			11.2			(70,643	)		(9,950	)		(26.5	)
Comprehensive income/(loss)		53,011			15.7			39,293			11.5			(71,783	)		(10,110	)		(27.0	)
Non-GAAP Financial Measures
Adjusted net income/(loss)⁽²⁾		52,693			15.6			38,406			11.2			(18,608	)		(2,621	)		(7.0	)

(1)	Represents government subsidies aimed to make up for the tuition difference for publicly-sponsored students of certain of the VIE’s schools.

(2)	Represents net income before share-based compensation expenses and transaction costs in relation to previous financing activities. See “—Non-GAAP Financial Measure” for details.

Non-GAAP financial measure

In evaluating our business, we consider and use one non-GAAP measure, adjusted net income, as a supplemental measure to review and assess our operating performance. The presentation of the non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. We define adjusted net income/(loss) as net income/(loss) excluding share-based compensation expenses and transaction costs in relation to previous financing activities and income/(loss) from discontinued operations, net of tax. Due to the impact of the Implementation Rules, the Affected Entities deconsolidated is classified as discontinued operations, which is a non-recurring item.

We present the non-GAAP financial measure because it is used by our management to evaluate our operating performance and formulate business plans. Adjusted net income enables our management to assess our operating results without considering the impact of non-cash charges, including share-based compensation expenses, without considering the impact of transaction costs in relation to previous financing activities, and without considering the impact of non-recurring item, i.e. income/(loss) from discontinued operations. We also believe that the use of the non-GAAP measure facilitates investors’ assessment of our operating performance.

The non-GAAP financial measure is not defined under U.S. GAAP and is not presented in accordance with U.S. GAAP. The non-GAAP financial measure has limitations as analytical tools. One of the key limitations of using the non-GAAP financial measure is that it does not reflect all items of income and expense that affect our operations. Share-based compensation expenses and transaction costs in relation to previous financing activities have been and may continue to be incurred in our business and are not reflected in the presentation of adjusted net income. Further, the non-GAAP measure may differ from the non-GAAP information used by other companies, including peer companies, and therefore their comparability may be limited.

We compensate for these limitations by reconciling the non-GAAP financial measure to the nearest U.S. GAAP performance measure, which should be considered when evaluating our performance. We encourage you to review our financial information in its entirety and not rely on a single financial measure.

	Year Ended December 31,
	2021		2022		2023
	RMB		RMB		RMB			US$
	(in thousands)
Reconciliation of net income/(loss) to adjusted net income:
Net income/(loss)		52,693		38,406		(70,643	)		(9,950	)
Add:
Asset impairment loss		—		—		52,035			7,332
Transaction costs in relation to previous financing activities		—		—		—			—
Tax effects of adjustments⁽¹⁾		—		—		—			—
Less:						—			—
Income from discontinued operations, net of tax		—		—		—			—
Adjusted net income/(loss)		52,693		38,406		(18,608	)		(2,621	)

(1)

Tax effects were determined based upon the nature, as well as the jurisdiction, of each reconciliation adjustment at the respective applicable income tax rate. There was no tax impact on the share-based compensation expenses adjustment because these expenses are non-deductible expenses for income tax.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Revenues

Our revenues from continuing operations decreased by 22.3% from RMB342.5 million in 2022 to RMB266.3 million (US$37.5 million) in 2023, primarily driven by mixed factors including significant decline in revenues from government cooperative agreements, and reduced sales of education materials and income from meal catering services, and the discontinued and limited operations of some schools in our network.

●

Tuition income. Our tuition income decreased by 22.2% from RMB281.8 million in 2022 to RMB219.2 million (US$30.9 million) in 2023, primarily driven by significant decline in revenues from government cooperative agreements, and reduced sales of education materials and income from meal catering services.

●

Income from student-related services. Our income from student-related services decreased by 12.3% from RMB21.2 million in 2022 to RMB18.6 million (US$2.6 million) in 2023, primarily due to the decreased sales of meal catering services, and educational materials.

●

Boarding fees. Our boarding fees increased significantly from RMB7.6 million in 2022 to RMB17.0 million (US$2.4 million) in 2023, primarily due to the increased student enrollment and the increase in boarding fees for certain schools.

●

Education and management service income. Our revenue from education and management service income decreased by 65.6% from RMB30.9 million in 2022 to RMB10.6 million (US$1.5 million) in 2023, primarily due to difficulty in collection from third parties.

●

Others. Our revenue from others decreased by 10.8% from RMB1.0 million in 2022 to RMB0.9 million (US$37.5 thousands) in 2023, primarily due to the decrease of certain one-off income.

Cost of revenues

Our cost of revenues decreased by 8.7% from RMB213.6 million in 2022 to RMB195.0 million (US$27.5 million) in 2023, primarily due to reduction in rental expenses for schools of discontinued operations, and decreased staff compensation.

Gross profit

As a result of the foregoing, our gross profit decreased by 44.7% from RMB128.9 million in 2022 to RMB71.3 million (US$10.0 million) in 2023, and our gross profit margin was 26.8% in 2023 compared to 37.6% in 2022.

Operating expenses and income

Our net operating expenses increased significantly from RMB55.7 million in 2022 to RMB112.7 million (US$15.9 million) in 2023, primarily due to non-recurring charge of allowance for credit losses.

●

Selling and marketing expenses. Our selling and marketing expenses remained relatively stable at RMB3.1 million in 2022 and RMB3.1 million (US$0.4 million) in 2023.

●

General and administrative expenses. Our general and administrative expenses increased by 6.2% from RMB54.6 million in 2022 to RMB58.0 million (US$8.2 million) in 2023, primarily due to rising employee costs and increased use of professional services.

●

Government grants. Our operating income from government grants decreased by 80.0% from RMB2.0 million in 2022 to RMB0.4 million (US$57.2 thousands) in 2023, primarily due to the government’s tightened fiscal budget resulting in its delayed payments.

Loss/income from operations

As a result of the foregoing, we had loss from operation RMB41.4 million (US$5.8 million) in 2023, compared with income from operations decreased from RMB73.2 million in 2022.

Interest expense

Our interest expense decreased from RMB9.5 million in 2022 to RMB6.4 million (US$0.9 million) in 2023, primarily due to the effective management of our loan level.

Income tax credit/expense

We had income tax credit of RMB0.9 million (US$0.1 million) in 2023, compared with income tax expense of RMB20.0 million in 2022, primarily due to loss from operations resulting reduced tax liabilities.

Net loss/income

As a result of the foregoing, we had net loss of RMB70.6 million (US$10.0 million) in 2023, compared with net income of RMB38.4 million in 2022.

Adjusted net loss/income

We had adjusted net loss RMB18.6 million (US$2.6 million) in 2023, compared with adjusted net income of RMB38.4 million in 2022.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenues

Our revenues from continuing operations increased by 1.5% from RMB337.3 million in 2021 to RMB342.5 million in 2022, primarily driven by a mixed of factors including student admission and the discontinuance and limited operation of some schools in the VIE’s network.

●

Tuition income. Our tuition income increased by 7.9% from RMB261.1 million in 2021 to RMB281.8 million in 2022, primarily driven by the increased student enrollment for our continuing operation.

●

Income from student-related services. Our income from student-related services decreased by 47.6% from RMB40.5 million in 2021 to RMB21.2 million in 2022, primarily due to the decreased sales of meal catering services, and educational materials.

●

Boarding fees. Our boarding fees decreased by 60.4% from RMB19.2 million in 2021 to RMB7.6 million in 2022, primarily due to the decreased student enrollment and limited operation of some schools in the VIE’s network.

●

Education and management service income. Our revenue from education and management service income increased by 104.4% from RMB15.1 million in 2021 to RMB30.9 million in 2022, primarily due to providing more schools with management services.

●

Others. Our revenue from others decreased by 28.9% from RMB1.4 million in 2021 to RMB1.0 million in 2022, primarily due to the decrease of certain one-off income.

Cost of revenues

Our cost of revenues increased by 3.3% from RMB206.8 million in 2021 to RMB213.6 million in 2022, primarily due to the VIE’s undertaking of an increased portion of the public-sponsored teachers’ compensation.

Gross profit

As a result of the foregoing, our gross profit decreased by 1.3% from RMB130.5 million in 2021 to RMB128.9 million in 2022, and our gross profit margin was 38.7% in 2021 compared to 37.6% in 2022.

Operating expenses and income

Our net operating expenses increased by 6.0% from RMB52.7 million in 2021 to RMB55.7 million in 2022, primarily due to the increase in general and administrative expenses.

●

Selling and marketing expenses. Our selling and marketing expenses decreased by 51.8% from RMB6.4 million in 2021 to RMB3.1million in 2022, primarily due to the decreased expenses in brand promotion and marketing activities for the VIE’s relatively mature school operation.

●

General and administrative expenses. Our general and administrative expenses increased by 14.1% from RMB47.0 million in 2021 to RMB54.6 million in 2022, primarily due to (1) the discontinuance and limited operation of some schools in the VIE’s network, and (2) expenses related to the VIE’s new business expansions.

●

Government grants. Our operating income from government grants increased significantly from RMB0.6 million in 2021 to RMB2.0 million in 2022, primarily due to the payment receivable for historical dues.

Income from operations

As a result of the foregoing, our income from operations decreased from RMB78.1 million in 2021 to RMB73.2 million in 2022.

Interest expense

Our interest expense stayed even from RMB9.5 million in 2021 to RMB9.5 million in 2022, primarily due to the effective management of our loan level.

Income tax expense

Our income tax expense increased by 33.3% from RMB15.0 million in 2021 to RMB20.0 million in 2022, primarily due to the increased profitability in operations without tax policy benefits.

Net income

As a result of the foregoing, we had net income of RMB52.7 million in 2021 and RMB38.4 million in 2022.

Adjusted net income

Our adjusted net income decreased by 27.1% from RMB52.7 million in the 2021 to RMB38.4 million in 2022.

Taxation

Cayman Islands

We are incorporated in the Cayman Islands and conduct our primary business operations through our subsidiaries and affiliated entities in China. Under the current laws of the Cayman Islands, we are not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.

Hong Kong

Under the Hong Kong tax laws, the statutory income tax rate is 16.5%. Subsidiaries in Hong Kong are exempted from income tax on their foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

PRC

Our subsidiaries and affiliated entities incorporated in China are generally subject to a statutory enterprise income tax rate of 25.0% with limited exceptions. According to Notice on Issues Concerning Relevant Tax Policies in Deepening the Implantation of the Western Development Strategy jointly promulgated by the PRC Ministry of Finance, the PRC General Administration of Customs and the SAT on July 27, 2011, enterprises located in Western China which have at least 70% of their income from the businesses falling within the Category of Encouraged Industries in Western China may enjoy a preferential income tax rate of 15% from January 1, 2011 to December 31, 2020. Yunnan WFOE, being a qualified enterprise located in Western China that completed the necessary filing, enjoys a preferential income tax rate of 15% effective from 2017 to 2020, which is further extended another 10 years to 2030 if it continues to satisfy all the requirements pursuant to the relevant tax regulations in each of those years. Kunming Xishan Long-Spring Experimental Secondary School and Yunnan Long-Spring Foreign Language Secondary School are entitled to a five-year enterprise income tax exemptions for certain revenues that meets relevant legal requirements in from January 1, 2018 through December 31, 2022 and from January 1, 2019 through December 31, 2023, respectively, as determined by the local government authorities as non-profit organizations. For the year ended December 31, 2023, our newly established schools which were qualified as small and micro enterprises enjoyed the preferential tax rates of 5% or 10%, and our high-tech enterprises were subject to corporate income tax at a reduced rate of 15%.

B. Liquidity and Capital Resources

First High-School Education Group Co., Ltd. may make additional capital contributions to our PRC subsidiaries, establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, make loans to our PRC subsidiaries, or acquire offshore entities with business operations in China in offshore transactions. However, most of these uses are subject to PRC regulations and approvals. For example:

●

capital contributions to our PRC subsidiaries must be approved by MOFCOM or its local counterparts; and

●

loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with SAFE or its local branches.

In 2021, 2022 and 2023, First High-School Education Group Co., Ltd. did not make any capital contribution or loans to our PRC subsidiaries or VIE, except that First High-School Education Group Co., Ltd. made loans of RMB63.2 million to Yunnan WFOE in 2021. Our PRC subsidiaries received RMB137.7 million, RMB122.9 million and RMB121.5 million (US$17.1 million) from the VIE in 2021, 2022 and 2023, respectively, which include cash advances and service fees made by the VIE to our PRC subsidiaries for daily operations. The VIE received RMB270.8 million, RMB139.6 million and RMB115.5 million (US$16.3 million) from our PRC subsidiaries in 2021, 2022 and 2023, respectively, which include the repayment of aforementioned cash advances for daily operations. For more information relating to cash and asset flows through our organization, see information disclosed in “Introduction—Financial Information Related to the VIE.”

There were no other transfer of assets, dividends or distributions made between First High-School Education Group Co., Ltd., the VIE and our PRC subsidiaries and no transfer of cash or other assets, dividends or distributions made to U.S. investors in 2021, 2022 and 2023, except that (1) we declared dividends of US$24.2 million and paid such dividends, together with the previously declared but unpaid amount of RMB10.4 million, totaling US$25.7 million, to Longwater Topco B.V. in the amount of US$7.5 million and to other shareholders in the amount of US$18.2 million in the first quarter of 2021, and (2) we declared dividends of US$1.24 million, net of 10.0% withholding tax, in September 2022 and made payments in October 2022 to the holders of our ordinary shares (including those represented by the ADSs) of record as of the close of business on October 11, 2022. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Loans to and Direct Investment in the PRC Entities by Offshore Holding Companies,” “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries and affiliated entities, which could harm our liquidity and our ability to fund and expand our business” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” For PRC and United States federal income tax considerations of an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”

Historically, we have financed our operations primarily through cash generated from our operating activities. As of December 31, 2021, 2022 and 2023, we had RMB114.2 million, RMB105.3 million and RMB189.2 million (US$26.6 million), respectively, in cash. All of our cash and restricted cash as of December 31, 2023 was held in China. Our cash and restricted cash primarily consist of cash on hand and cash at banks and restricted cash in connection with the bank loan. We intend to finance our future working capital requirements and capital expenditures from cash generated from operating activities, funding from third-party financial institutions and the net proceeds we received from our initial public offering.

Although we consolidate the results of the affiliated entities, we do not have direct access to the cash or future earnings of the affiliated entities or their respective subsidiaries. However, a portion of the cash balances of the affiliated entities and their respective subsidiaries will be paid to us pursuant to our contractual arrangements with the affiliated entities and their respective subsidiaries. For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “—Holding Company Structure.”

We have not encountered any difficulties in meeting our cash obligations to date. When considering our liquidity position and our future capital resources and needs, we take into account price controls set by local governments that may affect the tuition and boarding fees we are able to charge to students in the VIE’s schools, annual enrollment numbers approved for the VIE’s schools, the economic benefits we have received from our subsidiaries and affiliated entities attributable to the provision of services to these entities and the economic benefits we may receive from our subsidiaries and affiliated entities directly through payments under our exclusive management services and business cooperation agreement. We believe that our current available cash, anticipated cash flow from operations and expected funding from third-party financial institutions will be sufficient to meet our working capital requirements and capital expenditures in the ordinary course of business for the next 12 months.

The following table sets forth a condensed summary of our cash flows for the periods indicated.

	For the Year Ended December 31,
	2021			2022			2023
	RMB			RMB			RMB			US$
	(in thousands)

Net cash generated from/(used) in operating activities—Continuing Operations		(22,487	)		(85,734	)		131,766			18,559
Net cash generated from operating activities—Discontinued Operations		110,857			86,381			18,981			2,673
Net cash generated from/(used) in investing activities—Continuing Operations		(67,857	)		38,343			(6,234	)		(878	)
Net cash generated from/(used in) investing activities—Discontinued Operations		(65,755	)		95,330			—			—
Net cash generated from/(used in) financing activities —Continuing Operations		134,185			(83,318	)		(48,585	)		6,843
Net cash generated from/(used in) financing activities —Discontinued Operations		(10,614	)		—			(12,050	)		(1,697	)
Effect of exchange rate changes on cash		318			1,968			405			57
Net increase in cash		78,647			52,970			84,283			11,871
Cash at the beginning of the year		136,953			114,140			105,253			14,825
Cash at the end of the year		215,600			167,110			189,536			26,696
Less: Cash and cash equivalents from the discontinued operations, end of period		(101,460	)		(61,857	)		293			41
Cash and cash equivalents, from the continuing operations end of period		114,140			105,253			189,243			26,654

Operating activities

We generate cash from operating activities primarily from tuition and boarding fees for the VIE’s schools. We generally require students to pay tuition and boarding fees for each semester upfront prior to the commencement of such semester. Tuition and boarding fees for schools are initially recorded under contract liabilities and deferred revenue from governments. We recognize such amounts received as revenues proportionately over the relevant period in which the students attend the applicable programs.

Changes in cash flow from operating activities from 2022 to 2023

We had net cash generated from operating activities from continuing operation of RMB131.8 million (US$18.6 million) in 2023, compared to net cash used in operating activities from continuing operation of RMB85.7 million in 2022. The increase in cash flow used in operating activities in 2023 is primarily a result of:

(1)

a RMB238.5 million (US$33.6 million) increase in accrued expenses and other payables, as compared to a RMB18.3 million increase in 2022, mainly due to more delayed payments such as performance related wages incurred but yet to be made to employees, and services and goods consumed but the invoice of which has not been received yet;

(2)

a RMB52.1 million (US$7.3 million) increase in allowance for credit losses, mainly due to non-recurring charge of asset impairment;

	(3)	a RMB10.9 million (US$1.5 million) increase in account receivable, as compared to a RMB58.9 million increase in 2022, mainly due to mainly due to improved collection management from certain vendors; and

	(4)	Partially offset by (1) a RMB90.3 million (US$12.7 million) decrease in net income, mainly due to decreased revenues and decreased gross profit; and (2) a RMB6.1 million (US$2.7 million) decrease in advances from customers, mainly due to less deposits received from customers and vendors.

Changes in cash flow from operating activities from 2021 to 2022

We had net cash used in operating activities from continuing operation of RMB85.7 million in 2022, compared to net cash used in operating activities from continuing operation of RMB22.5 million in 2021. The decrease in cash flow used in operating activities in 2022 is primarily a result of:

(1)

a RMB14.3 million decrease in net income, mainly due to increased cost of revenues used in school operation in 2022;

(2)

a RMB58.9 million increase in accounts receivable in 2022, as compared to a RMB4.0 million decrease in 2021, mainly due to certain delay in payments from governments cooperative arrangements;

	(3)	a RMB132.7 million increase in advances to suppliers and other current assets, as compared to a RMB62.0 million increase in 2021, mainly due to more security deposits made to suppliers and in relation with new school openings;

	(4)	a RMB9.8 million decrease in advances from customers, mainly due to less deposits received from customers and vendors; and

	(5)	Partially offset by (1) a RMB18.3 million increase in accrued expenses and other payables in 2022, as compared to a RMB54.4 million decrease in 2021, mainly due to more delayed payments such as performance related wages incurred but yet to be made to employees, and services and goods consumed but the invoice of which has not been received yet; and (2) a RMB10.7 million increase in account payable in 2022, as compared to a RMB5.1 million decrease in 2021, mainly due to longer payment terms to vendors.

Investing activities

For 2023, we had net cash used in investing activities of RMB6.2 million (US$0.9 million), primarily attributable to (1) purchase of property and equipment of RMB3.7 million (US$0.5 million); (2) purchase of intangible assets of RMB2.4 million (US$0.3 million); (3) gain on disposal of property and equipment of RMB31.0 thousands (US$4.4 thousands); and (4) loss on disposal of a subsidies, net of cash RMB0.2 million (US$22.7 thousands).

For 2022, we had net cash generated from investing activities from continuing operations of RMB38.3 million, primarily attributable to (1) disposal of subsidiaries, net of cash RMB44.7 million, by netting the gains from, against excluding the cash account of, discontinued entities of Beijing Hengyue Education Technology Co., Ltd., Ordos Hengyue Education Technology Co., Ltd., Ordos Hengshui Experimental High School, and Beijing Tomorrow Future Plus Education Technology Co., Ltd.; (2) disposal of property and equipment of RMB39.0 thousands; (3) purchase of property and equipment of RMB5.6 million, related to school operation; and (4) purchase of intangible assets of RMB0.8 million.

For 2021, we had net cash used in investing activities from continuing operations of RMB67.9 million, primarily attributable to (1) acquisition of a subsidiary, net of cash RMB42.0 million, relating to the acquisition of Yunnan Hengshun Property Service Co., Ltd., Kunming Chenggong Times Giant Tutorial School Co., Ltd., Wenshan Century Times Giant Training School Co., Ltd., and Kunming Wuhua District Zhuorui Cultural Training School Co., Ltd.; (2) purchase of school equipment of RMB24.2 million, and (3) purchase of intangible assets of RMB1.6 million.

Financing activities

For 2023, we had net cash used in financing activities of RMB48.6 million (US$6.8 million), primarily attributable to (1) repayment of amounts due to related parties, net of RMB290.9 million (US$41.0 million), (2) repayment of loans of RMB79.1 million (US$11.1 million), partially offset by (1) proceeds from amounts due from related parties, net of RMB233.4 million (US$32.9 million), and (2) proceeds from loans RMB88.0 (US$12.4 million).

For 2022, we had net cash used in financing activities of RMB83.3 million, primarily attributable to (1) dividend to shareholders RMB6.4 million, (2) repayments of principal amount of borrowings under financing arrangements and repayments of bank loans RMB150.2 million, (3) net repayments of amounts due to related parties of RMB123.3 million, and (4) payment for treasury stock RMB0.5 million, partially offset by (1) net proceeds from borrowings under financing arrangements and bank loans of RMB101.8 million, and (2) net proceeds from amounts due from related parties of RMB95.3 million.

For 2021, we had net cash generated from financing activities of RMB134.2 million, primarily attributable to (1) net proceeds from borrowings under financing arrangements and bank loans of RMB286.0 million, (2) prepayment for the issuance of common stock of RMB296.4 million, (3) net proceeds from amounts due from related parties of RMB62.2 million, partially offset by (1) dividend to shareholders RMB166.7million, (2) repayments of principal amount of borrowings under financing arrangements and repayments of bank loans RMB298.0 million, (3) net repayments of amounts due to related parties of RMB45.8 million.

Capital Expenditures

We incurred capital expenditures of RMB25.9 million, RMB18.6 million and RMB32.6 million (US$4.6 million) in 2021, 2022 and 2023, respectively, primarily in connection with our purchase of school facilities and equipment. We intend to fund our future capital expenditures with our existing cash balance, proceeds from our initial public offering and other financing alternatives. We will continue to incur capital expenditures to support the growth of our business.

Holding Company Structure

We are a holding company with no material operations of our own. We conduct our operations primarily through our subsidiaries and affiliated entities in China. As a result, our ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our PRC subsidiaries or any newly formed subsidiaries incur any debt in the future, the instruments governing their debt may restrict their ability to pay dividends to us. Our PRC subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and affiliated entities is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory surplus reserve until such reserve reaches 50% of its registered capital. In addition, each of our PRC subsidiaries may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion. Each of the affiliated entities may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. Although the statutory surplus reserves can be used to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks. Our PRC subsidiaries will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds. Considering that we have achieved net income in 2021, we approved and declared a cash dividend of US$0.0146 per ordinary share (US$0.0437 per or ADS) in September 2022 and made payments in October 2022.

100

The following table sets forth the respective revenue contributions for our continuing operations of (1) the affiliated entities, and (2) non-VIE consolidated entities, for the periods indicated as a percentage of total revenues.

	As of December 31,
	2021					2022					2023
	RMB		% of total revenues			RMB		% of total revenues			RMB		US$		% of total revenues
	(in thousands, except percentages)
The affiliated entities		307,348		91.1	%		230,238		67.2	%		202,340		28,499		76.0	%
Non-VIE consolidated entities		29,966		8.9	%		112,268		32.8	%		63,910		9,002		24.0	%
Total revenues		337,314		100.0	%		342,506		100.0	%		266,250		37,501		100.0	%

The following table sets forth the respective asset contributions of (1) the affiliated entities, and (2) non-VIE consolidated entities, as of the dates indicated as a percentage of total assets.

	As of December 31,
	2021					2022					2023
	RMB		% of total asset			RMB		% of total asset			RMB		US$		% of total asset
	(in thousands, except percentages)
The affiliated entities		330,748		40.3	%		542,427		76.1	%		808,572		113,885		81.5	%
Non-VIE consolidated entities		489,921		59.7	%		170,052		23.9	%		183,052		25,782		18.5	%
Total asset		820,669		100.0	%		712,479		100.0	%		991,624		139,667		100.0	%

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Financial Information Related to the Affiliated Entities

The following balances of the affiliated entities as of December 31, 2022 and 2023, were included in our consolidated balance sheet after the elimination of intercompany balances, respectively.

	As of December 31,
	2022		2023
	RMB		RMB		US$
	(in thousands)
Current assets
Cash		96,552		135,344		19,063
Accounts receivable, net of allowance for doubtful accounts		41,441		76,114		10,720
Amounts due from related parties		41,123		168,450		6,021
Prepaid expenses and other current assets		131,073		240,367		33,855
Assets related to discontinued operation		69,868		42,746		6,021
Total current assets		380,057		663,021		93,385
Property and equipment, net		67,206		58,750		8,275
Intangible assets, net		7		951		134
Goodwill		30,347		30,347		4,274
Deferred tax assets		5,745		13,078		1,842
Other non-current assets		47,177		33,350		4,697
Assets related to discontinued operation		11,888		9,075		1,278
Total non-current asset		162,370		145,551		20,505
Total assets		542,427		808,572		113,889
Current liabilities
Contract liabilities		135,703		134,125		18,891
Borrowings under financing arrangements		20,540		—		-
Bank loan		33,572		87,970		12,390
Accounts payable		10,615		17,615		2,481
Accrued expenses and other payables		42,183		262,007		36,903
Income tax payables		9,251		17,714		2,495
Amounts due to related parties		45,781		135,768		26,728
Liability related to discontinued operation		110,828		119,930		19,123
Total current liabilities		408,473		775,129		109,175
Deferred revenue		—		—		—
Borrowings under financing arrangements		24,987		—		—
Other payables		1,270		—		—
Deferred tax liabilities		4,285		5,300		746
Total non-current liabilities		30,542		5,300		746
Total liabilities		439,015		780,429		109,921

102

The following amounts of the affiliated entities for the years ended December 31, 2021, 2022 and 2023, were included in our consolidated statements of operations and consolidated statements of cash flows after the elimination of intercompany balances.

	For the year ended December 31,
	2021			2022			2023
	RMB			RMB			RMB			US$
	(in thousands)
Revenue from continuing operations of the affiliated entities		307,348			230,238			202,340			28,499
Revenue from discontinued operations of Affected Entities		169,545			91,457			76,279			10,744
Net income/(loss) from continuing operations of the affiliated entities after elimination of intercompany transactions		11,442			8,514			(37,015	)		(5,213	)
Net income/(loss) from discontinued operations of Affected Entities		(4,827	)		(9,472	)		(26,084	)		(3,674	)
Net income/(loss)		6,355			(958	)		(63,099	)		(8,887	)
Net cash (used in)/generated from operating activities of the affiliated entities		100,794			(145,240	)		64,007			9,015
Net cash (used in)/generated from operating activities of Affected Entities		138,563			73,225			17,604			2,479
Net cash (used in)/generated from investing activities from operating activities of the affiliated entities		(63,255	)		27,897			(1,765	)		(249	)
Net cash (used in)/generated from investing activities of Affected Entities		(65,755	)		136,277			—			—
Net cash (used in)/generated from financing activities from operating activities of the affiliated entities		36,877			(35,872	)		(28,462	)		(4,009	)
Net cash (used in)/generated from financing activities of Affected Entities		(10,614	)		—			(12,298	)		(1,732	)
Effect of exchange rate changes on cash		—			—			—			—
Net increase/(decrease) in cash and cash equivalents and restricted cash		136,610			56,287			(39,086	)		(5,505	)
Cash and cash equivalents and restricted cash at beginning of year		66,972			102,122			96,552			13,599
Cash and cash equivalents and restricted cash at end of year		203,582			158,409			135,638			19,104
Less: Cash and cash equivalents of Affected Entities, end of period		101,460			(61,857	)		293			41
Cash and cash equivalents, of the affiliated entities, end of period		102,122			96,552			135,344			19,063

Cash Flows Through Our Organization

We are a holding company with no business operations of our own. We conduct our operations primarily through our PRC subsidiaries and affiliated entities in China. As a result, our ability to pay dividends and to service any debt we may incur and pay our operating expenses principally depends on dividends paid by our PRC subsidiaries.

103

Under applicable PRC laws and regulations, our PRC subsidiaries are permitted to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to allocate at least 10% of their accumulated profits each year, if any, to fund statutory reserves of up to 50% of the registered capital of the enterprise. Statutory reserves are not distributable as cash dividends except in the event of liquidation.

If we intend to distribute dividends, we will transfer the dividends to First High-School HK, our Hong Kong subsidiary, in accordance with the laws and regulations of the PRC, and then First High-School HK will transfer the dividends to First High-School BVI, our BVI subsidiary, and further to First High-School Education, the Cayman Islands holding company, and the dividends will be distributed from the First High-School Education to all shareholders respectively in proportion to the shares they hold, regardless of whether the shareholders are U.S. investors or investors in other countries or regions. For the fiscal years of 2021, 2022 and 2023, no dividends were declared and paid by our PRC subsidiaries.

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2023.

Payment Due by Period

Total

Less than

one year

One to

three years

Three to

five years

More than

five years

RMB

US$

RMB

(in thousands)

Operating lease commitments

43,336

6,104

3,736

6,600

26,400

We lease certain business premises for the VIE’s schools under non-cancellable operating leases that expire at various dates. We incurred rental expenses under operating leases of RMB2.1 million, RMB5.2 million and RMB9.6 million (US$1.4 million) in 2021, 2022 and 2023, respectively.

As of December 31, 2023, we had a capital commitment of RMB32.6 million (US$4.6 million) pursuant to a school cooperative agreement.

Other than as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2023.

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 period from January 1, 2023 to December 31, 2023 that are reasonably likely to have a material adverse effect on our total revenues, profitability, liquidity, or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

104

E. Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. We continually evaluate these judgments and estimates based on our own 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.

Consolidation of Variable Interest Entity

Prior to the effective of the Implementation Rules, PRC laws and regulations had prohibited foreign ownership of companies and institutions providing compulsory education services at primary and middle school levels, and restrict foreign investment in education services at the kindergarten and high school level. In addition, the PRC government regulates the provision of education services through strict licensing requirements.

We are an exempted company with limited liability incorporated in the Cayman Islands. Yunnan WFOE is our PRC subsidiary and a foreign-invested enterprise under PRC laws. To comply with PRC laws and regulations, we primarily operate in China through the affiliated entities, based on a series of contractual arrangements by and among Yunnan WFOE, the affiliated entities, and the shareholders of Long-Spring Education, including:

●

Exclusive Call Option Agreement;

●

School Sponsors’ and Directors’ Rights Entrustment Agreement;

●

Shareholders’ Rights Entrustment Agreement;

●

Power of Attorney;

●

Exclusive Technical Service and Management Consultancy Agreement and Business Cooperation Agreement;

●

Equity Pledge Agreement;

●

Spousal Undertaking; and

●

Loan Agreement.

105

Under the Implementation Rules, social organizations and individuals are prohibited from controlling a private school that provides compulsory education by means of, among others, merger, acquisition, and contractual arrangements, and a private school providing compulsory education is prohibited from conducting transactions with its related parties. In particular, the prohibition over related party transactions has significantly affected the enforceability of the exclusive management services and business cooperation agreements with affiliated entities providing compulsory education. Therefore, we re-assessed our control over the Affected Entities. Based on the relevant accounting standard in accordance with U.S. GAAP, we have concluded that we have lost control of the Affected Entities since September 1, 2021, in view of the significant uncertainties and restrictions the Implementation Rules impose on our ability to direct the range of ongoing activities that would most significantly impact the returns of those entities and to be exposed to returns that are commensurate with a controlling interest, and that such uncertainties and restrictions already had a significant impact on our ability to direct and its economic exposure from involvement with such entities.

As advised by our PRC legal counsel, Beijing Zhongwen Law Firm, except for the Affected Entities, the ownership structures of Yunnan WFOE and the affiliated entities in China are not in violation of applicable PRC laws and regulations currently in effect; and the contractual arrangements among Yunnan WFOE, the affiliated entities, and the shareholders of Long-Spring Education, governed by PRC law are legal, valid and binding, and will not result in any violation of applicable PRC laws and regulations currently in effect, except that the clause or provision of the Exclusive Technical Service and Management Consultancy Agreement and Business Cooperation Agreement, in relation to related party transactions between a private school providing compulsory education and Yunnan WFOE, have been rendered not legally enforceable since September 1, 2021. However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules, and we cannot assure you that the PRC government would agree that our corporate structure or any of the above contractual arrangements comply with current or future PRC laws or regulations. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities may have broad discretion in interpreting these laws and regulations. For a detailed description of the risks associated with our corporate structure, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”

Revenue recognition

Revenue is recognized when control of promised goods or services is transferred to our customers in an amount of consideration to which we expect to be entitled to in exchange for those goods or services. We follow the five steps approach for revenue recognition under ASC Topic 606: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) we satisfy a performance obligation.

For contracts with customers that contain multiple performance obligations, determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. The transaction price is allocated to the separate performance obligation on a relative standalone selling price basis. The standalone selling price is determined based on overall pricing objectives, taking into consideration market conditions, geographic locations and other factors.

The primary sources of our revenues are as follows:

Formal education services

Our revenue from continuing operations is principally derived from the provision of boarding school educational services to students. We offer formal education program at the high school level. The educational programs and services from discontinued operations consist of formal education program at the middle school level.

Tuition and accommodation fees received from formal education services are generally paid in advance prior to the beginning of each semester. In very limited circumstances students may, with special approval of the management, receive education first and pay their tuition in arrears.

Each contract with a student in respect of the formal education services contains multiple performance obligations consisting of the provision of the curriculum education services, after-school enrichment services, registration and transportation services (collectively as “educational services”), delivery of educational books and related materials (collectively as “educational materials”), boarding services and meal catering services. These performance obligations are distinct in the context of the contract. The consideration expected to be received is allocated at contract inception among the performance obligations based on their stand-alone selling prices.

106

Revenue attributable to educational services and boarding services is recognized over time, based on a straight-line basis over the school year, as customers simultaneously receive and consume the benefits of these services throughout the service period. The portion of tuition and boarding payments received from students but not earned is recorded contract liability and is reflected as a current liability as such amounts represent revenue that we expect to earn within one year. The academic year of the VIE’s school is generally from September to January of the following year and from March to June. We determine that there is not a significant financing component based on the nature of the service being offered and the purpose of the payment terms.

Revenue attributable to educational materials and meal catering services is recognized at point in time, when the control of the educational materials or underlying goods is passed to customers. We consider that it is acting as the principal in the transaction and recognizes revenue from sales of the educational materials and meal catering services on a gross basis.

Revenue from government cooperative arrangements

We have entered into certain long-term cooperative arrangements with local governments in areas where some of the schools are located. Pursuant to such arrangements, we are committed to admit certain number of local students as “publicly-sponsored students” who pay the tuition fees based on the amounts charged by a comparable public school. The difference between the fees charged by us to other students and the fees charged to publicly-sponsored students are subsidized by the local governments in the form of lump sum funding payments in the first few years of the cooperative arrangements. The government subsidies are recognized as “revenue from government cooperative arrangements” on a systematic basis when there is reasonable assurance that they will be received and we will comply with the conditions attaching to the agreements. In particular, revenue under these arrangements are recognized on a straight-line basis during the relevant school year, and over the estimated period to which the subsidies relate, based on the difference in average tuition fee for private students and for publicly-sponsored students and the number of publicly-sponsored students of each academic year. When we have received payments from the governments before educational services are provided to these publicly-sponsored students, a deferred revenue from governments is recognized when the payments are received.

Throughout the whole period of cooperative arrangements, the governments also provide free access to certain buildings and dormitories and assign certain number of teachers who originally work in other public schools to us. These subsidies are determined as non-monetary government grants in a nonreciprocal transfer for which the fair value is not reliably estimable. Accordingly, we recognize the asset or services and the relevant grants at their nominal amounts paid.

Tuition income from training programs

Revenue derived from providing Gaokao (the university entrance examination in China) repeaters’ education programs and other after-school is recognized over time, based on a straight-line basis over the program service period, as customers simultaneously receive and consume the benefits of these services throughout the service period.

Education and management service fees

Revenue derived from (1) the education and management service provided to the third-party schools included logistic management services, school operation and management services and other services. The promised services in each education and management service contract are combined and accounted as a single performance obligation, as the promised services in a contract are not distinct and are considered as a significant integrated service, and (2) the meal catering services are outsourced to certain vendors and we charge management service fee from these vendors. The revenue is recognized on a straight-line basis over the period of the education and management service, as customers simultaneously receive and consume the benefits of these services throughout the service period.

107

We have assessed all variable considerations identified when determining the transaction price. In making such assessment, we may provide price concessions to the customers under education and management services contracts and royalty contracts in order to enter into new contracts or collect payments. We include the estimate of the concession in the amount of consideration to which it ultimately expects to be entitled.

VAT collected from customers is excluded from revenue. Our PRC subsidiaries and affiliated entities are subject to VAT. The deductible input VAT balance is recorded in prepaid expenses and other current assets, and VAT payable balance is recorded in the accrued expenses and other payables.

Employee benefits

Pursuant to relevant PRC regulations, we are required to make contributions to various defined contribution plans organized by municipal and provincial PRC governments. The contributions are made for each PRC employee at rates ranging from 31% to 37% on employees’ salaries, up to a maximum amount stipulated by local social security bureau. Contributions to the defined contribution plans are charged to the consolidated statements of operations when the related service is provided.

Recent Accounting Pronouncements

For detailed discussion on recent accounting pronouncements, see Note 2(w) and Note 2(x) to our consolidated financial statements included elsewhere in this annual report.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Executive Officers

The following table sets forth information regarding our directors and executive officers as of the date of this annual report.

Directors and Executive Officers	Age	Position/Title
Shaowei Zhang	41	Chairman and Chief Executive Officer
Tommy Zhou	37	Director and Chief Financial Officer
Pengwei Luo	48	Director
Guangzhou Zhao	70	Independent Director
Yuanlin Hu	53	Independent Director
Jianping Zhang	69	Education Inspector

Mr. Shaowei Zhang is the founder of our company. Mr. Zhang has served as the chairman of our board of directors and our chief executive officer since September 2018. Prior to founding our company, Mr. Zhang established and served as the principal of Kunming Qihang Education and Training School and Kunming Epoch Giant Tutorial School in 2006 and 2009, respectively. Mr. Zhang established Kunming College Student Private Tutorial Services Station and Kunming Xindenuo Accounting Training Center in 2003 and 2004, respectively. Mr. Zhang serves as a member of the Yunnan Provincial Committee of the Chinese People’s Political Consultative Conference and a director of Long-Spring Institute of Learning and Human Development of Tsinghua University. Mr. Zhang received his bachelor’s degree in accounting in 2006 and his master’s degree in business administration in 2012 from Kunming University of Science and Technology. Mr. Zhang is currently pursuing his doctorate degree in education from Tsinghua University.

Mr. Tommy Zhou has served as our chief financial officer since October 2021 and our director since December 2021. Mr. Zhou had served as the joint chief financial officer of our company since September 2021. Prior to joining our company, Mr. Zhou had served as the senior vice president at Tianfeng Securities Co., Ltd. (SHA: 601162) from November 2020 to August 2021. From July 2019 to October 2020, Mr. Zhou served as an associate director at China Innovative Capital Management Ltd. From July 2016 to July 2019, Mr. Zhou served as an investment manager at Sunshine Asset Management Corporation Limited. From June 2013 to June 2015, Mr. Zhou served at multiple positions, including the last position as a financial accountant at The Northwestern Mutual Life Insurance Company. Mr. Zhou received his bachelor’s degree in Economic History from University of British Columbia in 2010, and a master’s degree in business administration from The George Washington University in 2014.

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Mr. Pengwei Luo has served as our director since May 2021. Mr. Luo is the founder and the managing director of Spring River Greater China Fund, which he founded in 2014. Mr. Luo manages and supervises the daily operation of Ten Asset Management Limited since July 2020. From 2010 to 2014, Mr. Luo served as a portfolio manager at Yinhua Fund Management Co., Ltd. From 2005 to 2009, Mr. Luo served as a portfolio manager at the asset management department at Huatai United Securities Co., Ltd. From 2002 to 2004, Mr. Luo worked as a project manager at the investment banking group of Guotai Junan International Holdings Limited, a company listed on the Hong Kong Stock Exchange (HKSE: 1788). Mr. Luo received a master’s degree in economics from Jiangxi University of Finance and Economics in 2001.

Mr. Guangzhou Zhao has served as our independent director since March 2021. Mr. Zhao is currently a professor at Kunming University of Science and Technology. Mr. Zhao has served as an independent director of the board of Yunnan Tin Co., Ltd. (SZSE: 000960) from 2012 to 2020. From 2003 to 2009, he served as an independent director of the board of Kunming Horti-Expo Garden Co., Ltd. (SZSE: 002293, currently known as Yunnan Tourism Co., Ltd.). From 2006 to 2017, Mr. Zhao served as the president of Kunming University of Science and Technology Oxbridge College. From 1994 to 2006, he served as the deputy dean of Kunming University of Science and Technology School of Management and Economics. From 1992 to 1994, he served as the deputy division director of Office of Science and Technology Administration of Yunnan Institute of Technology (currently known as Kunming University of Science and Technology). From 1988 to 1990, he served as the deputy division director of Department of Management of Yunnan Institute of Technology. Mr. Zhao received his bachelor’s degree in design and manufacture of tractors from Yunnan Institute of Technology in 1982 and his master’s degree from the System Science Institute of China Science Academy in 1988.

Mr. Yuanlin Hu has served as our independent director since March 2021. Mr. Hu is currently a professor for management and economics and a PhD supervisor at Kunming University of Science and Technology. Mr. Hu has served as an executive director of the eighth board of directors of Yunnan Province Accounting Society since 2017. Mr. Hu has served as the dean of department of accounting and a director of financial management institute at Kunming University of Science and Technology since 2013. Mr. Hu received his bachelor’s degree in economics from Zhongnan University of Finance and Economics in 1995, his master’s degree and PhD in management from Kunming University of Science and Technology in 2001 and 2010, respectively.

Ms. Jianping Zhang has served as our education inspector since April 2014. Prior to joining us, Ms. Zhang served as the principal of the Zhongying Middle School of Kunming Zhonghui Education Group from March 2010 to March 2014. Ms. Zhang served as the principal of Kunming Experimental Middle School from July 2004 to December 2009. In 2006, Ms. Zhang was recognized as “Outstanding Teacher” by Kunming Education Bureau. Ms. Zhang received her bachelor’s degree in mathematics from Yunnan Normal University in February 1980.

The business address of our directors and executive officers is: No. 1-1, Tiyuan Road, Xishan District, Kunming, Yunnan Province 650228, the People’s Republic of China. No family relationship exists between any of our directors and executive officers.

B. Compensation

Compensation of Directors and Executive Officers

For 2023, the aggregate cash compensation to directors and executive officers was approximately RMB1.7 million (US$0.2 million). This amount consisted only of cash and did not include any share-based compensation or benefits in kind. Each of our directors and officers is entitled to reimbursement for all necessary and reasonable expenses properly incurred in the course of employment or service. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. Our PRC subsidiaries and affiliated entities are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund. Our board of directors may determine compensation to be paid to the directors and the executive officers. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors and the executive officers.

For information regarding share awards granted to our directors and officers, see “—Share Incentive Plan.”

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Share Incentive Plan

In January 2021, our board of directors approved the 2021 Share Incentive Plan to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of our business. Under the 2021 Share Incentive Plan (the “2021 Plan”), the maximum aggregate number of shares which may be issued pursuant to all awards under the 2021 Plan shall be 3,524,435 ordinary shares, which constitutes 5.0% of the total outstanding ordinary shares of our company on an as-converted basis as of the date of the adoption of the 2021 Plan. As of the date of this annual report, we did not grant any option to purchase our ordinary shares.

The following paragraphs describe the principal terms of the 2021 Plan.

Types of awards. The 2021 Plan permits the awards of options, restricted shares, restricted share unit or any other type of awards that the committee decides.

Plan administration. Our board of directors or a committee of one or more members of the board of directors will administer the 2021 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 2021 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event of the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

Eligibility. We may grant awards to our employees, directors and consultants of our company. However, we may grant options that are intended to qualify as incentive share options only to our employees and employees of our parent companies and subsidiaries.

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. 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 10 years from the date of a grant.

Transfer restrictions. Awards may not be transferred in any manner by the recipient except under limited circumstances, including by will or the laws of descent and distribution, unless otherwise provided by the plan administrator.

Termination and amendment of the 2021 Plan. Unless terminated earlier, the 2021 Plan has a term of 10 years. Our board of directors has the authority to amend or terminate the plan. However, no such action may adversely affect in any material way any awards previously granted unless agreed by the recipient.

Share Options

In April 2021, we granted an option and right to buy an equivalent of 1,850,000 ADSs, as represented by our Class A ordinary shares during the option period for the full price equivalent to US$10.00 per ADS to Spring River Greater China Fund, where Mr. Pengwei Luo is the founder and managing director. The option period will expire on May 8, 2025, and must be exercised if our average listed price in any consecutive 30 business days is greater than US$15.00 per ADS. When evaluating the value of the option, we used the binomial option pricing model, and deemed that the option had no material value as of December 31, 2023, since our listed price is sufficiently below the exercise price of US$10.00 per ADS and therefore recorded no related compensation expenses.

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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 may vote with respect to 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, provided (1) such director, if his interest (whether direct or indirect) in such contract or arrangement is material, has declared the nature of his interest at the earliest meeting of the board at which it is practicable for him to do so, either specifically or by way of a general notice and (2) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. Our directors may exercise all the powers of the company to borrow money, mortgage or charge its undertaking, property and uncalled capital, and issue debentures, debenture share and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party. We have no service contract with any of our director providing for benefits upon termination of employment.

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 Mr. Yuanlin Hu and Mr. Guangzhou Zhao, and is chaired by Mr. Yuanlin Hu. Each of the members of the audit committee meets the independence standards under Rule 10A-3 under the Exchange Act. We have determined that Mr. Yuanlin Hu 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:

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selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm;

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reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response;

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reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;

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discussing the annual audited financial statements with management and the independent registered public accounting firm;

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reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;

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reviewing and reassessing annually the adequacy of our audit committee charter;

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meeting separately and periodically with management and the independent registered public accounting firm;

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monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance; and

●

reporting regularly to the board.

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Compensation Committee. Our compensation committee consists of Messrs. Shaowei Zhang, Guangzhou Zhao, and Yuanlin Hu, and is chaired by Mr. Shaowei Zhang.

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 their compensation is deliberated upon. The compensation committee is responsible for, among other things:

●

reviewing and approving, or recommending to the board for its approval, the total compensation package for our chief executive officer and other executive officers;

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reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;

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reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and

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selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management.

Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Messrs. Shaowei Zhang, Guangzhou Zhao, and Yuanlin Hu, and is chaired by Mr. Shaowei Zhang.

The nominating and corporate governance committee assists the board 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:

●

recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board;

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reviewing annually with the board the current composition of the board with regards to characteristics such as independence, age, skills, experience and availability of service to us;

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selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself;

●

developing and reviewing the corporate governance principles adopted by the board and advising the board with respect to significant developments in the law and practice of corporate governance and our compliance with such laws and practices; and

●

evaluating the performance and effectiveness of the board as a whole.

Terms of Directors and Officers

Our directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders, pursuant to our memorandum and articles of association. Our directors are not subject to a term of office and hold office until such time as they are removed from office by ordinary resolution of the shareholders. A director will cease to be a director if, among other things, the director (1) becomes bankrupt or makes any arrangement or composition with his creditors; (2) dies or is found by our company to be or becomes of unsound mind, (3) resigns his office by notice in writing to the company, (4) without special leave of absence from our board, is absent from three consecutive board meetings and our board of directors resolve that his office be vacated; (5) is prohibited by law from being a director; or (6) is removed from office pursuant to any other provision of our memorandum and articles of association. Our officers are elected by and serve at the discretion of the board of directors.

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Duties of Directors

Under Cayman Islands law, our directors owe to us fiduciary duties, including a duty of loyalty, 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 owe to our company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our 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 company may have the right to seek damages if a duty owed by our directors is breached. A shareholder may in certain limited exceptional circumstances have the right to seek damages in our name if a duty owed by our directors is breached.

Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:

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convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;

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declaring dividends and distributions;

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appointing officers and determining the term of office and its responsibilities of the officers;

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exercising the borrowing powers of our company and mortgaging the property of our company; and

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approving the transfer of shares in our company, including the registration of such shares in our share register.

Employment Agreements and Indemnification Agreements

We have entered into employment agreements with our executive officers. Each of our executive officers is employed for a specified time period, which will be automatically extended for successive one-year terms unless either party gives the other party a prior written notice to terminate employment. We may terminate the employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, including conviction or pleading of guilty to a felony, fraud, misappropriation or embezzlement, negligent or dishonest act to our detriment, misconduct or failure to perform his or her duty, disability, or death. An executive officer may terminate his or her employment at any time with a one-month prior written notice if there is a material and substantial reduction in such executive officer’s existing authority and responsibilities or at any time if the termination is approved by our board of directors.

Each executive officer has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to anyone, any confidential information of our company, except for the benefits of our company or to other employees of us who have a need to know such confidential information in connection with our business. Each executive officer has also agreed to assign to us all his or her all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works and trade secrets.

Each executive officer has also agreed that, during his or her term of employment and for a period of two years after terminating employment with us, such executive officer will not, without our prior written consent, (1) approach our suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (2) assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (3) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officer’s termination, or in the year preceding such termination, without our express consent.

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In addition, we have entered into indemnification agreements with our directors and executive officers, pursuant to which we will agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or executive officer.

D. Employees

As of December 31, 2023, we and the VIE had 2,194 full-time employees for our continuing operations. The following table sets forth the breakdown of our and the VIE’s employees for our continuing operations as of December 31, 2023 by function.

Function	Number of Employees		% of Total
Teachers		1,814		82.7
Administrative staff		380		17.3
Total		2,194		100.0

As required by PRC laws and regulations, the VIE participate in various employee social security plans for its employees that are administered by local governments, including housing, pension, medical insurance and unemployment insurance. We believe we and the VIE maintain a good working relationship with our and the VIE’s employees.

E. Share Ownership

The following table sets forth information concerning the beneficial ownership of our ordinary shares, as of March 31, 2024, for:

●

each of our directors and executive officers; and

●

each person known to us to beneficially own 5% or more of our ordinary shares.

The percentage of beneficial ownership in the table below is calculated based on 86,838,700 ordinary shares, comprising 54,577,170 Class A ordinary shares and 32,261,530 Class B ordinary shares outstanding as of March 31, 2024, but excludes the treasury shares and the ordinary shares reserved for issuance under our 2021 Share Incentive Plan.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of March 31, 2024, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

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	Ordinary shares beneficially owned
	Class A ordinary shares		Class B ordinary shares		Total ordinary shares on an as-converted basis		Percentage of total ordinary shares on an as-converted basis			Percentage of total voting power***

Directors and Executive Officers**:
Shaowei Zhang⁽¹⁾		682,960		32,261,530		32,944,490		37.94	%		92.30	%
Tommy Zhou		—		—		—		—			—
Pengwei Luo⁽²⁾		5,840,676		—		5,840,676		6.73	%		0.83	%
Guangzhou Zhao		—		—		—		—			—
Yuanlin Hu		—		—		—		—			—
Jianping Zhang		*		—		*		*			*

All Directors and Executive Officers as a Group		6,623,466		32,261,530		38,884,996		44.78	%		93.15	%
Principal Shareholders:
Visionsky Group Limited⁽¹⁾		—		27,769,020		27,769,020		31.98	%		79.36	%
Long-Spring Education Management Limited⁽³⁾		7,054,570		—		7,054,570		8.12	%		1.01	%
Long-Spring Education International Limited⁽⁴⁾		4,770,250		—		4,770,250		5.49	%		*
Minglin Wu⁽⁵⁾		4,470,760		—		4,470,760		5.15	%		*
Brightenwit Group Limited⁽¹⁾		—		4,492,510		4,492,510		5.17	%		12.84	%

*	Aggregate number of shares accounts for less than 1% of our total ordinary shares on an as-converted basis outstanding as of the date of this annual report.

**	Except as indicated otherwise below, the business address of our directors and executive officers is No. 1-1, Tiyuan Road, Xishan District, Kunming, Yunnan Province 650228, the People’s Republic of China.

***

For each person or group included in this column, percentage of total voting power represents voting power based on both Class A and Class B ordinary shares held by such person or group with respect to all of our outstanding Class A and Class B ordinary shares as a single class. Each holder of our Class A ordinary shares is entitled to one vote per share. Each holder of our Class B ordinary shares is entitled to 20 votes per share. Our Class B ordinary shares are convertible at any time by the holder into Class A ordinary shares on a one-for-one basis, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.

(1)

Represents (i) 27,769,020 Class B ordinary shares directly held by Visionsky Group Limited, a British Virgin Islands company wholly owned by Mr. Shaowei Zhang; (ii) 4,492,510 Class B ordinary shares directly held by Brightenwit Group Limited, a British Virgin Islands company wholly owned by Ms. Yu Wu. Ms. Yu Wu is the spouse of Mr. Shaowei Zhang; (iii) 99,940 Class A ordinary shares directly held by Long-Spring Education Management Limited, a British Virgin Islands company in which Mr. Shaowei Zhang has approximately 1.56% equity interest; (iv) 514,150 Class A ordinary shares directly held by Long-Spring Education Technology Limited, a British Virgin Islands company in which Mr. Shaowei Zhang has approximately 24.64% equity interest; and (v) 68,870 Class A ordinary shares directly held by Long-Spring Education Consulting Limited, a British Virgin Islands company in which Mr. Shaowei Zhang has approximately 23.08% equity interest. Mr. Shaowei Zhang disclaims beneficial ownership of the ordinary shares held by Brightenwit Group Limited. Ms. Yu Wu disclaims beneficial ownership of the ordinary shares held by Visionsky Group Limited. The registered office of Visionsky Group Limited, Brightenwit Group Limited, Long-Spring Education Management Limited, Long-Spring Education Technology Limited and Long-Spring Education Consulting Limited is at Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands.

(2)

Represents 5,840,676 Class A ordinary shares directly held by Spring River Greater China Fund, as reported in a Schedule 13G filed by them on April 29, 2021. Spring River Greater China Fund is a Cayman Islands company with the principal business office address at 12A1, OfficePlus@Mongkok, 998 Canton Road, Mongkok, Hong Kong.

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(3)

Represents 7,054,570 Class A ordinary shares held by Long-Spring Education Management Limited. Long-Spring Education Management Limited is a British Virgin Islands company wholly owned as to 1.56% by Mr. Shaowei Zhang (see footnote (1)) and certain non-management employees, including Kang Su (41.36%), Kai Liu (16.71%), Yang Gui (10.20%), Bin Liu (9.49%), Chaomin Shi (9.49%), Shaodong Zhang (7.67%), Xuehua Zhang (1.84%), Hong Tan (0.71%) and Baolong Song (0.71%), each of whose address is c/o Long-Spring Education Management Limited, Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. Each of the foregoing individuals may be deemed to have the voting and dispositive power over a portion of the underlying ordinary shares in relation to his or her shareholding percentage in the entity.

(4)

Represents 4,770,250 Class A ordinary shares held by Long-Spring Education International Limited. Long-Spring Education International Limited is a British Virgin Islands company wholly owned by certain of our non-management employees, including Minglin Wu (90.85%), Kang Su (8.35%), Xiaoli Li (0.60%) and Qiong Wang (0.20%), each of whose address is c/o Long-Spring Education International Limited, Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. Each of the foregoing individuals may be deemed to have the voting and dispositive power over a portion of the underlying ordinary shares in relation to his or her shareholding percentage in the entity.

To our knowledge, as of March 31, 2024, a total of 37,767,690 Class A ordinary shares are held by one record holder in the United States, which was The Bank of New York Mellon, the depositary of the ADSs, representing approximately 43.5% of our total outstanding shares. None of our shareholders has informed us that it is affiliated with a registered broker-dealer or is in the business of underwriting securities. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation

Not applicable.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

B. Related Party Transactions

Transactions with Certain Related Parties

Advances to/repayment from/expenses paid on behalf of Mr. Shaowei Zhang, his family members or his affiliated entities

We, from time to time, provide short-term financing to Mr. Shaowei Zhang, his family members or affiliated entities to support their business operations and working capital needs. After considering the cash on hand and forecasted cash flows to fund our operations, we provided financing to these parties during the periods presented. The financing was provided in the form of interest-free advances or expenses paid on their behalf. The financing does not have a fixed term and is repayable upon demand. The related party companies have historically repaid advances and expenses upon demand. In 2021, 2022 and 2023, we provided short-term financing to Mr. Shaowei Zhang or his affiliated entities and his family members, including primarily the following:

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Yunnan Huayiweiming Technology Co., Ltd.

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Yunnan Long-Spring Education Technology Co., Ltd.

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Kunming Chenggong Times Giant Tutorial School Co., Ltd.

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Long-Spring Education Group

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Yunnan Qidi Primary School

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Beijing Tomorrow Future Plus Education Technology Co., Ltd.

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Beijing Long-Spring Education Technology Group Co., Ltd.

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Yunnan Shaowei Education Information Consulting Co., Ltd.

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Zunyi Huichuan District Long-Spring Jincheng Education Consulting Co., Ltd.

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Mr. Shaodong Zhang

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Lihua Family Education Technology (Beijing) Co., Ltd.

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Chengdu First Carbon New Technology Co., Ltd.

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Yunnan Three Three One Education Technology Co., Ltd.

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Zunyi Huichuan Hengshi Education and Training School

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Beijing Long-Spring International Education Technology Research Institute

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Kunming Xinxiaoling Human Resources Co., Ltd.

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Mengzi Long-Spring Experimental Secondary School

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Shaanxi Long-Spring Enterprise Management Consulting Partnership (Limited Partnership)

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Zunyi Huichuan Long-Spring Jincheng Education Consulting Co., Ltd.

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Campus Reserve Fund

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Brightenwit Group Limited

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Long-Spring Education (HK) Limited

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Visionsky Group Limited

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Beijing Hualing International Human Resources Co., Ltd.

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New Vocational Education (Beijing) Cultural Development Co., Ltd.

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Beijing Yigao Education Technology Co., Ltd.

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Beijing Long-Spring Future Technology Group Co., Ltd.

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Hengshi College Entrance Examination Supplementary

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Mengzi Experimental Middle School

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Mengzi Long-Spring Experimental Middle School

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Xiamen Hengshi Education Technology Co., Ltd

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Shenzhen Hengshi Education Technology Co., Ltd.

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Sichuan Yichan New Technology Co., Ltd.

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Wenshan Times Giant Training School Co., Ltd.

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New Vocational Education (Yunnan) Cultural Development Co., Ltd.

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Yunnan Carbon Tracer Enterprise Management Co., Ltd.

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Yunnan Province Preparatory School for Studying Abroad

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Long-Spring Selection (Yunnan) Technology Co., Ltd.

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Zhengzhou Hengshi Hengzhong Education Technology Co., Ltd.

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Zunyi Huichuan Long-Spring Xinhang Senior Middle School Co., Ltd.

As of December 31, 2021, 2022 and 2023, the remaining balance of our financing to such related parties was RMB11.7 million, RMB73.5 million and RMB215.9 million (US$30.4 million), respectively.

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Disposal of subsidiaries to Mr. Zhang’s affiliated entities

In 2018, Yunnan Zhongchuang Education Tutorial School sold certain of its business to Kunming Chenggong Times Giant Tutorial School Co., Ltd., an entity controlled by Mr. Shaowei Zhang, at a consideration of RMB3.4 million. In 2018, Long-Spring Education sold its 100% equity interest in Beijing Long-Spring Education Technology Co., Ltd. to Yunnan Long-Spring Education Technology Co., Ltd., an entity controlled by Mr. Shaowei Zhang, at a consideration of RMB0.7 million. In 2018, Long-Spring Education sold its 100% equity interest in Kunming Chenggong Times Giant Tutorial School Co., Ltd. to Yunnan Long-Spring Education Technology Co., Ltd. at a consideration of nil. In June 2021, Yunnan Long-Spring Education Technology Co., Ltd. sold its 100% equity interest in Kunming Chenggong Times Giant Tutorial School Co., Ltd., Wenshan Century Times Giant Tutorial School Co., Ltd., and Kunming Wuhua District Zhuorui Cultural Training School Co., Ltd., all of which are entities controlled by Mr. Shaowei Zhang, to Long-Spring Education at a consideration of RMB2.5 million, RMB12.5 million, RMB5.0 million, respectively. As of December 31, 2023, the remaining balance of the consideration amount was nil.

Advances to certain senior management

After considering the cash on hand and forecasted cash flows to fund our operations, we provided financing in the form of interest-free advances to certain members of our senior management. As of December 31, 2021, 2022 and 2023, the net remaining balance of our financing to such related parties was RMB2.3 million, RMB3.0 million and RMB3.8 million (US$0.5 million), respectively. These advances are secured either by credit or by their shares in the former parent or other assets.

Advances from/payment of advance from Mr. Zhang or his affiliated entities

We, from time to time, receive short-term financing from and receive payment from third parties on behalf of Mr. Shaowei Zhang or his affiliated entities and his family members to support our and the VIE’s business operations and working capital needs. The financing was provided in the form of interest-free loans. The advances and loans do not have a fixed term and are repayable upon demand. We have historically repaid advances upon demand. In 2021, 2022 and 2023, we have received short-term financing from and received payment from third parties on behalf of Mr. Shaowei Zhang or his affiliated entities and his family members, including primarily the following:

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Long-Spring Education Group

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Yunnan Qidi Primary School

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Yunnan Three Three One Education Technology Co., Ltd.

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Mr. Shaodong Zhang

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Chengdu Longquanyi District Hengshi Education Training School Co., Ltd.

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Yunnan Long-Spring Education Technology Co., Ltd.

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Yunnan Preparatory School for Studying Abroad

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Beijing Long-Spring International Education Technology Research Institute

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Beijing Tomorrow Future Plus Education Technology Co., Ltd.

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Lihua Family Education Technology (Beijing) Co., Ltd.

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Chengdu First Carbon New Technology Co., Ltd.

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Campus Reserve Fund

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Beijing Hualing International Human Resources Co., Ltd.

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Beijing Yigao Education Technology Co., Ltd.

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Mengzi Experimental Middle School

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Xiamen Hengshi Education Technology Co., Ltd

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Sichuan Yichan New Technology Co., Ltd.

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●

Zhengzhou Hengshi Hengzhong Education Technology Co., Ltd.

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Zunyi Huichuan Long-Spring Xinhang Senior Middle School Co., Ltd.

As of December 31, 2021, 2022 and 2023, the remaining balance of our advance loans from such related parties was RMB17.9 million, RMB51.7 million and RMB165.2 million (US$23.3 million), respectively.

Contractual Arrangements

See “Item 4. Information on the Company—C. Organizational Structure—Our Contractual Arrangements.”

Shareholders Agreement

In January 2021, we entered into a shareholders agreement with certain holders of our ordinary shares, including Longwater Topco B.V., and our subsidiaries and affiliated entities. The shareholders agreement provides certain special rights to Longwater Topco B.V., including right of first refusal and co-sale rights, put option and drag-along rights, preemptive rights, and the right to appoint directors to our board of directors, and contains provisions governing our board of directors and other corporate governance matters. The shareholders agreement (including the special rights thereunder) was terminated in its entirety after our initial public offering, pursuant to a termination agreement that we concurrently signed with the parties under the shareholders agreement.

Registration Rights Agreement

We granted certain registration rights to Longwater Topco B.V. Set forth below is a description of the registration rights granted under the registration rights agreement.

Demand registration rights for registration on Form F-1. At any time or from time to time after six months following the closing of our initial public offering, holders of registrable securities then outstanding have the right to demand that we file a registration statement of all registrable securities that the holders request to be registered and included in such registration statement by written notice, provided that the anticipated aggregate gross offering price pursuant to such demand registration shall be no less than US$5.0 million. Upon such request, we shall use our best efforts to cause the registrable shares specified in the request to be registered and/or qualified for sale and distribution. We are obligated to effect no more than three demand registrations on Form F-1.

Demand registration rights for registration on Form F-3. If we qualify for registration on Form F-3, any registrable holder may make a written request to demand that we file a registration statement on Form F-3, provided that the anticipated aggregate gross offering price pursuant to such registration shall be no less than US$5.0 million. Upon such request, we shall use our best efforts to cause the registrable shares specified in the request to be registered and/or qualified for sale and distribution by the registrable holder from time to time in accordance with the methods of distribution elected by such registrable holder and set forth in the registration statement. We are obligated to consummate no more than two registrations on Form F-3.

Piggyback registration rights. If we propose to file a registration statement for a public offering of our securities, we shall promptly, but in no event less than 20 days prior to the proposed date of filing of such registration statement, give each registrable holder written notice of such registration. We shall offer such registrable holders the opportunity to register under such registration statement or include in such offering such number of registrable shares as the registrable holders may request in writing delivered to the us within 10 days after the date that our notice has been delivered.

Expenses of registration. We will generally bear all registration expenses, other than underwriting discounts, selling commissions, expenses charged by the depositary bank, and applicable transfer tax.

Termination of registration rights. The demand registration rights shall terminate with respect to a registrable holder upon the earlier of (1) the date on which such registrable holder holds no registrable share, or (2) the date that is the fifth anniversary following the consummation of our initial public offering.

Employment Agreements and Indemnification Agreements

See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Employment Agreements and Indemnification Agreements.”

Share Incentive Plans

See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.”

C. Interests of Experts and Counsels

Not applicable.

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ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

We have appended consolidated financial statements filed as part of this annual report.

Legal and Other Proceedings

See “Item 4. Information on the Company—B. Business Overview—Legal Proceedings.”

Dividend Policy

Our board of directors has complete discretion in deciding the payment of any future dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands exempted 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. The declaration and payment of dividends will depend upon, among other things, our future operations and earnings, capital requirements and surplus, our financial condition, contractual restrictions, general business conditions and other factors as our board of directors may deem relevant. See “Item 10. Additional Information—B. Memorandum and Articles of Association.”

We declared dividends of US$24.2 million and paid such dividends, together with the previously declared but unpaid amount of RMB10.4 million, totaling US$25.7 million, to Longwater Topco B.V. in the amount of US$7.5 million and to other shareholders in the amount of US$18.2 million in the first quarter of 2021.

We declared dividends of US$1.24 million, net of 10.0% withholding tax and paid such dividends to the holders of our ordinary shares (including those represented by the ADSs) in October 2022.

We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us or of our subsidiaries in China to pay cash dividend payments to us. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends paid by our PRC subsidiaries to fund cash and financing requirements. Any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares.”

If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the ordinary shares underlying the ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Item 12. Description of Securities Other than Equity Securities—D. American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

B. Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

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ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

The ADSs (each representing three Class A ordinary shares) were listed for trading on the NYSE under the symbol “FHS” from March 2021 to November 2022. On November 7, 2022, we were notified by the NYSE that the staff of the NYSE Regulation has determined to commence proceedings to delist the ADSs. Trading in the ADSs was suspended after the market close on the NYSE on November 7, 2022. On November 22, 2022, we were delisted from the NYSE when the staff of the New York Stock Exchange LLC filed a Form 25 Notification of Delisting. The ADSs have since then been quoted on the OTC Pink Limited Information under the symbol “FHSEY.”

B. Plan of Distribution

Not applicable.

C. Markets

The ADSs are currently quoted on the OTC Pink Limited Information under the symbol “FHSEY.”

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

We incorporate into this annual report our second amended and restated memorandum and articles of association filed as Exhibit 1.1.

C. Material Contracts

Material contracts other than in the ordinary course of business are described in “Item 4. Information on the Company” and “Item 7. Major Shareholders and Related Party Transactions” or elsewhere in this annual report.

D. Exchange Controls

See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Foreign Exchange in the PRC.”

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E. Taxation

Cayman Islands Taxation \

According to Maples and Calder (Hong Kong) LLP, our Cayman Islands legal counsel, the Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties applicable to payments to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of the Shares, nor will gains derived from the disposal of the shares be subject to Cayman Islands income or corporate tax.

No stamp duty is payable in respect of the issue of the shares or on an instrument of transfer in respect of a share.

PRC Taxation

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established under the laws of jurisdictions outside of the PRC with a “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the SAT issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (1) the senior management and core management departments in charge of daily operations are located mainly within China; (2) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in China; (3) the enterprise’s primary assets, accounting books, company seals, and board and shareholder resolutions, are located or maintained in China; and (4) at least 50% of voting board members or senior executives habitually reside in China.

We do not believe that our Cayman Islands holding company meets all of the conditions above. Our Cayman Islands holding company is not a PRC resident enterprise for PRC tax purpose. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” However, there can be no assurance that the PRC government will ultimately take a view that is consistent with us.

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Beijing Zhongwen Law Firm, our legal counsel as to PRC law, has advised us that however, if the PRC tax authorities determine that our Cayman Islands holding company is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In addition, non-resident enterprise shareholders (including the ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders (including the ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of our Cayman Islands holding company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that our Cayman Islands holding company is treated as a PRC resident enterprise.

Provided that our Cayman Islands holding company is not deemed to be a PRC resident enterprise, holders of the ADSs and ordinary shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares or ADSs. However, under SAT Circular 7, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferor obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under SAT Circular 7, and we may be required to expend valuable resources to comply with SAT Circular 7, or to establish that we should not be taxed under this circular. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or the ADS holders.”

U.S. Federal Income Taxation Considerations

The following discussion is a summary of U.S. federal income tax considerations relating to the ownership and disposition of the ADSs or ordinary shares by a U.S. Holder, as defined below, that holds the ADSs or ordinary shares as “capital assets” (generally, as property held for investment) under the U.S. Internal Revenue Code of 1986, as amended (the Code”).

This discussion is based upon existing U.S. federal income tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service (the “IRS”), with respect to any U.S. federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position.

This discussion does not address all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances, including investors subject to special tax rules, including:

●

banks and other financial institutions;

●

insurance companies;

●

regulated investment companies;

●

real estate investment trusts;

	●	dealers or traders in securities;

	●	U.S. expatriates and certain former citizens or residents of the United States;

●

traders in securities or other persons that elect mark-to-market treatment;

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●

partnerships or other pass-through entities and their partners or investors;

●

tax-exempt organizations (including private foundations and pension funds);

●

investors that own (directly, indirectly, or constructively) 10% or more of our stock by vote or value;

	●	investors that hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction;

	●	investors who own stock in an individual retirement or other tax-deferred account;

●

investors that have a functional currency other than the U.S. dollar; or

●

investors required to accelerate the recognition of any item of gross income with respect to the ADSs or Class A ordinary shares as a result of such income being recognized in an “applicable financial statement” (as defined in the Code).

In addition, this discussion does not address any U.S. state, local, alternative minimum tax, or non-U.S. tax considerations, or the additional Medicare tax on net investment income. Each potential investor is urged to consult its tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax considerations associated with an investment in our ADSs or ordinary shares.

General

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of the ADSs or ordinary shares that is, for U.S. federal income tax purposes, (1) an individual who is a citizen or resident of the United States, (2) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (3) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source, or (4) a trust (a) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (b) that has otherwise elected to be treated as a United States person under the Code.

If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the ADSs or ordinary shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships and partners of a partnership holding the ADSs or ordinary shares are urged to consult their tax advisors regarding an investment in the ADSs or ordinary shares.

For U.S. federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying shares represented by the ADSs.

Passive Foreign Investment Company Considerations

A non-U.S. corporation, such as our company, will be classified as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes, if, in the case of any particular taxable year, either (1) 75% or more of its gross income for such taxable year consists of certain types of “passive” income or (2) 50% or more of the value of its assets (generally based on an average of the quarterly values of the assets) during such taxable year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash and cash equivalents are categorized as a passive asset and the company’s unbooked intangibles associated with active business activities may generally be classified as non-passive assets. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other non-U.S. corporation in which we own, directly or indirectly, 25% or more (by value) of the stock. Although the law in this regard is unclear, we treat the affiliated entities as being beneficially owned by us for U.S. federal income tax purposes because we control their management decisions, we are entitled to substantially all of the economic benefits associated with these entities, and, as a result, we consolidate their results of operations in our U.S. GAAP financial statements.

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Assuming that we are the owner of the affiliated entities for U.S. federal income tax purposes, and based on the market price of our ADSs and the value and composition of our assets, we do not believe that we were a PFIC for our taxable year ended December 31, 2023, although there can be no assurance in this regard. The determination of whether we will be or become a PFIC is a factual determination made annually that will depend, in part, upon the composition of our income and assets, and our determination about whether our assets, including our prepaid expenses, generate passive or active income. Fluctuations in the market price of the ADSs may cause us to be classified as a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to the market price of the ADSs from time to time (which has been and is likely to continue to be volatile). Among other factors, if the market price of our ADSs continues to decline or does not increase, we may be classified as a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and other unbooked intangibles, may be determined by reference to the market price of our ADSs, which is volatile and likely will continue to be volatile. In addition, if it were determined that we are not the beneficial owner of the affiliated entities for U.S. federal income tax purposes, we would be treated as a PFIC for our current taxable year ending December 31, 2024 and in future taxable years.

Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year ending December 31, 2024 or any future taxable year or that the IRS will not take a contrary position. If we were classified as a PFIC for any year during which a U.S. Holder held the ADSs or ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years during which such U.S. Holder held the ADSs or ordinary shares.

The discussion below under “—Dividends” and “—Sale or Other Disposition of ADSs or Ordinary Shares” is written on the basis that we will not be classified as a PFIC for U.S. federal income tax purposes. The U.S. federal income tax rules that apply if we are classified as a PFIC for the current taxable year or any subsequent taxable year are discussed below under “—Passive Foreign Investment Company Rules.”

Dividends

Subject to the PFIC rules described below, any cash distributions (including constructive distributions and the amount of any PRC tax withheld) paid on the ADSs or ordinary shares out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary bank, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution will generally be treated as a “dividend” for U.S. federal income tax purposes. Under current law, a non-corporate recipient of a dividend from a “qualified foreign corporation” will generally be subject to tax on the dividend income at the lower applicable net capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain holding period and other requirements are met. Dividends received on our ADSs or ordinary shares will not be eligible for the dividends received deduction allowed to corporations under the Code.

A non-U.S. corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) will generally be considered to be a qualified foreign corporation (1) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information program, or (2) with respect to any dividend it pays on stock (or ADSs in respect of such stock) which is tradable on an established securities market in the United States. The ADSs are currently quoted and tradeable on the OTC market, which we do not believe is considered to be an established securities market. Since we do not expect that our ADSs or ordinary shares will be listed on established securities markets, we do not expect either our ADSs or our ordinary shares to meet the conditions required for the reduced tax rate. In the event we are deemed to be a PRC resident enterprise under the EIT Law, we may be eligible for the benefits of the Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the U.S.-PRC income tax treaty (which the Secretary of the Treasury of the United States has determined is satisfactory for this purpose and includes an exchange of information program), in which case we would be treated as a qualified foreign corporation with respect to dividends paid on our ordinary shares or ADSs. U.S. Holders are urged to consult their tax advisors regarding the availability of any potential reduced tax rate on dividends in their particular circumstances.

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For U.S. foreign tax credit purposes, dividends paid on the ADSs or ordinary shares will generally be treated as income from foreign sources and will generally constitute passive category income. In the event that we are deemed to be a PRC resident enterprise under the EIT Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid, if any, on the ADSs or ordinary shares. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on the ADSs or ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction for U.S. federal income tax purposes in respect of such withholding, but only for a taxable year in which such U.S. Holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

Sale or Other Taxable Disposition of ADSs or Ordinary Shares

Subject to the PFIC rules discussed below, a U.S. Holder will generally recognize capital gain or loss, if any, upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the U.S. Holder’s adjusted tax basis in such ADSs or ordinary shares. Any capital gain or loss will be long-term gain or loss if the ADSs or ordinary shares have been held for more than one year and will generally be U.S. source gain or loss for U.S. foreign tax credit purposes. Long-term capital gains of non-corporate taxpayers are currently eligible for reduced rates of taxation. In the event that we are treated as a PRC resident enterprise under the EIT Law, and gain from the disposition of the ADSs or ordinary shares is subject to tax in the PRC, such gain may be treated as PRC source gain for foreign tax credit purposes under the U.S.-PRC income tax treaty. The deductibility of a capital loss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of the ADSs or ordinary shares, including the availability of the foreign tax credit under their particular circumstances.

Passive Foreign Investment Company Rules

If we are classified as a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares, unless the U.S. Holder is able to make a “mark-to-market” election (as described below), the U.S. Holder will, except as discussed below, be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (1) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares) and (2) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of ADSs or ordinary shares. Under the PFIC rules:

●

the excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares;

●

the amount of the excess distribution or gain allocated to the taxable year of the distribution or disposition and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC, or a pre-PFIC year, will be taxable as ordinary income; and

●

the amount of the excess distribution or gain allocated to each taxable year other than the taxable year of the distribution or disposition or a pre-PFIC year, will be subject to tax at the highest tax rate in effect applicable to the individuals or corporations, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares and any of our non-U.S. subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. Each U.S. Holder is advised to consult its tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

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If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares, we will continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which the U.S. Holder holds the ADSs or ordinary shares, unless we were to cease to be a PFIC and the U.S. Holder makes a “deemed sale” election with respect to the ADSs or ordinary shares. If such election is made, the U.S. Holder will be deemed to have sold the ADSs or ordinary shares it holds at their fair market value and any gain from such deemed sale would be subject to the rules described in the preceding two paragraphs. After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, the ADSs or ordinary shares with respect to which such election was made will not be treated as shares in a PFIC and, as a result, the U.S. Holder will not be subject to the rules described above with respect to any “excess distribution” the U.S. Holder receives from us or any gain from an actual sale or other disposition of the ADSs or ordinary shares. Each U.S. Holder is strongly urged to consult its tax advisors as to the possibility and consequences of making a deemed sale election if we are and then cease to be a PFIC and such an election becomes available to the U.S. Holder.

As an alternative to the foregoing rules, if the ADSs were “regularly traded” on a “qualified exchange,” as defined in applicable Treasury Regulations, a U.S. Holder could make a mark-to-market election that would result in tax treatment different from the general tax treatment for PFICs described in the preceding paragraph. However, because the prices of our ADSs are currently quoted on the OTC Pink Limited Information system, we do not believe mark-to-market treatment of the ADSs is available for as long as the ADSs continue to be delisted from, or not regularly traded on, the NYSE or any other qualified stock exchange. U.S. Holders that made (or wish to make) a mark-to-market election with respect to a taxable year for which the election may be available should consult their tax advisers regarding the availability and advisability of making the election in their particular circumstances and the effect the election would have on their income inclusion with respect to, and the tax basis in, their ADSs.

If a mark-to-market election is able to be made and is made, the U.S. Holder will generally (1) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (2) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes an effective mark-to-market election, in each year that we are a PFIC any gain recognized upon the sale or other disposition of the ADSs will be treated as ordinary income and loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. Because our ordinary shares are not listed on a stock exchange, U.S. Holders will not be able to make a mark-to-market election with respect to our ordinary shares.

If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the U.S. Holder will not be required to take into account the mark-to-market gain or loss described above during any period that such corporation is not classified as a PFIC.

Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder who makes a mark-to-market election with respect to the ADSs may continue to be subject to the general PFIC rules with respect to such U.S. Holder’s indirect interest in any of our non-U.S. subsidiaries or other corporate entities in which we own equity interests that is classified as a PFIC for U.S. federal income tax purposes.

We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections, which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.

As discussed above under “—Dividends,” dividends that we pay on the ADSs or ordinary shares will not be eligible for the reduced tax rate that applies to qualified dividend income if we are classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year. In addition, if a U.S. Holder owns the ADSs or ordinary shares during any taxable year that we are a PFIC, the U.S. Holder must file an annual information return with the IRS. Each U.S. Holder is urged to consult its tax advisor concerning the U.S. federal income tax consequences of holding, and disposing ADSs or ordinary shares if we are or become a PFIC, including the possibility of making a mark-to-market election and the unavailability of the qualified electing fund election.

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Information reporting

Certain U.S. Holders may be required to report information to the IRS relating to an interest held by such holder in “specified foreign financial assets” (as defined in the Code), including shares issued by a non-U.S. corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds US$50,000 (or a higher dollar amount prescribed by the IRS), subject to certain exceptions (including an exception for shares held in custodial accounts maintained with a U.S. financial institution). These rules also impose penalties if a U.S. Holder is required to submit such information to the IRS and fails to do so. U.S. Holders are urged to consult their own tax advisors regarding foreign financial asset reporting obligations and their possible application to the holding of our ordinary shares or ADSs.

In addition, U.S. Holders may be subject to information reporting to the IRS and backup withholding with respect to dividends on and proceeds from the sale or other disposition of the ADSs or ordinary shares. Information reporting will apply to payments of dividends on, and to proceeds from the sale or other disposition of, ordinary shares or ADSs by a paying agent within the United States to a U.S. Holder, other than U.S. Holders that are exempt from information reporting and properly certify their exemption. A paying agent within the United States will be required to withhold at the applicable statutory rate, currently 24%, in respect of any payments of dividends on, and the proceeds from the disposition of, ordinary shares or ADSs within the United States to a U.S. Holder (other than U.S. Holders that are exempt from backup withholding and properly certify their exemption) if the U.S. Holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with applicable backup withholding requirements. U.S. Holders who are required to establish their exempt status generally must provide a properly completed IRS Form W-9.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability. A U.S. Holder generally may obtain a refund of any amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS in a timely manner and furnishing any required information. Each U.S. Holder is advised to consult with its tax advisor regarding the application of the U.S. information reporting rules to its particular circumstances.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on display

We have previously filed with the SEC our registration statement on Form F-1 (File No. 333-252076), as amended, and a prospectus under the Securities Act with respect to our ordinary shares represented by the ADSs.

We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.

As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

We will furnish The Bank of New York Mellon, the depositary, with our annual reports, which include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meeting and other reports and communications that are made generally available to our shareholders. The depositary makes such notices, reports and communications available to holders of ADSs and, upon our request, mails to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.

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I. Subsidiary Information

Not applicable.

J. Annual Report to Security Holders

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

All of our net revenues and expenses are denominated in Renminbi. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although our exposure to foreign exchange risks should be limited in general, the value of your investment in the ADSs will be affected by the exchange rate between U.S. dollar and Renminbi because the value of our business is effectively denominated in Renminbi, while the ADSs will be traded in U.S. dollars.

The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation subsided and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. While appreciating approximately by 7% against the U.S. dollar in 2017, the Renminbi in 2018 depreciated approximately by 5% against the U.S. dollar. Since October 1, 2016, the Renminbi has joined the International Monetary Fund (IMF)’s basket of currencies that make up the Special Drawing Right (SDR), along with the U.S. dollar, the Euro, the Japanese yen and the British pound. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system and there is no guarantee that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.

To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of Renminbi against the U.S. dollar would reduce the Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs, servicing our outstanding debt, or for other business purposes, appreciation of the U.S. dollar against the Renminbi would reduce the U.S. dollar amounts available to us.

In addition, very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.

Credit Risk

Our credit risk is primarily attributable to cash in banks, cash and term deposits held at a related party finance entity, receivables due from related parties.

We had cash held by third-party financial institutions located in the PRC, and Hong Kong SAR. The bank deposits with financial institutions in the PRC are insured by the government authority for up to RMB500,000. The bank deposits with financial institutions in the Hong Kong SAR are insured by the government authority for up to HK$500,000. We have not experienced any losses in uninsured bank deposits and do not believe that it is exposed to any significant risks on cash held in bank accounts. To limit exposure to credit risk, we primarily place bank deposits with large financial institutions in the PRC, and Hong Kong SAR with high-credit rating and quality.

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Liquidity Risk

Liquidity risk is the risk that we will encounter difficulty in meeting the obligations associated with our financial liabilities that are settled by delivering cash or other financial assets. Our approach to managing liquidity is to ensure, as far as possible, that we will always have sufficient liquidity to meet our liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation.

Concentration of Credit Risk

Our credit risk arises from cash, other current assets, other non-current assets and accounts receivable. The carrying amounts of these financial instruments represent the maximum amount of loss due to credit risk. We expect that there is no significant credit risk associated with the cash which are held by reputable financial institutions in the jurisdictions where our company, subsidiaries and affiliated entities are located. We believe that we are not exposed to unusual risks as these financial institutions have high credit quality. We have no significant concentration of credit risk with respect to other receivables. We conduct credit evaluations on our customers prior to delivery of goods or services. The assessment of customer creditworthiness is primarily based on historical collection records, research of publicly available information and customer on-site visits. Based on this analysis, we determine what credit terms, if any, to offer to each customer individually. If the assessment indicates a likelihood of collection risk, we will not deliver the services or sell the products to the customer or require the customer to pay cash or to make significant down payments. Historically, credit losses on accounts receivable have been insignificant.

As of December 31, 2023, substantially all of our cash and cash equivalents and term deposits were deposited with financial institutions with high-credit ratings and quality.

Interest Rate Risk

Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits and wealth management products. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to material risks due to changes in interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure.

Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

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D. American Depositary Shares

Fees and Expenses the ADS Holders May Have to Pay

The Bank of New York Mellon, as depositary, will register and deliver American Depositary Shares, also referred to as ADSs. Each ADS will represent three Class A ordinary shares (or a right to receive Class A ordinary shares) deposited with The Hongkong and Shanghai Banking Corporation Limited, as custodian for the depositary in Hong Kong. Each ADS will also represent any other securities, cash or other property that may be held by the depositary. The deposited shares together with any other securities, cash or other property held by the depositary are referred to as the deposited securities. The depositary’s office at which the ADSs will be administered and its principal executive office are located at 240 Greenwich Street, New York, New York 10286.

Persons depositing or withdrawing shares or ADS holders must pay:		For:
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)		Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
US$0.05 (or less) per ADS		Any cash distribution to ADS holders
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs		Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders
US$0.05 (or less) per ADS per calendar year		Depositary services
Registration or transfer fees		Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
Expenses of the depositary		Cable (including SWIFT) and facsimile transmissions (when expressly provided in the deposit agreement) Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes		As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities		As necessary

Fees and Other Payments Made by the Depositary to Us

From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. As of the date of this annual report, we have not received any cash payment from The Bank of New York Mellon, the depositary for our ADS program.

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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Material Modifications to the Rights of Security Holders

See “Item 10. Additional Information” for a description of the rights of shareholders, which remain unchanged.

Use of Proceeds

The following “Use of Proceeds” information relates to the registration statement on Form F-1 (File No. 333-252076), as amended, in relation to our initial public offering of 7,500,000 ADSs representing 22,500,000 Class A ordinary shares, at an initial offering price of US$10.00 per ADS. The registration statement was declared effective by the SEC on March 10, 2021. Our initial public offering was closed on March 15, 2021. The Benchmark Company LLC, Valuable Capital Limited and TFI Securities and Futures Limited were the representatives of the underwriters for our initial public offering.

We received net proceeds of approximately US$42.4 million from our initial public offering, after deducting underwriting discounts and commissions and offering expenses paid by us. Our expenses incurred and paid to others in connection with the issuance and distribution of the ADSs in our offering totaled US$4.4 million, which included US$4.2 million for underwriting discounts and commissions and US$0.2 million for other expenses. None of the transaction expenses included payments to directors or officers of our company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds we received from the initial public offering were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates.

As of the date of this annual report, we have used all of the net proceeds from our initial public offering for purposes disclosed in our registration statement on Form F-1.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and our chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by this annual report, as required by Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our management has concluded that, as of December 31, 2023, our disclosure controls and procedures were not effective as our management has identified a material weakness which is detailed under the section entitled “—Changes in Internal Control Over Financial Reporting.”

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our management evaluated the effectiveness of our internal control over financial reporting, as required by Rule 13a-15(c) of the Exchange Act, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2023 due to the existence of a material weakness, as described below.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s financial statements will not be prevented or detected on a timely basis. Our material weakness is that we did not have sufficient financial reporting personnel with appropriate knowledge, experience and training of U.S. GAAP and SEC financial reporting requirements to properly address complex U.S. GAAP accounting issues and prepare and review financial statements and related disclosures in accordance with U.S. GAAP and reporting requirements set forth by the SEC.

Notwithstanding the identified material weakness, management, including our chief executive officer and acting chief financial officer, believes the consolidated financial statements included in this annual report on Form 20-F present fairly, in all material respects, our financial condition, results of operations and cash flows in conformity with U.S. GAAP.

Attestation Report of the Registered Public Accounting Firm

This annual report on Form 20-F does not include an attestation report of our registered public accounting firm due to rules of the SEC where domestic and foreign registrants that are “emerging growth companies” which we are, are not required to provide the auditor attestation report.

Changes in Internal Control Over Financial Reporting

In the course of auditing our consolidated financial statements as of and for the years ended December 31, 2021, 2022 and 2023, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting as of December 31, 2023. As defined in the standards established by the PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis.

To remedy our identified material weakness, we have adopted and plan to continue to adopt certain measures to improve our internal control over financial reporting, including (1) hiring more qualified accounting personnel with extensive experience and knowledge in handling U.S. GAAP and SEC financial reporting requirements; (2) providing regular and appropriate trainings for our accounting staff, especially trainings related to U.S. GAAP and SEC reporting requirements; and (3) setting up performance measurement and reward plan for our accounting staff aligning with our objective of internal control over financial reporting and our ethical value.

However, we cannot assure you that we will remediate our material weakness in a timely manner. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—If we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.”

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As a company with less than US$1.235 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting.

Except for the measures to be adopted to improve our internal control over financial reporting as described in this annual report, there were no changes in our internal control over financial reporting during 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

It should be noted that while our management believes that our disclosure controls and procedures provide a reasonable level of assurance, our management does not expect that our disclosure controls and procedures or internal financial controls will prevent all errors or fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

ITEM 16. [RESERVED]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Mr. Yuanlin Hu, an independent director and the chairman of our audit committee, qualifies as an “audit committee financial expert” within the meaning of the SEC rules, and that he meets the independence standards under Rule 10A-3 under the Exchange Act.

ITEM 16B. CODE OF ETHICS

Our board of directors has adopted a code of business conduct and ethics that applies to all of our directors, officers and employees. We have filed our code of business conduct and ethics as an exhibit to our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended, which was incorporated by reference thereto in this annual report.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees in connection with certain professional services rendered by Audit Alliance LLP, our independent registered public accounting firm, for the years ended December 31, 2022 and 2023, respectively. Save as disclosed below, we did not pay any other fees to Audit Alliance LLP during the periods indicated below.

	2022		2023
	RMB		RMB		US$
	(in thousands)
Audit fees⁽¹⁾
Audit Alliance LLP		2,125		2,069		291
Total		2,125		2,069		291

(1)

Audit fees represent the aggregate fees billed for each of the fiscal years listed for professional services rendered for the audit of our annual consolidated financial statements, review of our interim condensed consolidated financial statements, and assistance with and review of documents filed with the SEC.

Our audit committee is responsible for pre-approving all audit and non-audit services provided by our independent registered public accounting firm.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

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ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

As a Cayman Islands company previously listed on the NYSE, we were subject to the NYSE corporate governance listing standards. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards. To the extent that we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would enjoy under the NYSE corporate governance listing standards applicable to U.S. domestic issuers.

On November 22, 2022, we were delisted from the NYSE when the staff of the New York Stock Exchange LLC filed a Form 25 Notification of Delisting. The ADSs are currently quoted on the OTC Pink Limited Information under the symbol “FHSEY.”

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

ITEM 16J. INSIDER TRADING POLICIES

Not applicable.

ITEM 16K. CYBERSECURITY

Cybersecurity Risk Management and Strategy

To maintain a consistently high level of our and the VIE’s service quality, preserve the confidentiality, integrity, and availability of our information systems, safeguard our assets, data, intellectual property, and network infrastructure, while meeting regulatory requirements, it is crucial to effectively manage cybersecurity risks. To achieve this, we have implemented a comprehensive cybersecurity risk management framework, which is integrated in our overall enterprise risk management system and processes and is internally managed.

Our dedicated cybersecurity staff is tasked with assessing, identifying and managing risks related to cybersecurity threats and, under the leadership of our head of IT department, is responsible for:

●

risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment;

●

development of risk-based action plans to manage identified vulnerabilities and implementation of new protocols and infrastructure improvements;

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●

cybersecurity incident investigations;

●

monitoring threats to sensitive data and unauthorized access to our systems;

●

secure access control measures applied to critical IT systems, equipment and devices, designed to prevent unauthorized users, processes, and devices from assessing IT systems and data;

●

developing and executing protocols to ensure that information regarding cybersecurity incidents is promptly shared with the board of directors, as appropriate, to allow for risk and materiality assessments and to consider disclosure and notice requirements; and

●

developing and implementing training on cybersecurity, information security and threat awareness.

We engage third parties to assess our internal cybersecurity programs and compliance with applicable practices and standards. We have implemented a set of procedures to ensure effective management of the cybersecurity risks associated with the use of third-party service providers. These procedures include, but are not limited to, conducting cybersecurity assessments and tracking the capabilities and qualifications of third-party security service providers through our supplier assessment process. Additionally, for independent security researchers, we require adherence to the security-related agreement when submitting vulnerabilities.

In 2023, we have not experienced any material cybersecurity incidents or identified any material cybersecurity threats that have affected or are reasonably likely to materially affect us, our business strategy, results of operations or financial condition.

Governance

Under the ultimate direction of our management, the head of our IT department has primary responsibility for day-to-day management of our cybersecurity risk management program, including leading a dedicated team of technology professionals to monitor cybersecurity risks on behalf of our Company. The IT department is responsible for assessing potential vulnerabilities and exposures to cybersecurity threats, implementing controls and measures designed to mitigate these risks, and regularly monitoring and updating these measures as appropriate to adapt to evolving cybersecurity threats. Our cybersecurity strategy was developed by the IT department and approved by senior management. Our current dead of IT possesses years of experience with information technology, and cybersecurity risk management programs. Management teams of our medical institutions supervise cybersecurity and data privacy activity that are specific to such institutions, and are required to report on activity, including breaches, to our chief executive officer on a regular basis.

As part of our board of directors risk management process, our board of directors has responsibility for oversight of cybersecurity risk management. Our board of directors has delegated to the audit committee of our board of directors oversight of our cybersecurity risk management program, which includes reviewing our cybersecurity and other information technology risks, controls and procedures, including our plans to mitigate cybersecurity risks and to respond to data breaches. In the event of a cybersecurity incident, we have implemented a process in which the audit committee would report such incident to our board of directors if the incident is determined to present critical risk to us. The audit committee receives periodic reports and presentations on cybersecurity risks from the IT department, including regarding recent incidents or breaches (if any), vulnerabilities, mitigation strategies and the overall effectiveness of our cybersecurity program. These reports highlight significant or emerging cybersecurity threats, their potential impact on the organization, ongoing initiatives to mitigate risks and any proposed actions or investments required to enhance our cybersecurity posture.

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PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

Our consolidated financial statements are included at the end of this annual report.

ITEM 19. EXHIBITS

Exhibit No.		Description of Exhibit

1.1		Second Amended and Restated Memorandum and Articles of Association of the Registrant, as currently in effect (incorporated by reference to Exhibit 1.1 of our annual report on Form 20-F (File No. 001-40150) filed with the SEC on April 22, 2021)
2.1		Registrant’s Specimen American Depositary Receipt (incorporated by reference to Exhibit 2.1 of our annual report on Form 20-F (File No. 001-40150) filed with the SEC on April 22, 2021)
2.2		Registrant’s Specimen Certificate for Class A Ordinary Shares (incorporated by reference to Exhibit 4.2 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
2.3		Deposit Agreement (incorporated by reference to Exhibit 2.3 of our annual report on Form 20-F (File No. 001-40150) filed with the SEC on April 22, 2021)
2.4		Description of Securities (incorporated by reference to Exhibit 2.4 of our annual report on Form 20-F (File No. 001-40150) filed with the SEC on April 22, 2021)
4.1		Form of Employment Agreement between the Registrant and each of its executive officers (incorporated by reference to Exhibit 10.1 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.2		Form of Indemnification Agreement between the Registrant and each of its directors and executive officers (incorporated by reference to Exhibit 10.2 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.3		English translation of exclusive technical service and management consultancy agreement among Yunnan WFOE and the affiliated entities, dated December 13, 2018 (incorporated by reference to Exhibit 10.3 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.3.1		Schedule of exclusive technical service and management consultancy agreement among Yunnan WFOE and the affiliated entities
4.4		English translation of business cooperation agreement among Yunnan WFOE, the affiliated entities, and the shareholders of Long-Spring Education, dated December 13, 2018 (incorporated by reference to Exhibit 10.4 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.5		English translation of exclusive call option agreement among Yunnan WFOE, the affiliated entities, and the shareholders of Long-Spring Education, dated December 13, 2018 (incorporated by reference to Exhibit 10.5 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.5.1		Schedule of exclusive call option agreement among Yunnan WFOE, the affiliated entities, and the shareholders of Long-Spring Education
4.6		English translation of equity pledge agreement among Yunnan WFOE, Long-Spring Education, and the shareholders of Long-Spring Education, dated December 13, 2018 (incorporated by reference to Exhibit 10.6 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.7		English translation of school sponsors’ and directors’ rights entrustment agreement among Yunnan WFOE, our schools, the sponsors of our schools, and the directors appointed by the sponsors of our schools, dated December 13, 2018 (incorporated by reference to Exhibit 10.7 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.7.1		Schedule of school sponsors’ and directors’ rights entrustment agreement among Yunnan WFOE, our schools, the sponsors of our schools, and the directors appointed by the sponsors of our schools
4.8		English translation of the executed form of power of attorney granted by the sponsors of our schools and a schedule of all executed power of attorney adopting the same form (incorporated by reference to Exhibit 10.8 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.8.1		Schedule of power of attorney granted by the sponsors of our schools

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4.9		English translation of the executed form of power of attorney granted by directors appointed by the sponsors of our schools and a schedule of all executed power of attorney adopting the same form (incorporated by reference to Exhibit 10.9 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.9.1		Schedule of power of attorney granted by directors appointed by the sponsors of our schools
4.10		English translation of shareholders’ rights entrustment agreement among Yunnan WFOE, Long-Spring Education, and shareholders of Long-Spring Education, dated December 13, 2018 (incorporated by reference to Exhibit 10.10 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.11		English translation of the executed form of power of attorney granted by shareholders of Long-Spring Education and a schedule of all executed power of attorney adopting the same form (incorporated by reference to Exhibit 10.11 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.12		English translation of the executed form spousal undertaking granted by the spouse of each individual shareholder of Long-Spring Education and a schedule of all executed spousal undertaking adopting the same form (incorporated by reference to Exhibit 10.12 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.13		English translation of loan agreement among Yunnan WFOE, our schools, and Long-Spring Education, dated December 13, 2018 (incorporated by reference to Exhibit 10.13 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.14		2021 Share Incentive Plan (incorporated by reference to Exhibit 10.14 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
4.15		Subscription agreement, dated as of January 10, 2021, by and between the Registrant and Shanghai Ruihai Chuangfeng Industrial Development Co., Ltd. (incorporated by reference to Exhibit 10.15 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
8.1*		List of Principal Subsidiaries and Affiliated Entities of the Registrant
11.1		Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 of our registration statement on Form F-1 (File No. 333-252076) initially filed with the SEC on January 13, 2021, as amended)
12.1*		CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*		CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1**		CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**		CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*		Consent of Beijing Zhongwen Law Firm
15.2*		Consent of Audit Alliance LLP
15.3*		Consent of Maples and Calder (Hong Kong) LLP
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Inline XBRL for the cover page of this Annual Report on Form 20-F(embedded within the Inline XBRL document)

*	Filed with this annual report on Form 20-F

**	Furnished with this annual report on Form 20-F

138

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	First High-School Education Group Co., Ltd.

	By:	/s/ Shaowei Zhang
	Name:	Shaowei Zhang
	Title:	Chairman and Chief Executive Officer

Date: May 13, 2024

139

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD. AND SUBSIDIARIES

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2022 and 2023	F-3
Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2021, 2022 and 2023	F-6
Consolidated Statements of Changes in Equity/(Deficit) for the years ended December 31, 2021, 2022 and 2023	F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2022 and 2023	F-8
Notes to the Consolidated Financial Statements	F-10

F-1

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of First High-school Education Group Co., Ltd:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of First High-school Education Group Co., Ltd. (collectively, the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, 2022 and 2021, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial positions of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.

/s/ Audit Alliance LLP

Singapore

May 13, 2024

PCAOB ID Number 3487

We have served as the Company’s auditor since 2021.

F-2

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

CONSOLIDATED BALANCE SHEETS

(In thousands of RMB, except share data and per share data, or otherwise noted)

	As of December 31,
	2022		2023
Assets
Current assets
Cash		105,253		189,243
Accounts receivable, net of allowance for doubtful accounts		87,247		82,202
Amounts due from related parties		73,450		215,908
Prepaid expenses and other current assets		140,661		241,403
Assets related to discontinued operation		69,867		42,746
Total current assets		476,478		771,502
Non-current assets
Property and equipment, net		127,964		119,808
Intangible assets, net		5,861		7,247
Goodwill		30,347		30,347
Deferred tax assets		12,764		20,294
Other non-current assets		47,177		33,350
Assets related to discontinued operation		11,888		9,075
Total non-current assets		236,001		220,122
Total assets		712,479		991,624
		712,479		991,624

See accompanying notes to consolidated financial statements.

F-3

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands of RMB, except share data and per share data, or otherwise noted)

	As of December 31,
	2022		2023
Liabilities and Equity
Current liabilities
Contract liabilities		141,574		140,501
Borrowings under financing arrangements		20,540		-
Bank loan		33,572		87,970
Accounts payable		13,809		21,508
Accrued expenses and other payables		46,434		263,078
Income tax payables		29,464		29,678
Amounts due to related parties		51,675		165,173
Dividend payables		2,132		2,132
Liability related to discontinued operation		110,828		119,930
Total current liabilities		450,028		829,970
Non-current liabilities
Borrowings under financing arrangements		24,987		-
Other payables		1,645		-
Deferred tax liabilities		5,155		6,207
Total non-current liabilities		31,787		6,207
Total liabilities		481,815		836,177

See accompanying notes to consolidated financial statements.

F-4

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands of RMB, except share data and per share data, or otherwise noted)

	As of December 31,
	2022			2023
Liabilities and Equity
Commitments and contingencies
Equity
Ordinary shares (US$0.00001 par value; 5,000,000,000 shares authorized; and 86,838,700 shares issued and outstanding as of December 31, 2022, and 86,838,700 shares issued and outstanding as of December 31, 2023, respectively)		6			6
Additional paid-in capital		357,689			356,622
Statutory reserves		54,366			51,425
Accumulated other comprehensive income		2,430			2,836
Accumulated deficit		(184,258	)		(257,421	)
Total equity attributable to the shareholders of the Company		230,233			153,468
Non-controlling interests		431			1,977
Total equity		230,664			155,445
Total liabilities and equity		712,479			991,624

See accompanying notes to consolidated financial statements.

F-5

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/ (LOSS)

(In thousands of RMB, except share data and per share data, or otherwise noted)

	Years Ended December 31,
	2021			2022			2023

Revenue		337,310			342,506			266,250
Cost of revenues		(206,454	)		(213,578	)		(194,991	)
Gross profit		130,856			128,928			71,259
Operating expenses and income
Selling and marketing expenses		(6,383	)		(3,101	)		(3,056	)
General and administrative expenses		(46,901	)		(54,584	)		(57,981	)
Government grants		584			2,032			406
Allowance for credit losses		(14	)		(9	)		(52,035	)
Net operating expenses		(52,714	)		(55,662	)		(112,666	)
Income/(loss) from operations		78,142			73,266			(41,407	)
Other income (expenses):
Interest income		1,128			1,422			1,454
Interest expense		(9,545	)		(9,546	)		(6,373	)
Foreign currency exchange loss, net		(922	)		(55	)		-
Others, net		3,641			762			900
Income before income taxes		72,444			65,849			(45,426	)
Income tax expenses/(credit)		(14,924	)		(20,112	)		867
Net income from continuing operations		57,520			45,737			(44,559	)
Discontinued Operations
Loss from discontinued operations		(4,827	)		(14,616	)		(37,260	)
Gain on disposal of discontinued operations		-			7,285			11,176
Net income/(loss)		52,693			38,406			(70,643	)
Less: Net income attributable to non-controlling interests		-			1,081			1,546
Net income/(loss) attributable to First High-school Education Group Co., Ltd.		52,693			37,325			(72,189	)
Comprehensive Income
Income/(loss) from continuing operations		57,520			45,737			(44,559	)
Other comprehensive income: foreign currency translation		318			1,968			406
Comprehensive income/(loss)- continued operations		57,838			47,705			(44,153	)
Comprehensive loss - discontinued operations		(4,827	)		(7,331	)		(26,084	)
Comprehensive Income/(loss)		53,011			40,374			(70,237	)
Comprehensive income attributable to non-controlling interests		-			1,081			1,546
Comprehensive income/(loss) attribute to First High-school Education Group Co., Ltd.		53,011			39,293			(71,783	)

Earnings per share:
Basic earnings/(loss) per share from continued operation		0.69			0.55			(0.53	)
Basic loss per share from discontinued operation		(0.06	)		(0.08	)		(0.30	)
Diluted Earnings per share:
Diluted earnings/(loss) per share from continued operation		0.67			0.52			(0.50	)
Diluted earnings (loss) per share from discontinued operation		(0.06	)		(0.08	)		(0.28	)
Weighted average number of ordinary share outstanding
Basic		83,925,002			86,838,700			86,838,700
Diluted		85,775,002			92,388,700			92,388,700

See accompanying notes to consolidated financial statements.

F-6

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY/ (DEFICIT)

(In thousands of RMB, except share data and per share data, or otherwise noted)

																			Total
																			equity/(deficit)
																			attributable
											Accumulated					Retained			to the
	Ordinary shares*							Additional			other					earnings/			shareholders			Non-			Total
	Number		Treasury					paid-in			comprehensive		Statutory			(accumulated			of the			controlling			equity/
	of shares*		stock			Amount		capital			income		reserves			deficit)			Company			interests			(deficit)
Balance as of January 1, 2021		70,488,700		—			—		64,128			144		41,591			(201,524	)		(95,661	)		187			(95,474	)
Net income from continuing operations		—		—			—		—			—		—			57,520			57,520			—			57,520
Net loss from discontinued operations		—		—			—		—			—		—			(4,827	)		(4,827	)		—			(4,827	)
Other comprehensive income		—		—			—		—			318		—			—			318			—			318
Transfer to statutory reserve		—		—			—		—			—		7,469			(7,469	)		—			—			—
Issuance of common stocks-cash		23,532,390		(7,182,390	)		6		325,071			—		—			—			325,077			—			325,077
Distribution to the Parent		—		—			—		—			—		—			(18,424	)		(18,424	)		—			(18,424	)
Shareholder interest on acquisition of subsidiary - discontinued operations				—			—		—			—		—			(32,989	)		(32,989	)		—			(32,989	)
Non-controlling interests on acquisition of subsidiary - discontinued operations		—		—			—		—			—		—			—			—			(837	)		(837	)
Balance as of December 31, 2021 and January 1, 2022		94,021,090		(7,182,390	)		6		389,199			462		49,060			(207,713	)		231,014			(650	)		230,364
Net income from continuing operations		-		-			-		-			-		-			44,656			44,656			1,081			45,737
Net loss from discontinued operations		-		-			-		-			-		-			(14,616	)		(14,616	)		-			(14,616	)
Other comprehensive income		-		-			-		-			1,968		-			-			1,968			-			1,968
Transfer to statutory reserve		-		-			-		-			-		5,306			(5,306	)		-			-			-
Issuance of common stocks- cash		108,209		(108,209	)		-		(533	)		-		-			-			(533	)		-			(533	)
Dividend declared		-		-			-		-			-		-			(8,564	)		(8,564	)		-			(8,564	)
Disposition of discontinued operation		-		-			-		(30,977	)		-		-			7,285			(23,692	)		-			(23,692	)
Balance as of December 31, 2022 and January 1, 2023		94,129,299		(7,290,599	)		6		357,689			2,430		54,366			(184,258	)		230,233			431			230,664
Net loss from continuing operations		-		-			-		-			-		-			(46,105	)		(46,105	)		1,546			(44,559	)
Net loss from discontinued operations		-		-			-		-			-		-			(37,260	)		(37,260	)		-			(37,260	)
Other comprehensive income		-		-			-		-			406		-			-			406			-			406
Transfer to statutory reserve		-		-			-		-			-		974			(974	)		-			-			-
Disposition of discontinued operation		-		-			-		(1,067	)		-		(3,915	)		11,176			6,194			-			6,194
Balance as of December 31, 2023		94,129,299		(7,290,599	)		6		356,622			2,836		51,425			(257,421	)		153,468			1,977			155,445

Number of ordinary shares reflect on a retrospective basis the effect of shares issued in connection with the Corporate Restructuring in January 2021. See accompanying notes to consolidated financial statements.

F-7

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of RMB, except share data and per share data, or otherwise noted)

	Years Ended December 31,
	2021			2022			2023
Cash flows from operating activities:
Net income/(loss)		52,693			38,406			(70,643	)
Net loss from discontinued operation		(4,827	)		(7,331	)		(26,084	)
Net income/(loss) from continuing operation		57,520			45,737			(44,559	)
Adjustments to reconcile net income/(loss) to net cash generated from operating activities:
Depreciation		13,594			11,981			12,903
Amortization		718			719			1,051
Allowance for credit loss		14			9			52,035
Deferred income taxes		(1,163	)		4,501			(6,457	)
Changes in operating assets and liabilities:
Accounts receivable		3,939			(58,910	)		(10,939	)
Advances to suppliers and other current assets		(61,982	)		(132,723	)		(117,988	)
Accounts payable		(5,118	)		10,671			7,699
Accrued expenses & other payables		(54,313	)		18,322			238,498
Taxes payable		9,463			8,889			595
Advances from customers		14,841			5,070			(1,072	)
Net Cash generated from/ (used in) Operating Activities - Continuing Operations		(22,487	)		(85,734	)		131,766
Net Cash generated from Operating Activities - Discontinued Operations		110,857			86,381			18,981

See accompanying notes to consolidated financial statements.

F-8

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands of RMB, except share data and per share data, or otherwise noted)

	Years Ended December 31,
	2021			2022			2023
Cash flows from investing activities
Purchase of property and equipment		(24,211	)		(5,591	)		(3,667	)
Purchase of intangible assets		(1,662	)		(794	)		(2,437	)
Disposal of property and equipment		-			39			31
Disposal of a subsidiaries, net of cash		-			44,689			(161	)
Acquisition of a subsidiaries, net of cash		(41,984	)		-			-
Net cash generated from/(used in) investing activities - Continuing Operations		(67,857	)		38,343			(6,234	)
Net cash generated from/(used in) investing activities - Discontinued Operations		(65,755	)		95,330			-
Cash flows from financing activities:
Prepayment for the issuance of common stock		296,386			-			-
Dividend to shareholders		(166,688	)		(6,432	)		-
Treasury stock		-			(533	)		-
Proceeds from amounts due from related parties, net		62,243			95,281			233,425
Repayment of amounts due to related parties, net		(45,810	)		(123,258	)		(290,881	)
Proceeds from loan		286,042			101,775			87,970
Repayment of loans		(297,988	)		(150,151	)		(79,099	)
Net cash generated from/(used in) financing activities - Continuing Operations		134,185			(83,318	)		(48,585	)
Net cash generated from/(used in) financing activities - Discontinued Operations		(10,614	)		-			(12,050	)
Effect of exchange rate changes on cash		318			1,968			405
Net increase in cash		78,647			52,970			84,283
Cash at beginning of year		136,953			114,140			105,253
Cash at end of year		215,600			167,110			189,536
Less: Cash and cash equivalents, from the discontinued operations, end of period		101,460			61,857			293
Cash and cash equivalents, from the continuing operations end of period		114,140			105,253			189,243
Supplemental disclosures of cash flow information
Income tax paid		15,042			20,017			6,446
Interests paid		9,545			9,546			6,373
Supplemental disclosures of non-cash investing and financing activities
Payable for declared dividends		-			6,432			-
Consideration payable for the acquisition of subsidiaries		104,606			-			-

See accompanying notes to consolidated financial statements.

F-9

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

1	ORGANIZATION AND PRINCIPAL ACTIVITIES

First High-School Education Group Co., Ltd. (the “Company”) was incorporated as an exempted company with limited liability in the Cayman Islands on September 19, 2018. The Company, its subsidiaries and its consolidated variable interest entity and its subsidiaries (“VIEs”) (collectively as the “Group”) are principally engaged in the provision of full spectrum private fundamental education and complementary education services, including middle and high school and tutorial school in the People’s Republic of China (the “PRC”). The Company completed its initial public offering (“IPO”) on the New York Stock Exchange on March 11, 2021. Prior to January 12, 2021, the Company was wholly-owned by Long-Spring Education Group (the “Parent”). Upon completion of the corporate restructuring on January 12, 2021, Long-Spring Education Group ceased to be the parent company of the Group.

On November 22, 2022, the Company was delisted from the NYSE when the staff of the New York Stock Exchange LLC filed a Form 25 Notification of Delisting. The ADSs have been quoted on the OTC Pink Limited Information initially under the symbol “FHSEY.”

As of December 31, 2022, the Company’s subsidiaries and consolidated VIEs are as follows.

			Equity interest
Name	Place of establishment	Date of establishment	attributable to the Group			Principal activities
Wholly owned subsidiaries
First High-School Education Group (BVI) Limited (“First High-School BVI”)	BVI	September 20, 2018		100	%	Investment holding
First High-School Group Hong Kong Limited (“First High-School HK”)	Hong Kong	September 28, 2016		100	%	Investment holding
Yunnan Century Long-Spring Education Technology Co., Ltd. (“Yunnan WFOE”)	The PRC	October 31, 2016		100	%	Management consulting service
Yunnan Long-Spring Logistics Service Co., Ltd	The PRC	September 16, 2015		100	%	Education and management service

			Percentage of
			direct and
			indirect
	Place of	Date of	economic			Principal
Name	establishment	establishment	interest			activities
VIE:
Long-Spring Education Holding Group Limited	The PRC	September 20, 2011		100	%	Investment holding
Subsidiaries/schools held by the VIE:
Yunnan Zhongchuang Education Tutorial School	The PRC	August 28, 2012		100	%	Tutorial services
Kunming Xishan Long-Spring Experimental Secondary School	The PRC	April 4, 2014		100	%	Formal education services*
Kunming Chenggong Long-Spring Experimental Secondary School	The PRC	July 23, 2015		100	%	Formal education services*
Yunnan Hengshui Experimental Secondary School— Xishan School	The PRC	July 1, 2016		100	%	Formal education services*
Yiliang Long-Spring Experimental Secondary School	The PRC	July 11, 2016		100	%	Formal education services*
Yunnan Long-Spring Foreign Language Secondary School	The PRC	April 18, 2017		100	%	Formal education services*

F-10

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

			Percentage of
			direct and
			indirect
	Place of	Date of	economic			Principal
Name	establishment	establishment	interest			activities
VIEs:
Qujing Hengshui Experimental Secondary School	The PRC	July 18, 2017		100	%	Formal education services*
Yunnan Yuxi Hengshui Experimental Secondary School	The PRC	August 3, 2017		100	%	Formal education services*
Kunming Guandu Hengshizhong Education Tutorial School Co., Ltd.	The PRC	January 10, 2019		100	%	Tutorial services
Xinping Long-Spring Advanced Secondary School Co., Ltd.	The PRC	July 5, 2019		100	%	Formal education services*
Xishuangbanna Long-Spring Experimental Secondary School Co., Ltd.	The PRC	July 20, 2020		100	%	Formal education services*
Guizhou Long-Spring Century Technology Co., Ltd.	The PRC	June 17, 2020		100	%	Management consulting service
Guizhou Hengshizhong Technology Co., Ltd.	The PRC	July 1, 2020		56	%	Management consulting service
Yunnan Lihua Education Technology Co., Ltd.	The PRC	May 11, 2020		56	%	Investment holding
Bainian Long-Spring Education Technology (Zhenxiong) Co., Ltd.	The PRC	July 2, 2020		56	%	Management consulting service
Zhenxiong Long-Spring Advanced Secondary School	The PRC	September 1, 2020		56	%	Formal education services*
Qiubei Long-Spring Experimental Secondary School	The PRC	July 21, 2020		100	%	Formal education services*
Wenshan Long-Spring Experimental Secondary School	The PRC	August 3, 2020		56	%	Formal education services*
Mengla Long-Spring Experimental Secondary School	The PRC	September 4, 2020		100	%	Formal education services*
Kunming Chenggong Times Giant Tutorial School Co., Ltd.	The PRC	August 24, 2018		100	%	Tutorial services
Shenyang Century Long-Spring Technology Co., Ltd.	The PRC	May 12, 2021		70	%	Investment holding
Chongqing Hengshi Education Technology Co., Ltd.	The PRC	February 26, 2021		100	%	Investment holding
Bainian Long-Spring (Mengzi) Education Technology Co., Ltd.	The PRC	February 8, 2022		100	%	Investment holding
Panzhihua Bainian Long-Spring Education Technology Co., Ltd.	The PRC	January 11, 2022		100	%	Investment holding
Yunnan Hengshun Property Service Co., Ltd.	The PRC	October 18, 2018		100	%	Management consulting service
Zunyi Hengshi Education Technology Co., Ltd.	The PRC	May 19, 2021		100	%	Management consulting service
Yunnan Long-Spring Education Holding Group Hengshui Experimental Middle School Management Co., Ltd	The PRC	December 24, 2020		100	%	Management consulting service
Shaanxi Century Long-Spring Education Technology Co., Ltd.	The PRC	January 11, 2021		100	%	Investment holding
Shaanxi Hengshi Hengzhong Education Technology Co., Ltd.	The PRC	March 08, 2021		51	%	Management consulting service
Guizhou Century Long-Spring Technology Co., Ltd.	The PRC	June 17, 2020		100	%	Investment holding
Guizhou Hengzhong Technology Co., Ltd.	The PRC	July 1, 2020		56	%	Investment holding
Guizhou Hengzhong Education Tutorial School Co., Ltd.	The PRC	-		100	%	Tutorial services
Kunming Wuhua District Zhuorui Cultural Training School Co., Ltd	The PRC	April 16, 2019		100	%	Tutorial services
Kunming Guandu Hengshizhong Education Training School Co., Ltd.	The PRC	January 10, 2019		100	%	Tutorial services
Bainian Long-Spring (Luoping) Education Technology Co., Ltd.	The PRC	June 14, 2023		100	%	Management consulting service
Bainian Long-Spring (Qingdao) Education Technology Co., Ltd.	The PRC	September 12, 2023		100	%	Management consulting service
Beijing Green Carbon Future Intelligent Technology Co., Ltd.	The PRC	March 22, 2023		100	%	Management consulting service
Yangling Hengshi Secondary School Co., Ltd.	The PRC	August 31, 2023		100	%	Formal education services*
Xi'an Hengshi Education Technology Co., Ltd.	The PRC	January 22, 2021		100	%	Investment holding

*	Formal education services include middle, high and international school services. F-1

F-11

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

2	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”). The consolidated financial statements are presented in Renminbi (“RMB”), rounded to the nearest thousand.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and the Company’s ability to pursue financing arrangements to support its working capital requirements.

Reclassification

Certain reclassifications have been made to the financial statements for the year ended December 31, 2022 to conform to the presentation for the year ended December 31, 2023, with no effect on previously reported net income (loss).

Principles of consolidation of VIEs

In order to comply with the PRC laws and regulations which prohibit foreign ownership of companies and institutions in compulsory educational services at middle school levels and restrict foreign investment in educational services businesses at the high school level, the Group operates its restricted business in the PRC through its VIEs, whose equity interest are held by the founders of the Group. The Group obtained the control over these VIEs by entering into a series of contractual agreements as detailed below:

Exclusive Call Option Agreement

Pursuant to the exclusive call option agreement, the shareholders of Long-Spring Education Holding Group Limited (“Long-Spring Education”) unconditionally and irrevocably granted Yunnan WFOE or its designated entity the right to purchase at any time all or part of their equity interests in Long-Spring Education at the lowest price applicable under PRC laws and regulations. Without Yunnan WFOE’s prior written consent, the shareholders of Long-Spring Education also refrain from (1) selling, assigning, transferring, or otherwise disposing of the equity or sponsorship interest, (2) increasing or reducing the capital investment, (3) dividing the affiliated entities into or merging it with other entities, (4) disposing of any of the assets of the affiliated entities, (5) terminating or contradicting any material contract entered into by the affiliated entities, (6) procuring the affiliated entities to enter into transactions that may have material impact on their assets, liabilities, operations, equity structure, or other legal rights, (7) procuring the affiliated entities to declare or distribute profits and/or returns, (8) amending the article of association of the affiliated entities, and (9) allowing the affiliated entities to undertake any material obligation beyond normal business activities.

F-12

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

School Sponsor’s and Directors’ Rights Entrustment Agreement

Pursuant to the school sponsor’s and directors’ rights entrustment agreement, the school sponsors irrevocably authorized and entrusted Yunnan WFOE or its designated personnel to exercise all their rights as the school sponsor of each school, including but not limited to the right to appoint and/or elect directors, council members, and supervisors of the school, right to review the resolutions of the board of directors and the financial statement of the school, right to transfer school sponsor’s interest, and right to decide whether the school would be for-profit or non-profit. Each director appointed by the sponsor of each school unconditionally and irrevocably authorized and entrusted Yunnan WFOE to exercise all the rights as a director of the school, including but not limited to the right to attend meetings of the board of directors and vote, right to sign board resolutions and other legal documents and other rights of directors under the school’s articles of association and the applicable PRC laws.

Shareholders’ Rights Entrustment Agreement

Pursuant to the shareholders’ rights entrustment agreement, each shareholder of Long-Spring Education irrevocably authorized and entrusted Yunnan WFOE to exercise all the respective rights as shareholders of Long-Spring Education, including but not limited to the right to attend shareholder’s meeting and vote, right to sign shareholders’ resolutions and other legal documents, right to instruct the directors and other rights of shareholders under the school’s articles of association and the applicable PRC laws.

Power of Attorney

Pursuant to the school sponsors’ power of attorney, each school sponsor authorized and appointed Yunnan WFOE as its agent to exercise on its behalf a school sponsor’s rights. Pursuant to the directors’ power of attorney, each director of Long-Spring Education authorized and appointed Yunnan WFOE as his/her agent to exercise on his/her behalf a director’s rights. Pursuant to the shareholders’ power of attorney, each shareholder of Long-Spring Education authorized and appointed Yunnan WFOE as his/her/its agent to exercise on his/her/its behalf a shareholder’s rights.

Equity Pledge Agreement

Pursuant to the equity pledge agreement, the shareholders of Long-Spring Education unconditionally and irrevocably pledged and granted first priority security interests over all of his/her/its equity interest in Long-Spring Education, as well as all related rights, to Yunnan WFOE as security for performance of all the contractual arrangements. Without Yunnan WFOE’s prior written consent, the shareholders of Long-Spring Education must not transfer the equity interest or create further pledge or encumbrance over the pledged equity interest. They also waived any pre-emptive rights upon enforcement, and Yunnan WFOE can enforce upon default by transferring all or part of the equity interest, selling the pledged equity interest, or disposing of the pledged equity interest in any other way to the extent permitted by PRC laws and regulations.

F-13

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

Spousal Undertaking

Pursuant to the spousal undertaking executed by the spouses of the shareholders of Long-Spring Education, the signing spouses consented to the contractual arrangements with respect to the equity interest in Long-Spring Education, including its pledge, transfer, and disposal in any other forms. The spouses will not participate in the operation, management, liquidation, or any other matters in relation to Long-Spring Education’s subsidiaries and affiliated schools. They authorized the shareholders of Long-Spring Education to exercise their shareholding rights on behalf of them to ensure the interest of Yunnan WFOE. This undertaking will not terminate until Yunnan WFOE and the spouses terminate it in writing.

Loan Agreement

Pursuant to the loan agreement, Yunnan WFOE agreed to provide interest-free loans to Long-Spring Education. Each loan will be for an infinite term until termination at the sole discretion of Yunnan WFOE. This agreement will terminate when all equity interests of the Long-Spring Education are transferred to Yunnan WFOE.

The agreements that transfer economic benefits of Long-Spring Education to the Group include:

Exclusive Technical Service and Management Consultancy Agreement and Business Cooperation Agreement

Pursuant to the exclusive technical service and management consultancy agreement and business cooperation agreement, Yunnan WFOE provides exclusive technical services to Long-Spring Education VIEs, including software, website, and on-site technical support and training. It also provides exclusive management consultancy services such as staff training, student recruitment support, internal management advisory, and market research and public relations. Each of the Long-Spring Education VIEs pays Yunnan WFOE a service fee equal to the total amount of surplus of its operation. Yunnan WFOE also reserves the exclusive proprietary rights to any technology or intellectual property developed in the course of the provision of services under the agreements. Without the prior written consent of Yunnan WFOE, Long-Spring Education VIEs cannot accept services provided by or establish similar cooperation relationship with any third-party. The agreements will remain effective unless Yunnan WFOE and/or the designated entity fully exercised its purchase rights pursuant to the exclusive call option agreement or unilaterally terminated by Yunnan WFOE with a 30-day advance notice. Unless otherwise required by applicable PRC laws, Long-Spring Education VIEs do not have any right to terminate the agreements.

Under the above agreements, the shareholders of Long-Spring Education irrevocably granted Yunnan WFOE the power to exercise all voting rights to which they were entitled. In addition, Yunnan WFOE has the option to acquire all of the equity interests in Long-Spring Education, to the extent permitted by the PRC laws and regulations, for nominal consideration. Finally, Yunnan WFOE is entitled to receive service fees for certain services to be provided to Long-Spring Education.

The Exclusive Call Option Agreement and Power of Attorney provide the Group with effective control over the Long-Spring Education, while the Equity Pledge Agreements secure the obligations of the shareholders of Long-Spring Education under the relevant agreements.

Because the Group has (i) the power to direct the activities of Long-Spring Education, that most significantly affect its economic performance and (ii) the right to receive substantially all of the benefits from Long-Spring Education, the Group is deemed the primary beneficiary of Long-Spring Education. Accordingly, the Company consolidates VIEs’ financial results of operations, assets and liabilities in the Group’s consolidated financial statements.

F-14

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

In December 2018, in connection with 2018 Share Incentive Plan, certain management personnel and employees of the Group through establishment of limited partnership entities (“PRC Partnership entities”) became legal shareholders of Long-Spring Education. The above VIE agreements (“2016 VIE Agreements”) were terminated and concurrently, new contractual VIE Agreements were entered into among Long-Spring Education, Long-Spring Education’s shareholders (including PRC Partnership entities) and Yunnan WFOE. The terms of the new contractual arrangements among Long-Spring Education, PRC Partnership entities and Yunnan WFOE are identical to the terms of the 2016 VIE Agreements.

Risks in relation to VIE structure

As Long-Spring Education VIEs were established as limited liability companies or organizations under the PRC law, their creditors do not have recourse to the general credit of Yunnan WFOE for the liabilities of Long-Spring Education VIEs, and Yunnan WFOE does not have the obligation to assume the liabilities of Long-Spring Education VIEs.

The Group believes that the contractual arrangements with Long-Spring Education VIEs are in compliance with the PRC law and are legally enforceable.

However, the contractual arrangements are subject to risks and uncertainties, including:

●

Long-Spring Education and their shareholders may have or develop interests that conflict with the Group’s interests, which may lead them to pursue opportunities in violation of the aforementioned contractual arrangements. If the Group cannot resolve any conflicts of interest or disputes between the Group and the shareholders of Long-Spring Education, the Group would have to rely on legal proceedings, which could result in disruption of its business, and there may be substantial uncertainty as to the outcome of any such legal proceedings.

●

Long-Spring Education and their shareholders could fail to obtain the proper operating licenses or fail to comply with other regulatory requirements. As a result, the PRC government could impose fines, new requirements or other penalties on the VIEs or the Group, mandate a change in ownership structure or operations for the VIEs or the Group, restrict the VIEs or the Group’s use of financing sources or otherwise restrict the VIEs or the Group’s ability to conduct business.

●

The PRC government may declare the aforementioned contractual arrangements invalid. They may modify the relevant regulations, have a different interpretation of such regulations, or otherwise determine that the Group or the VIEs have failed to comply with the legal obligations required to effectuate such contractual arrangements.

●

If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government may restrict or prohibit the Group’s use of the proceeds of the additional public offering to finance the Group’s business and operations in China.

F-15

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

The Group’s ability to conduct its business may be negatively affected if the PRC government were to carry out of any of the aforementioned actions.

There is no VIE in which the Group has a variable interest but is not the primary beneficiary.

The table sets forth the assets and liabilities of the VIEs included in the Company’s consolidated balance sheets:

	As of December 31,
	2022		2023
Current assets
Cash		96,552		135,344
Accounts receivable, net of allowance for doubtful accounts		41,441		76,114
Amounts due from related parties		41,123		168,450
Prepaid expenses and other current assets		131,073		240,367
Total current assets		310,189		620,275
Property and equipment, net		67,206		58,750
Intangible assets, net		7		951
Goodwill		30,347		30,347
Deferred tax assets		5,745		13,078
Other non-current assets		47,177		33,350
Total assets		460,671		756,752
Current liabilities
Contract liabilities		135,703		134,125
Bank loan		33,572		87,970
Borrowings under financing arrangements		20,540		-
Accounts payable		10,615		17,615
Accrued expenses and other payables		42,183		262,007
Income tax payables		9,251		17,714
Amounts due to related parties		45,781		135,768
Total current liabilities		297,645		655,199
Borrowings under financing arrangements		24,987		-
Other payables		1,270		-
Deferred tax liabilities		4,285		5,300
Total liabilities		328,187		660,499

Notes:

(i):	Amounts due from related parties consisted of (a) amounts due from related parties as disclosed in Note 21.

(ii):

Amounts due to related parties consisted of (a) amounts due to related parties as disclosed in Note 21.

F-16

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

The table sets forth the results of operations of the VIEs included in the Company’s consolidated statements of comprehensive income:

	Years Ended December 31,
	2021		2022		2023
Net revenues		307,343		230,238		202,340
Net income/(loss)		11,182		8,154		(37,015	)

(c)

Use of estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include, but are not limited to, estimate of standalone selling prices of each unit of accounting in multiple performance obligations, estimate of the contract period of the government cooperative agreements, the useful lives of long-lived assets, the fair values of assets acquired and liabilities assumed and the consideration transferred in a business combination, the fair value of the reporting unit for the goodwill impairment test, the allowance for credit losses and other current assets, the realization of deferred income tax assets, the fair value of share-based compensation awards and the recoverability of long-lived assets. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the consolidated financial statements.

(d)

Cash, cash equivalents

Cash and cash equivalents comprise cash at banks and on hand, which have original maturities of three months or less when purchased and are subject to an insignificant risk of changes in value.

As of December 31, 2022 and 2023, cash equivalents were RMB105,253 and RMB189,243.

F-17

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

(e)

Fair value of financial instruments

The Group utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Group determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

●

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

●

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

●

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The carrying values of financial instruments, which consist of cash, restricted cash, accounts receivable, net of allowance for doubtful accounts, amounts due from related parties, and other current assets, accounts payable, accrued expenses and other payables, bank loan and amounts due to related parties are measured at amortized cost which approximates their fair value due to the short-term nature of these instruments.

The borrowings under financing arrangements is measured at amortized cost. The fair value of these long-term debt obligations approximates their carrying value as the borrowing rates are similar to the market rates that are currently available to the Group for financing obligations with similar terms and credit risks and represent a level 2 measurement.

(f)

Contract balances

The timing of revenue recognition, billings and cash collections result in accounts receivable, contract assets and contract liabilities. Accounts receivable are recorded at the billing amount, net of an allowance for doubtful account and is recognized in the period when the Company’s right to consideration is unconditional. Amounts collected on accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Group maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and customers’ financial condition, the amount of receivables in dispute, the accounts receivable aging, and the customers’ repayment patterns. The Group reviews its allowance for doubtful accounts on a customer-by-customer basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Group does not have any off-balance-sheet credit exposure related to its customers.

F-18

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

A contract liability is the obligation to provide services or goods to a customer for which the Group has received consideration from the customer. If a customer pays the consideration before the Group provides services or goods to the customer, a contract liability is recognized when the payment is made or the payment is due.

A contract asset is the right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance).

(g)

Property and equipment

Property and equipment are carried at cost less accumulated depreciation and any recorded impairment.

Gains or losses arising from the disposal of an item of property and equipment are determined based on the difference between the net disposal proceeds and the carrying amount of the item and are recognized in profit or loss on the date of disposal.

The estimated useful lives are presented below.

Category		Estimated useful life
Buildings		18 - 20 years
Leasehold improvement		Shorter of the lease term and the estimated useful lives of the assets
Furniture and office equipment		6 - 10 years
Electronic equipment		4 - 5 years
Vehicles		5 years

Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets.

(h)

Leases

Leases are classified at the lease inception date as either a capital lease or an operating lease. A lease is a capital lease if any of the following conditions exists: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the lease term is at least 75% of the property’s estimated remaining economic life, or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception date. The Group records a capital lease as an asset and an obligation at an amount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term.

Rental costs on operating leases are charged to expense on a straight-line basis over the lease term. Certain operating leases contain rent holidays and escalating rent. Rent holidays and escalating rent are considered in determining the straight-line rent expense to be recorded over the lease term. Rental costs associated with building operating leases that are incurred during the construction of leasehold improvements and to otherwise ready the property for the Group’s intended use are recognized as rental expenses and are not capitalized.

F-19

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

(i)

Business combinations

Business combinations are recorded using the acquisition method of accounting. The assets acquired, the liabilities assumed, and any non-controlling interests of the acquiree at the acquisition date, if any, are measured at their fair values as of the acquisition date. Goodwill is recognized and measured as the excess of the total consideration transferred plus the fair value of any non-controlling interest of the acquiree and fair value of previously held equity interest in the acquiree, if any, at the acquisition date over the fair values of the identifiable net assets acquired. Liability-classified contingent consideration is measured at fair value at the acquisition date, and is remeasured at fair value at each subsequent reporting date (with changes in fair value recognized in the consolidated statement of comprehensive income/ (loss)) until the contingency is resolved.

(j)

Intangible assets

Acquired intangible assets comprised of government cooperative agreements and software. The government cooperative agreements acquired from business combination is recognized and measured at fair value and the acquired software are measured at cost, less accumulated amortization and impairment. Amortization of finite-lived intangible assets is computed using the straight-line method over the estimated useful lives. The amortization periods by intangible asset classes are as follows:

Category		Estimated useful life
Systems software		2-10 years

(k)

Goodwill

Goodwill is an asset representing the future economic benefits arising from other assets acquired in the acquisition that are not individually identified and separately recognized.

Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Application of the goodwill impairment test requires judgment, including the identification of the reporting unit, assignment of assets and liabilities to the reporting unit, assignment of goodwill to the reporting unit, and determination of the fair value of each reporting unit.

The Group has the option to perform a qualitative assessment to determine whether it is more-likely-than not that the fair value of a reporting unit is less than its carrying value prior to performing the two-step goodwill impairment test. If it is more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required. If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying amount (including goodwill). If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit and the Group performs step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. No impairment losses were recorded for goodwill for the years ended December 31, 2021, 2022 and 2023.

F-20

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

(l)

Impairment of long-lived assets

Long-lived assets, such as property and equipment, intangible assets subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Group first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment losses were recorded for long-lived assets for the years ended December 31, 2021, 2022 and 2023.

(m)

Commitment and contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

(n)

Revenue recognition

Revenue is recognized when control of promised goods or services is transferred to the Group’s students in an amount of consideration to which the Group expects to be entitled to in exchange for those goods or services. The Group follows the five steps approach for revenue recognition under Accounting Standards Update (“ASU”) No. 2104-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”): (i) identify the contract(s) 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 when (or as) the Group satisfies a performance obligation.

F-21

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

The primary sources of the Group’s revenues are as follows:

Formal education services

The Group’s revenue is principally derived from the provision of boarding school educational services to students. The Group offers formal education program at the middle school and high school.

Revenue attributable to educational services and boarding services is recognized over time, based on a straight-line basis over the school year, as students simultaneously receive and consume the benefits of these services throughout the service period. The portion of tuition and boarding payments received from students but not earned is recorded as contract liability and is reflected as a current liability as such amounts represent revenue that the Group expects to earn within one year. The academic year of the Group’s school is generally from September to January of the following year and from March to June. The Group determines that there is not a significant financing component based on the nature of the service being offered and the purpose of the payment terms.

Revenue attributable to educational materials and meal catering services is recognized at point in time, when the control of the educational materials or underlying goods is passed to customers. The Group considers that it is acting as the principal in the transaction and recognizes revenue from sales of the educational materials and meal catering services on a gross basis.

Revenue from government cooperative arrangements

The Group has entered into certain long-term cooperative arrangements with local governments in areas where some of the schools are located. Pursuant to such arrangements, the Group is committed to admit certain number of local students as “publicly-sponsored students” who pay the tuition fees based on the amounts charged by a comparable public school. The difference between the fees charged by the Group to other students and the fees charged to publicly-sponsored students are subsidized by the local governments in the form of lump sum funding payments in the first few years of the cooperative arrangements. The government subsidies are recognized as “revenue from government cooperative arrangements” on a systematic basis when there is reasonable assurance that they will be received and the Group will comply with the conditions attaching to the agreements. In particular, revenue under these arrangements are recognized on a straight-line basis during the relevant school year, and over the estimated period to which the subsidies relate, based on the difference in average tuition fee for private students and for publicly-sponsored students and the number of publicly-sponsored students of each academic year. When the Group has received payments from the governments before educational services are provided to these publicly-sponsored students, a deferred revenue from governments is recognized when the payments are received.

F-22

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

Throughout the whole period of cooperative arrangements, the governments also provide free access to certain buildings and dormitories and assign certain number of teachers who originally work in other public schools to the Group. These subsidies are determined as non-monetary government grants in a nonreciprocal transfer for which the fair value is not reliably estimable. Accordingly, the Group recognizes the asset or services and the relevant grants at their nominal amounts paid.

Tuition income from training programs

Education and management service fees

Revenue derived from 1) the education and management service provided to the third-party schools included logistic management services, school operation and management services and other services. The promised services in each education and management service contract are combined and accounted as a single performance obligation, as the promised services in a contract are not distinct and are considered as a significant integrated service, and 2) the meal catering services are outsourced to certain vendors and the Group charges management service fee to these vendors. The revenue is recognized on a straight-line basis over the period of the education and management service, as customers simultaneously receive and consume the benefits of these services throughout the service period.

The Group has assessed all variable considerations identified when determining the transaction price. In making such assessment, the Group may provide price concessions to the customers under education and management services contracts in order to enter into new contracts or collect payments. The Group includes the estimate of the concession in the amount of consideration to which it ultimately expects to be entitled.

VAT collected from customers is excluded from revenue. The Company’s PRC subsidiaries and VIEs are subject to VAT. The deductible input VAT balance is recorded in prepaid expenses and other current assets, and VAT payable balance is recorded in the accrued expenses and other payables.

(o)

Cost of revenues

Cost of revenues consists primarily of salaries to instructors and tutors, rental expenses for office and school space, depreciation and amortization of properties and equipment, teaching materials and other costs directly attributable to the provision of the service revenue.

F-23

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

(p)

Selling and marketing expenses

Selling and marketing expense mainly consists of advertising costs which are expensed as incurred. Advertising costs amounted to approximately RMB2,986 , RMB1,299 and RMB3,056 for the years ended December 31, 2021, 2022 and 2023, respectively.

(q)

Government grants

Except for the subsidies received under the government cooperative arrangements described in Note 2(n), government grants are recognized when received and when all the conditions for their receipt have been met. Subsidies that compensate the Group for expenses incurred are recognized as a reduction of expenses in the consolidated statements of comprehensive income/ (loss). Subsidies that are not associated with expenses are recognized as income from government grants.

(r)

Income tax

Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Group reduces the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is “more-likely-than-not” that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a “more-likely-than-not” realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of futures profitability, the duration of statutory carry forward periods, the Group’s experience with operating loss and tax credit carry forwards, if any, not expiring.

The Group recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Group records interest related to unrecognized tax benefits in income tax expense and penalties in general and administrative expenses.

(s)

Share-based compensation

The Group accounts for the compensation cost from share-based payment transactions with employees based on the grant-date fair value of the equity instrument issued. The grant-date fair value of the award is recognized as compensation expense, net of forfeitures, over the period during which an employee is required to provide service in exchange for the award, which is generally the vesting period. When no future services are required to be performed by the employee in exchange for an award of equity instruments, and if such award does not contain a performance or market condition, the cost of the award is expensed on the grant date. The Group elects to recognize forfeitures when they occur.

F-24

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

Share-based payment transactions with non-employees in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of either the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instrument is reached.

The award in the shares of the Parent of the Group granted to employees and non-employees of the Group would be accounted for as employee and non-employee awards in the Group’s consolidated financial statements. Compensation cost related to the grant of these share awards would be recorded at the Group level with a corresponding credit to equity, representing Parent’s equity contribution.

For further information on share-based compensation.

(t)

Employee benefits

Pursuant to relevant PRC regulations, the Group is required to make contributions to various defined contribution plans organized by municipal and provincial PRC governments. The contributions are made for each PRC employee at rates ranging from 31% to 37% on employees’ salaries, up to a maximum amount specified by local social security bureau. Contributions to the defined contribution plans are charged to the consolidated statements of comprehensive income/ (loss) when the related service is provided.

(u)

Foreign currency translation and foreign currency risks

The Group use RMB as its reporting currency. The functional currency of the Company, First High-School BVI and First High-School HK is the USD, whereas the functional currency of its PRC subsidiaries and consolidated VIEs is the RMB.

Foreign currency transactions during the period are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognized in profit or loss and are reported in foreign currency exchange gain (loss) on a net basis.

The results of foreign operations are translated into RMB at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the year.

Translation adjustments are reported in other comprehensive income and accumulated in the translation adjustment component of equity until the sale or liquidation of the foreign entity.

F-25

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

The RMB is not a freely convertible currency. The PRC State Administration for Foreign Exchange, under the authority of the PRC government, controls the conversion of RMB to foreign currencies. The value of the RMB is subject to changes of central government policies and international economic and political developments affecting supply and demand in the China foreign exchange trading system market. The Group’s cash denominated in RMB amounted to approximately RMB105,253 and RMB189,243 as of December 31, 2022 and 2023, respectively.

(v)

Concentration of credit risk

The Group’s credit risk arises from cash, other current assets and other non-current assets and accounts receivable. The carrying amounts of these financial instruments represent the maximum amount of loss due to credit risk.

The Group expects that there is no significant credit risk associated with the cash which are held by reputable financial institutions in the jurisdictions where the Company, its subsidiaries and VIEs are located. The Group believes that it is not exposed to unusual risks as these financial institutions have high credit quality.

The Group has no significant concentration of credit risk with respect to its other receivables and prepayments.

The Group conducts credit evaluations on its customers prior to delivery of goods or services. The assessment of customer creditworthiness is primarily based on historical collection records, research of publicly available information and customer on-site visits. Based on this analysis, the Group determines what credit terms, if any, to offer to each customer individually. If the assessment indicates a likelihood of collection risk, the Group will not deliver the services or sell the products to the customer or require the customer to pay cash or to make significant down payments. Historically, credit losses on accounts receivable have been insignificant.

(w)

Recently issued accounting pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments and issued a series of subsequent amendments to the initial guidance. These ASUs require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. These ASUs eliminates the probable initial recognition threshold in current GAAP and, instead, reflects an entity’s current estimate of all expected credit losses. The amendments in these ASUs are effective for the Group for its fiscal years beginning after December 15, 2022, with early adoption permitted. The accounting pronouncements issued but not yet effective. The Group does not plan to early adopt this guidance and is evaluating the impact of the new standard.

F-26

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the guidance in ASC Topic 840, Leases. ASU 2016-02 requires, among other changes to the lease accounting guidance, lessees to recognize most leases on-balance sheet via a right-of-use asset and lease liability, and additional qualitative and quantitative disclosures. In July 2018, ASU No. 2018-10, Codification Improvements to Topic 842, Leases, was issued to provide more detailed guidance and additional clarification for implementing ASU No. 2016-02. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an optional transition method in addition to the existing modified retrospective transition method by allowing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Furthermore, in June 2020, the FASB issued ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, which defers the effective date of ASU No. 2016-02 for certain entities. This update is effective for the Group for annual reporting periods beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022. Early adoption is permitted. The Group does not plan to early adopt this guidance and is evaluating the impact of the new standard.

3	CONTRACT BALANCES

(a)	Accounts receivable, net

Accounts receivable, net consisted of the following:

		As of December 31,
	Note	2022			2023
Accounts receivable derived from governments cooperative arrangements	(i)		73,106			75,281
Accounts receivable from other customers	(ii)		14,150			22,914
Accounts receivable			87,256			98,195
Less: allowance for credit loss			(9	)		(15,993	)
Accounts receivable, net			87,247			82,202

Note (i):	Accounts receivable derived from government cooperative arrangements were recorded when the educational services have been provided to publicly-sponsored students and the receivables are due in accordance with the payment schedule in the relevant agreements with the governments.

Note (ii):	When rendering education and management services and other services, the Group generally bills its customers in the period when the Group’s right to consideration is unconditional and transfer control over services in accordance with the contract terms.

	RMB9 and RMB15,993 allowance for doubtful accounts was provided to accounts receivable as of December 31, 2022 and 2023 respectively.

F-27

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

(b)	Contract liabilities

The balances of the Group’s contract liabilities are as following:

	As of December 31,
	2022		2023
Tuition fee		116,407		101,924
Accommodation fee		9,581		13,762
Deposit		1,389		320
Teaching and Miscellaneous Fees		1,060		6,865
Training fee		5,512		9,811
Service charge		7,625		7,820
Contract liabilities		141,574		140,501

The contract liabilities primarily relate to up-front payments from the Group’s customers for the formal educational services and training programs.

4	PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	As of December 31,
	2022		2023
Advances to third parties		54,713		105,598
Advances to employees		8,577		21
Receivables from selling subsidiaries		45,450		10,344
Prepaid rental fees		1,103		3,402
School deposits		21,038		120,719
Deposits for financing arrangements		6,700		-
Low-value consumables		1,522		81
Others		1,558		878
Prepaid expenses and other current assets		140,661		241,403

F-28

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

5	PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

	As of December 31,
	2022			2023
At cost:
Buildings		96,819			119,314
Leasehold improvement		38,194			12,504
Furniture and office equipment		17,722			22,970
Electronic equipment		24,747			25,433
Vehicles		3,937			4,864
		181,419			185,085
Less: accumulated depreciation		(53,455	)		(65,277	)
Property and equipment, net		127,964			119,808

As of December 31, 2022, certain furniture and office equipment and electronic equipment of the Group with net book value of RMB19,604, respectively, were pledged pursuant to borrowings under financial arrangement as disclosed in Note 9.

Depreciation of property and equipment were approximately RMB13,594, RMB11,981 and RMB12,903 for the years ended December 31, 2021, 2022 and 2023, respectively, and included in the following captions:

	Years Ended December 31,
	2021		2022		2023
Cost of revenues		9,554		7,994		7,915
General and administrative expenses		4,040		3,987		4,988
Total		13,594		11,981		12,903

6	INTANGIBLE ASSETS, NET

Intangible assets consisted of the following:

	As of December 31,
	2022			2023
Systems software		7,632			10,069
Less: accumulated amortization		(1,771	)		(2,822	)
Intangible assets, net		5,861			7,247

F-29

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

Amortization of intangible assets were approximately RMB718, RMB719 and RMB1,051 for the years ended December 31, 2021, 2022 and 2023, respectively.

Estimated future amortization expense related to these intangible assets is as follows:

Fiscal year ending December 31, 2022
2023			731
2024			730
2025			725
2026			723
2027			716
Thereafter			2,236
Total			5,861
Fiscal year ending December 31, 2023
2024			953
2025			948
2026			946
2027			940
2028			716
Thereafter			2,744
Total			7,247

7	BUSINESS COMBINATION AND GOODWILL

The movement of goodwill is set out as below:

	2022		2023
Balance as of January 1,		30,347		30,347
Addition during the year		-		-
Balance as of December 31,		30,347		30,347

The Group did not incur impairment loss on goodwill for the years ended December 31, 2021, 2022 and 2023.

F-30

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

Yunnan Times Giant Acquisition

On June 8, 2021, the Group acquired all of the equity interests in Kunming Chenggong Times Giant Tutorial School Co., Ltd., Wenshan Times Giant Tutorial School Co., Ltd., and Kunming Wuhua District Zhuorui Cultural Training School Co., Ltd. (collectively known as “Yunnan Times Giant”) for consideration of RMB2,500, RMB12,500, and RMB5,000, respectively, from an original shareholder that was controlled by a related party of the Company.

Yunnan Times Giant is franchise of Giant Education Group in Yunnan Province. Yunnan Times Giant mainly engaged in the services of middle school entrance examination, high school entrance examination, and college entrance examination training and consulting services. The offered curriculum includes English, sports and arts, computer, vocational skills training, and STEM education subjects. It is a leader in private training and education in China with strong team of teachers, top elite management teams and high-quality educational resources.

The identifiable assets acquired and liabilities assumed in the business combination were recorded at their fair values on the acquisition date and consisted of the following major items.

Fair value of consideration	20,000
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	1,344
Property and equipment	581
Accounts receivable	39
Other assets	2,744
Accounts payable	(193	)
Other liabilities	(17,504	)
Total identifiable net liabilities at fair values	(12,989	)
Total shareholder interest on acquisition of subsidiary	32,989

The Company has included the operating results of Yunnan Times Giant in its consolidated financial statements since the Acquisition Date. RMB5,356 in net sales and RMB228 in net loss of Yunnan Times Giant were included in the consolidated financial statements for the years ended December 31, 2021. Yunnan Times Giant was under the same control with the Company before Acquisition.

Yunnan Hengshun Acquisition

On April 30, 2021, the Group acquired all of the equity interests in Yunnan Hengshun Property Services Co., Ltd. (“Yunnan Hengshun”), a campus focused general service company for a consideration of RMB24,500 from an original shareholder that was controlled by a third party. The transaction was closed on April 30, 2021.

Yunnan Hengshun is a full general servicing company targeted at campus management. The company offers campus specialized services of security, sanitation, landscaping, repairs and maintenance, food and retail marketing, and lodging services.

F-31

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

The identifiable assets acquired and liabilities assumed in the business combination were recorded at their fair values on the acquisition date and consisted of the following major items.

Fair value of consideration	24,500
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	1,172
Property and equipment	2
Accounts receivable	1,467
Other assets	19,978
Other liabilities	(28,466	)
Total identifiable net liabilities at fair value	(5,847	)
Goodwill	30,347

The Company has included the operating results of Yunnan Hengshun in its consolidated financial statements since the Acquisition Date. RMB14,582 in net sales and RMB6,666 in net gain of Yunnan Hengshun were included in the consolidated financial statements for the years ended December 31, 2021.

8	OTHER NON-CURRENT ASSETS

Other non-current assets consisted of the following:

	As of December 31,
	2022		2023
Deposits for financing arrangements		6,700		7,296
School deposits		32,350		16,125
Rental deposits		8,127		9,930
Other non-current assets		47,177		33,350

9	BORROWINGS UNDER FINANCING ARRANGEMENTS

The balances of the Group’s borrowings under financing arrangements are as following:

	As of December 31,
	2022		2023
Current portion		20,540		-
Non-current portion		24,987		-
		45,527		-

The Group entered into sale and leaseback contracts with certain third-party financial institutions during 2020 and 2021. The lease items were mainly multi-media computers, video conference equipment, computers and other teaching equipment. The Group considers the substance of these transactions to be debt financing in nature and no gain or loss is recognized upon the sale. Thus, the Group recorded the cash receipt from these transactions as liabilities and accrued the interest using the effective interest method.

F-32

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

The detailed terms of these sale and leaseback contracts are summarized below:

(i)

On August 14, 2020, the Group entered into sale and leaseback contracts with Haier Financial Leasing Co., Ltd. for a consideration of RMB60,000 repayable in thirteen instalments until August 31, 2023 with an effective interest rate of 7.4% per annum. The Group recorded the cash receipts of RMB57,800 as a liability and accrued the interest using the effective interest method. As of December 31, 2022 and 2023, the balance was RMB3,366 and nil respectively. On August 25, 2023, the Company has repayment RMB3,366.

The Group paid an aggregate amount of RMB1,700 and nil as deposits. These amounts are recorded in prepaid expenses and other current assets and other non-current assets as of December 31, 2022 and 2023 respectively.

(ii)

On November 1, 2021, the Group entered into sale and leaseback contracts with Chengtai Finance Leasing (Shanghai) Co., Ltd for an aggregated consideration of RMB55,000 repayable in twelve instalments until November 1, 2024 with an effective interest rate of 10.8% per annum. The Group recorded the cash receipt of RMB 51,750 as a liability and accrued the interest using the effective interest method. As of December 31, 2021 and 2022, the balance was RMB42,161 and nil respectively. On December 20, 2023, the Company has repayment RMB42,161.

The Group paid an aggregate amount of RMB5,000 and nil as deposits. These amounts are recorded in prepaid expenses and other current assets and other non-current assets as of December 31,2022 and 2023 respectively.

10	BANK LOAN

On April 10, 2023, the Company entered into a short-term loan agreement credit limit RMB80,000 with China CITIC Bank until April 10, 2024 with an interest rate of 4.95% per annum. During fiscal year 2022, the borrowing amount was RMB60,000, and a balance remains. The short-term loan agreement was based on the Company’s credit standing and no securities or guarantees were involved.

On July 4, 2022, the Company entered into a short-term loan agreement credit limit RMB60,000 with Guangdong Development Bank until July 3, 2024 with an interest rate of 4.65% per annum. During fiscal year 2023, borrowing amount was RMB27,970, and the balance remains. The short-term loan agreement was based on the Company’s credit standing and no securities or guarantees were involved.

On April 12, 2021, the Company entered into a short-term loan agreement credit limit RMB60,000 with China CITIC Bank until April 8, 2022 with an interest rate of 4.65% per annum. During fiscal year 2022, the borrowing amount was RMB59,065, and the amount of RMB58,348 has been repaid, and a balance of RMB1,542 remains. During fiscal year 2023, the amount of RMB1,542 has been repaid. The short-term loan agreement was based on the Company’s credit standing and no securities or guarantees were involved.

On July 4, 2022, the Company entered into a short-term loan agreement credit limit RMB60,000 with Guangdong Development Bank until July 3, 2023 with an interest rate of 4.65% per annum. During fiscal year 2022, borrowing amount was RMB32,030, and the balance remains. During fiscal year 2023, the amount of RMB32,030 has been repaid. The short-term loan agreement was based on the Company’s credit standing and no securities or guarantees were involved.

F-33

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

11	ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables, current and non-current, consisted of the following:

	As of December 31,
	2022		2023
Accrued payroll and welfare benefits		24,465		53,786
Government subsidies received on behalf of certain teachers and students		11,413		86,856
Other tax payables		165		-
Deposits received		212		9
Accrued service fees		147		544
Accrued utilities fees		71		22
Collection of teaching and auxiliary materials fee		9,850		101,800
Accrued expenses		1,532		19,743
Others		224		318
Accrued expenses and other payables		48,079		263,078
Including:
Current portion		46,434		263,078
Non-current portion		1,645		-

12	LEASES

Operating leases

The Group leases properties and other equipment that are classified as operating leases. The majority of the Group’s operating leases expire at various dates though 2036.

Future minimum operating lease payments as of December 31, 2022 and 2023 are summarized as follow:

December 31, 2022
2023			9,630
2024			4,350
2025			4,350
2026			4,350
2027			4,350
Thereafter			38,100
Total			65,130

December 31, 2023
2024			3,736
2025			3,300
2026			3,300
2027			3,300
2028			3,300
Thereafter			26,400
Total			43,336

Rental expenses were approximately RMB2,148, RMB5,243, and RMB9,622 for the years ended December 31, 2021, 2022 and 2023, respectively. The Group did not sublease any of its operating leases for the years presented.

F-34

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

13	SHARE CAPITAL

On January 12, 2021, the Company issued 70,488,700 ordinary shares to the respective shareholders of the Parent to mirror the shareholding structure of the Parent. At the same time, the Parent surrendered 100,000 issued shares in the Company pursuant to a form of surrender letter. Accordingly, all share and per share data shown in the consolidated financial statements have been retrospectively revised to give effects to the nominal issuance of the 70,488,700 new shares and the surrender of the 100,000 old shares.

On March 11, 2021, the Company issued 7,500,000 American Depositary Shares (“ADS”), price per ADS of US$10.00 in an Initial Public Offering, representing 22,500,000 Class A Ordinary Shares, and received in consideration of USD 45,577, net of 2,500,000 ADS proceed sold directly to Longwater Topco B.V., underwriting commission and other related fees.

The amount received of USD 45,577 or RMB 296,386, subtract ordinary shares of 6, was recorded as Paid-in Capital of RMB296,381.

Pursuant to subscription agreement dated January 10, 2021 with Shanghai Ruihai Chuangfeng Industrial Development Co., Ltd. (“CPP Investor”), a wholly-owned subsidiary of Harier Financial Leasing Co., Ltd., CPP Investor agreed to purchase 1,350,000 Class A Ordinary Shares, equivalent to 450,000 American Depositary Shares (“ADS”), price per ADS of US$10 in an Initial Public Offering. The purchase totaled for aggregate net proceeds to the Company of RMB28,691, after deducting fees to the placement agent and other offering expenses payable by the Company.

14	Discontinued Operations

On May 14, 2021, the PRC State Council announced the Implementation Rules for Private Education Laws (the “Implementation Rules”), which became effective on September 1, 2021. Pursuant to the Implementation Rules, (1) foreign-invested enterprises established in China and social organizations whose actual controllers are foreign parties shall not sponsor, participate in or actually control private schools that provide compulsory education, (2) social organizations or individuals shall not control any private school that provides compulsory education or any non-profit private school that provides pre-school education by means of, among others, merger, acquisition and contractual arrangements, and (3) private schools providing compulsory education shall not conduct any transaction with any related party. In addition, private school providing compulsory education shall not conduct any transaction with any related party, and any other private school conducting any transaction with any related party shall follow the principles of openness, fairness and impartiality, fix the price reasonably and regulate the decision-making, and shall not damage the interests of the state and the school or the rights and interests of the teachers and students, which may impose restrictions on the above-mentioned related party transactions. Such prohibition has significantly affected the enforceability of the exclusive management services and business cooperation agreements with affiliated entities providing compulsory education.

The Implementation Rules have had significant impacts on our business operations and our results of operations. After consultation with our PRC legal counsel, we reached the conclusion that, as a result of the effectiveness of the Implementation Rules, we have lost control over the middle schools that are affected by the Implementation Rules, and entities holding such middle school institutions or middle school programs (“Affected Entities”) as from September 1, 2021. Consequently, the contractual arrangements with the Affected Entities have become invalid since September 1, 2021, and we classified the operation for the Affected Entities as discontinued operations. We have determined that, in substance, we had ceased to recognize revenues for all activities related to the Affected Entities and had discontinued all business activities with such entities by September 1, 2021 while continuing to provide essential services to keep these schools open. Such discontinuation has had a material and adverse impact on our business, financial condition and results of operations. Our ability to engage in the compulsory education in China has been materially and adversely affected, and we cannot assure you that we will be able to restore such ability, which could materially and adversely affect our business, prospects, results of operations and financial condition.

F-35

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

The Affected Entities are as follow: Kunming Xishan Long-Spring Experimental Secondary School Middle School Program, Kunming Chenggong Long-Spring Experimental Secondary School Middle School Program, Yiliang Long-Spring Experimental Secondary School Middle School Program, Yunnan Hengshui Experimental Secondary School—Xishan School Middle School Program, Qujing Hengshui Experimental Secondary School Middle School Program, Yunnan Long-Spring Foreign Language Secondary School Middle School Program, Xinping Hengshui Experimental Middle School, Zhenxiong Long-Spring Advanced Secondary School Middle School Program, and Shaanxi Hengshi Middle School.

On July 25, 2022, Shenyang Century Long-Spring Technology Co., Ltd. was deregistered.

On April 17, 2022, Long-Spring Education Holding Group Co., Ltd., entered into a Share Transfer Agreement (the “Agreement”) with Inner Mongolia Qingyi Consulting Service Co., Ltd., (the “Buyer”). Pursuant to the terms of the Agreement, the Buyer purchased 100% ownership of Beijing Hengyue Education Technology Co., Ltd. from Long-Spring Education Holding Group Co., Ltd., which value is primarily derived from Beijing Hengyue’s and wholly-owned subsidiary Ordos Hengshui Experimental High School for a total price of RMB 50,500 (the “Sale Transaction”). The Sale Transaction was closed on July 27, 2022. In accordance with ASC Topic 205, Presentation of Financial Statement Discontinued Operations (“ASC Topic 205”), the Company presented the operation results of Beijing Hengyue and its subsidiaries as a discontinued operation, as the Company believed that no continued cash flow would be generated by the discontinued component and that the Company would have no significant continuing involvement in the operations of the discontinued component. The total assets of Beijing Hengyue were RMB120,481 as of July 27, 2022 and the total liabilities of Beijing Hengyue were RMB68,657 as of July 27, 2022, resulting in a loss on disposal of RMB2,597.

On September 2, 2022, Long-Spring Education Holding Group Co., Ltd., entered into a Share Transfer Agreement (the “Agreement”) with Yunnan Long-Spring Education Technology Co., Ltd., (the “Buyer”). Pursuant to the terms of the Agreement, the Buyer purchased 82.44% ownership of Beijing Tomorrow Future Plus Education Technology Co., Ltd. from Long-Spring Education Holding Group Co., Ltd., for a total price of RMB 76,500 (the “Sale Transaction”). The Sale Transaction was closed on September 2, 2022. In accordance with ASC Topic 205, Presentation of Financial Statement Discontinued Operations (“ASC Topic 205”), the Company presented the operation results of Beijing Tomorrow Future Plus Education Technology Co., Ltd. as a discontinued operation, as the Company believed that no continued cash flow would be generated by the discontinued component and that the Company would have no significant continuing involvement in the operations of the discontinued component. The total assets of Beijing Tomorrow Future Plus Education Technology Co., Ltd. were RMB70,995 as of September 2, 2022 and the total liabilities of Beijing Tomorrow Future Plus Education Technology Co., Ltd. were RMB2,246 as of September 2, 2022, resulting in a gain on disposal of RMB7,696.

On July 25, 2022, Long-Spring Education Holding Group Co., Ltd., entered into a Share Transfer Agreement (the “Agreement”) with Shenzhen Xiaoling Human Resources Co., Ltd., (the “Buyer”). Pursuant to the terms of the Agreement, the Buyer purchased 100% ownership of Sichuang Century Changshui Technology Co., Ltd. from Long-Spring Education Holding Group Co., Ltd., for a total price of RMB 3,000 (the “Sale Transaction”). The Sale Transaction was closed on July 25, 2022. In accordance with ASC Topic 205, Presentation of Financial Statement Discontinued Operations (“ASC Topic 205”), the Company presented the operation results of Sichuang Century Changshui Technology Co., Ltd. as a discontinued operation, as the Company believed that no continued cash flow would be generated by the discontinued component and that the Company would have no significant continuing involvement in the operations of the discontinued component. The total assets of Sichuang Century Changshui Technology Co., Ltd. were RMB5,569 as of July 25, 2022 and the total liabilities of Sichuang Century Changshui Technology Co., Ltd. were RMB5,748 as of July 25, 2022, resulting in a gain on disposal of RMB2,186.

On January 4, 2023, Shanxi Long-Spring Enterprise Management Co., Ltd. and Datong Hengshi Gaokao Tutorial School was deregistered.

On January 9, 2023, Beijing Hualing International Human Resources Co., Ltd. was disposal.

On January 4, 2023, Wenshan Times Giant Training School Co., Ltd., Zhengzhou Hengshi Hengzhong Education Technology Co., Ltd., Shenzhen Hengshi Education Technology Co., Ltd., Xiamen Hengshi Education Technology Co., Ltd. New Vocational Education (Beijing) Cultural Development Co., Ltd., New Vocational Education (Yunnan) Cultural Development Co., Ltd., Guizhou New Vocational Education Technology Co., Ltd., New Vocational Education (Chengdu) Culture Development Co., Ltd., New Vocational Education (Hebei) Education Technology Co., Ltd., New Vocational Education (Henan) Education Technology Co., Ltd., New Vocational Education (Shandong) Culture Development Co., Ltd. and Beijing Yigao Education Technology Co., Ltd. was disposal.

On April 10, 2023, Wenshan Times Giant Training School Co., Ltd. was deregistered.

Loss from discontinued operations for fiscal years 2022 and 2023 was as follows:

F-36

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

	As of December 31,
	2022		2023
Assets
Current assets
Cash		61,857		61,851
Prepaid expenses and other current assets		8,010		3,964
Total current assets		69,867		65,815
Non-current assets
Property and equipment, net		10,383		10,184
Intangible assets, net		135		1
Deferred tax assets		1,370		825
Total non-current assets		11,888		11,010
Total assets		81,755		76,825

	As of December 31,
	2022		2023
Liabilities
Current liabilities
Contract liabilities		49,862		49,862
Accounts payable		12,898		12,898
Income tax payables		427		269
Accrued expenses and other payables		47,640		41,612
Total current liabilities		110,827		104,641
Non-current liability
Total liabilities		110,827		104,641

	Years Ended December 31,
	2021			2022			2023
Revenues		169,545			91,457			76,279
Cost of revenues		(152,971	)		(95,379	)		(103,103	)
Gross profit/(loss)		16,574			(3,922	)		(26,824	)
Operating expenses and income
Selling and marketing expenses		(1,429	)		(135	)		(176	)
General and administrative expenses		(40,269	)		(11,899	)		(9,410	)
Government grants		5,982			1,003			251
Income (loss) from operations		(19,142	)		(14,953	)		(36,159	)
Other income (expenses):
Others, net		(20	)		243			(1,101	)
Income (loss) from discontinued operations before income tax		(19,162	)		(14,710	)		(37,260	)
Income tax expenses		14,335			94			-
Income (loss) from discontinued operation before non-controlling interest		(4,827	)		(14,616	)		(37,260	)
Gain on disposal of discontinued - operations		-			7,285			11,176
Less: Net loss attributable to non-controlling interests		-			-			-
Income/(loss) from discontinued operations		(4,827	)		(7,331	)		(26,084	)

F-37

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

15	REVENUES

Revenues consisted of the following:

	Years Ended December 31,
	2021		2022		2023
Formal education services
-Educational services		192,383		211,197		196,112
-Boarding		19,248		7,609		16,975
-Sale of educational materials		40,468		21,205		18,593
Subtotal		252,099		240,011		231,680
Tuition income from training programs		17,765		28,521		18,348
Education and management service fees		15,104		30,868		10,628
Others		1,395		995		888
		286,363		300,395		261,544
Revenue from governments cooperative agreements		50,947		42,111		4,706
		337,310		342,506		266,250

16	INCOME TAX

Cayman Islands

Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.

British Virgin Islands

Under the current laws of the British Virgin Islands, First High-School BVI is not subject to tax on their income or capital gains.

Additionally, upon payments of dividends to the shareholders, no British Virgin Islands withholding tax will be imposed.

F-38

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

Hong Kong

Under the current Hong Kong Inland Revenue Ordinance, First High-School HK is subject to Hong Kong profits tax at a rate of 16.5%. A Two-tiered Profits Tax rates regime was introduced since year 2018 where the first HK$2,000 of assessable profits earned by a company will be taxed at half the current tax rate (8.25%) whilst the remaining profits will continue to be taxed at 16.5%. There is an anti-fragmentation measure where each group will have to nominate only one company in the group to benefit from the progressive rates. No provision for Hong Kong profits tax has been made as the Group had no assessable profits derived from or earned in Hong Kong during the years ended December 31, 2021, 2022 and 2023. Additionally, upon payments of dividends to the shareholders, no Hong Kong withholding tax will be imposed.

PRC

Under the PRC Enterprise Income Tax Law (“EIT Law”), the Group’s PRC subsidiaries and affiliated schools are subject to the statutory income tax rate at 25% unless otherwise specified.

In accordance with the prevailing tax regulations, Yunnan WFOE and Yunnan Zhongchuang Education Tutorial School were qualified to enjoy 15% preferential income tax rate under “Development Plan for Western China” from 2017 to 2020 which is further extended by another 10 years to 2030 if they continue to satisfy all the requirements pursuant to the relevant tax regulations in each of those years.

According to the Implementation Rules for the Law for Promoting Private Education in 2004 (the “2004 Implementing Rules”), private schools, whether requiring reasonable returns or not, may enjoy preferential tax treatment. The 2004 Implementing Rules provide that the relevant authorities under the State Council may introduce preferential tax treatments and related policies applicable to private schools requiring reasonable returns.

According to the Law of People’s Republic of China on the Promotion of Private Education as revised in 2016 (“2016 Revised Private Education Law”), non-profit private schools will be entitled to similar tax benefits as public schools. However, taxation policies of for-profit private schools are still unclear as more specific provisions are to be introduced. As of the date of this consolidated financial statements, most of our schools are in transition period for for-profit and non-profit election. As such, the Group is unable to determine the income tax impact as a result of the 2016 Revised Private Education Law on the profitability of its affiliated schools in future fiscal years.

F-39

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

The applicable income tax rate of the Group’s affiliated schools for the years ended December 31, 2021, 2022 and 2023 are summarized as below:

School name	Note	Applicable income tax rate
Kunming Xishan Long-Spring Experimental Secondary School	(i)	25%
Kunming Chenggong Long-Spring Experimental Secondary School	(i)	25%
Yunnan Hengshui Experimental Secondary School— Xishan School	(i)	25%
Yiliang Long-Spring Experimental Secondary School	(i)	25%
Yunnan Long-Spring Foreign Language Secondary School	(i)	25%
Qujing Hengshui Experimental Secondary School	(i)	25%
Yuxi Hengshui Experimental Secondary School	(i)	25%
Xinping Hengshui Experimental Secondary School	(i)	25%
Yunnan Century Long-Spring Technology Co., Ltd.	(i)	15%
Yunnan Long-Spring Logistics Service Co., Ltd.	(i)	25%
Long-Spring Education Holding Group Co., Ltd.	(i)	25%
Yunnan Zhongchuang Education Tutorial School	(i)	25%
Kunming Guandu Hengshizhong Education Training School Co., Ltd.	(i)	25%
Xinping Long-Spring Advanced Secondary School Co., Ltd.	(i)	25%
Guizhou Long-Spring Century Technology Co., Ltd.	(i)	25%
Guizhou Hengshizhong Technology Co., Ltd.	(i)	25%
Guizhou Hengshizhong Education and Training School Co., Ltd	(i)	25%
Yunnan Lihua Education Technology Co., Ltd.	(i)	25%
Bainian Long-Spring Education Technology (Zhenxiong) Co., Ltd.	(i)	25%
Zhenxiong Long-Spring Advanced Secondary School	(i)	25%
Wenshan Long-Spring Experimental Secondary School	(i)	25%
Xishuangbanna Long-Spring Experimental Secondary School Co., Ltd.	(i)	25%
Qiubei Long-Spring Experimental Secondary School	(i)	25%
Mengla Long-Spring Experimental Secondary School	(i)	25%
Shaanxi Century Long-Spring Education Technology Co., Ltd.	(i)	25%
Shaanxi Hengshi Hengzhong Education Technology Co., Ltd.	(i)	25%
Chongqing Hengshi Education Technology Co., Ltd.	(i)	25%
Yunnan Hengshun Property Service Co., Ltd.	(ii)	5%
Kunming Chenggong Times Giant Tutorial School Co., Ltd.	(i)	25%
Kunming Wuhua District Zhuorui Cultural Training School Co., Ltd.	(i)	25%
Zunyi Hengshi Education Technology Co., Ltd.	(i)	25%
Bainian Long-Spring (Mengzi) Education Technology Co., Ltd.	(i)	25%
Long-Spring Education Holding Group (Yunnan) Hengshui Experimental Middle School Management Co., Ltd.	(i)	25%
Bainian Long-Spring (Luoping) Education Technology Co., Ltd.	(i)	25%
Panzhihua Bainian Long-Spring Education Technology Co., Ltd.	(i)	25%
Beijing Green Carbon Future Intelligent Technology Co., Ltd.	(i)	25%
Bainian Long-Spring (Qingdao) Education Technology Co., Ltd.	(i)	25%
Yangling Hengshi Secondary School Co., Ltd	(i)	25%
Xi'an Hengshi Education Technology Co., Ltd.	(i)	25%
Yangling Hengshui Experimental Secondary School	(i)	25%
Yunnan Xiongping Catering Management Co., Ltd.	(i)	25%
Xishun Yunnan Catering Management Co., Ltd.	(i)	25%
Guizhou Long-Spring Logistics Service Co., Ltd.	(i)	25%

Notes:

F-40

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

(i)	As these schools have not received confirmations from the local tax authorities on income tax exemption, they are subject to the statutory income tax rate of 25% for the years ended December 31, 2021, 2022 and 2023, respectively. High tech enterprises are subject to corporate income tax at a reduced rate of 15%.

(ii)	The State Administration of Taxation has policies for small and micro enterprises: For small and low-profit enterprises, the annual taxable income does not exceed RMB1.0 million, a reduced rate of 25% is included in the taxable income, and the corporate income tax is paid at a tax rate of 20%, therefore resulting an income tax rate of 5%.

Income taxes

The income before income taxes and the provision for PRC income taxes for the years ended December 31, 2021, 2022 and 2023 are as follows:

	Years Ended December 31,
	2021			2022			2023
Income/(loss) before income taxes		72,444			65,849			(45,426	)
Current income tax expense		27,143			24,386			5,846
Deferred tax benefits		(12,219	)		(4,274	)		(6,713	)
Total income taxes expenses/(credit)		14,924			20,112			(867	)

F-41

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

Tax rate reconciliation

The actual income tax expenses reported in the consolidated statements of comprehensive income differs from the amount computed by applying the PRC statutory income tax rate of 25% to income before income taxes due to the following:

	Years Ended December 31,
	2021			2022			2023
Income/(loss) before income taxes		72,444			65,849			(45,426	)
Income tax computed at PRC statutory tax rate		18,111			16,462			(11,357	)
Effect of non-taxable income		(3,369	)		(2,917	)		(6,970	)
Effect of non-deductible expenses		3,047			3,654			5,617
Effect of preferential tax rate		(11,571	)		(7,041	)		(7,352	)
Deferred tax assets losses not recognized		8,470			9,516			15,815
Others		236			438			3,380
Total		14,924			20,112			(867	)

Deferred taxes

The components of deferred tax assets and liabilities are as follows:

	As of December 31,
	2022			2023
Deferred tax assets:
Allowance for doubtful accounts		408			8,130
Deductible donation expenses carried forwards		2,646			2,646
Accrued expenses		2,692			2,654
Registration fees		3,792			3,421
Property and equipment		137			137
Net operating loss carry forwards		4,273			4,490
Total gross deferred tax assets		13,948			21,478
Valuation allowance on deferred tax assets		(1,184	)		(1,184	)
Deferred tax assets, net of valuation allowance		12,764			20,294
Deferred tax liabilities:
Property and equipment		(969	)		(969	)
Intangible assets		(2,154	)		(4,832	)
Government grants		(2,032	)		(406	)
Total deferred tax liabilities		(5,155	)		(6,207	)
Net deferred tax		7,609			14,087
Analysis as:
Deferred tax assets		12,764			20,294
Deferred tax liabilities		(5,155	)		(6,207	)
Net deferred tax assets		7,609			14,087

F-42

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

17	DISTRIBUTION OF PROFIT

(a)

Distribution to the Parent

On January, 2021, the Parent entered into several agreements with the Group, pursuant to which the Group agreed to make distribution to the Parent of RMB18,424, to offset historical aggregated amounts due from the Parent. The distribution was made not in cash, but as offsets in January 2021 and was accounted for a distribution to the Parent within equity.

On June, 2021, the Group acquired all of the equity interests in Kunming Chenggong Times Giant Tutorial School Co., Ltd., Wenshan Century Times Giant Training School Co., Ltd., and Kunming Wuhua District Zhuorui Cultural Training School Co., Ltd. (collectively known as “Yunnan Times Giant”), the acquisition was made to a related party of the Company (same control in nature), therefore the amount of RMB32,989 is recorded as net income of the same controlled entity.

(b)

Reserves

As stipulated by relevant PRC laws and regulations, the Company’s subsidiaries and consolidated VIEs in the PRC must take appropriations from after-tax profit to non-distributive funds.

These reserves include general reserve and the development reserve.

The general reserve requires annual appropriation 10% of after-tax profits as determined under PRC GAAP at each year-end until the balance reaches 50% of the PRC Company’s registered capital. The other reserve is set aside at the company’s discretion. These reserves can only be used for general enterprise expansion and are not distributable as cash dividends. The general reserve as of December 31, 2022 and 2023 were RMB5,491 and RMB4,532 respectively.

Each of the schools is required to appropriate 25%, if any, of its after-tax profits as determined under PRC GAAP to a non-distributable education development reserve for the construction or maintenance of the school or procurement or upgrading of educational equipment. In accordance with the 2004 Implementing Rules, this reserve can only be used for school construction, maintenance and upgrade of education equipment. The development reserve is restricted net assets of the schools which are un-distributable to the Company in the form of dividends or loans. The education development reserve as of December 31, 2022 and 2023 were RMB46,892 and RMB48,875, respectively.

(c)

Declared dividends

Pursuant to a board meeting dated September 30, 2022, the Company declared a dividend of US$1,240 (approximately RMB8,564) to the shareholders in Note 22. As December 31, 2022, RMB6,432 has been paid. The remaining dividend will be paid in October 2024.

F-43

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

18	EARNINGS PER ORDINARY SHARE

	Years Ended December 31,
	2021			2022			2023
Numerator
Net income from continuing operations attributable to First High-school Education Group Co., Ltd.		57,520			44,656			(46,105	)
Net income (loss) from discontinued operations attributable to First High-school Education Group Co., Ltd.		(4,827	)		(7,331	)		(26,084	)
Denominator
Weighted average number of ordinary shares – basic and diluted
Basic		83,925,002			86,838,700			86,838,700
Diluted		85,775,002			92,388,700			92,388,700
Basic earnings per share from continued operation		0.69			0.55			(0.53	)
Basic earnings (loss) per share from discontinued operation		(0.06	)		(0.08	)		(0.30	)
Diluted earnings per share from continued operation		0.67			0.52			(0.50	)
Diluted earnings (loss) per share from discontinued operation		(0.06	)		(0.08	)		(0.28	)

19	SEGMENT INFORMATION

The Group has one operating segment, which is engaged in provision of full spectrum private fundamental education and complementary education services. The Group’s chief operating decision maker is the chief executive officer of the Group who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group. Accordingly, no reportable segment information is presented.

During the years ended December 31, 2021, 2022 and 2023, substantially all of the Group’s operations and long-lived assets were in the PRC.

20	COMMITMENTS AND CONTINGENCIES

(a)

Capital commitments

Capital commitments outstanding as of December 31, 2022 and 2023 not provided for in the consolidated financial statements were as follows:

	As of December 31,
	2022		2023
Contracted for payable of student related uniform, luggage, and teaching materials		26,707		32,563

(b)

Lease commitments

The Group’s lease commitments are disclosed in Note 12.

F-44

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

21	RELATED PARTY TRANSACTIONS

As of December 31, 2023, the amounts due to the related parties were consisted of the followings:

Name	Amount		Relationship	Note
Campus reserve fund		3,770	Management	Other payables, interest free and payment on demand.
Long-Spring Education Group		50,161	Entity significantly influenced by Mr. Zhang	Other payables, interest free and payment on demand.
Beijing Hualing International Human Resources Co., Ltd.		7,210	Controlled by the same shareholder	Other payables, interest free and payment on demand.
Beijing Yigao Education Technology Co., Ltd.		99	Controlled by the same shareholder	Other payables, interest free and payment on demand.
Lihua Family Education Technology (Beijing) Co., Ltd.		3,634	Entity significantly influenced by Mr. Zhang	Other payables, interest free and payment on demand.
Mengzi Experimental Middle School		139	Entity significantly influenced by Mr. Zhang	Other payables, interest free and payment on demand.
Xiamen Hengshi Education Technology Co., Ltd		3	Controlled by the same shareholder	Other payables, interest free and payment on demand.
Sichuan Yichan New Technology Co., Ltd.		3	Controlled by the same shareholder	Other payables, interest free and payment on demand.
Yunnan Qidi Primary School		434	Entity significantly influenced by Mr. Zhang	Other payables, interest free and payment on demand.
Yunnan Three Three One Education Technology Co., Ltd.		71,037	Controlled by the same shareholder	Other payables, interest free and payment on demand.

Yunnan Province Preparatory School for Studying Abroad		109	Entity significantly influenced by Mr. Zhang	Other payables, interest free and payment on demand.
Yunnan Long-Spring Education Technology Co., Ltd.		57	Controlled by the same shareholder	Other payables, interest free and payment on demand.
Zhengzhou Hengshi Hengzhong Education Technology Co., Ltd.		9	Controlled by the same shareholder	Other payables, interest free and payment on demand.
Zunyi Huichuan Long-Spring Xinhang Senior Middle School Co., Ltd.		9	Entity significantly influenced by Mr. Zhang	Other payables, interest free and payment on demand.
Zhang, Shaowei		28,499	Shareholder	Other payables, interest free and payment on demand.
		165,173

F-45

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

As of December 31, 2023, the amounts due from the related parties were consisted of the followings:

Name	Amount		Relationship	Note
Brightenwit Group Limited		651	Mr. Zhang's wife's company	Loan receivables*, interest free and payment on demand.
Campus reserve fund		9,588	Management	Loan receivables*, interest free and payment on demand.
Long-Spring Education Group		5,568	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Long-Spring Education (HK) Limited		50,016	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Visionsky Group Limited		5,857	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Beijing Hualing International Human Resources Co., Ltd.		15,879	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
New Vocational Education (Beijing) Cultural Development Co., Ltd.		310	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Beijing Yigao Education Technology Co., Ltd.		1,904	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Beijing Long-Spring International Institute of Education and Technology		1,720	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Beijing Long-Spring Education Technology Group Co., Ltd.		32,129	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Beijing Long-Spring Future Technology Group Co., Ltd.		21	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Hengshi College Entrance Examination Supplementary		68	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Kunming Xinxiaoling Human Resources Co., Ltd.		1,884	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Lihua Family Education Technology (Beijing) Co., Ltd.		2,718	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Mengzi Experimental Middle School		736	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Mengzi Long-Spring Experimental Middle School		3,153	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Xiamen Hengshi Education Technology Co., Ltd		2,350	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Shaanxi Long-Spring Enterprise Management Consulting Partnership (Limited Partnership)		10	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Shenzhen Hengshi Education Technology Co., Ltd.		2,447	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Sichuan Yichan New Technology Co., Ltd.		5,812	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Wenshan Times Giant Training School Co., Ltd.		763	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
New Vocational Education (Yunnan) Cultural Development Co., Ltd.		264	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Yunnan Huayiweiming Technology Co., Ltd.		15,503	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Yunnan Qidi Primary School		740	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Yunnan Three Three One Education Technology Co., Ltd.		1,380	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Yunnan Carbon Tracer Enterprise Management Co., Ltd.		260	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Yunnan Province Preparatory School for Studying Abroad		114	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Yunnan Long-Spring Education Technology Co., Ltd.		41,474	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Long-Spring Selection (Yunnan) Technology Co., Ltd.		61	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Zhengzhou Hengshi Hengzhong Education Technology Co., Ltd.		3,314	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Zunyi Huichuan Hengshi Education and Training School		14	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Zunyi Huichuan Long-Spring Jincheng Education Consulting		3,021	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Zunyi Huichuan Long-Spring Xinhang Senior Middle School Co., Ltd.		3,666	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Zhang, Shaodong		2,513	Mr. Zhang’s immediate family member	Loan receivables*, interest free and payment on demand.
		215,908

F-46

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

As of December 31, 2022, the amounts due to the related parties were consisted of the followings:

Name	Amount		Relationship	Note
Yunnan Long-Spring Education Technology Co., Ltd.		1,432	Entity significantly influenced by Mr. Zhang	Other payables, interest free and payment on demand.
Yunnan Preparatory School for Studying Abroad		2,000	Cooperative education projects	Other payables, interest free and payment on demand.
Campus Reserve Fund		3,019	Management	Other payables, interest free and payment on demand.
Beijing Long-Spring International Education Technology Research Institute		900	Entity significantly influenced by Mr. Zhang	Other payables, interest free and payment on demand.
Beijing Tomorrow Future Plus Education Technology Co., Ltd.		6	Controlled by the same shareholder	Other payables, interest free and payment on demand.
Lihua Family Education Technology (Beijing) Co., Ltd.		7,446	Controlled by the same shareholder	Other payables, interest free and payment on demand.
Chengdu First Carbon New Technology Co., Ltd.		3	Controlled by the same shareholder	Other payables, interest free and payment on demand.
Yunnan Three Three One Education Technology Co., Ltd.		36,869	Controlled by the same shareholder	Other payables, interest free and payment on demand.
		51,675

As of December 31, 2022, the amounts due from the related parties were consisted of the followings:

Name	Amount		Relationship	Note
Beijing Long-Spring Education Technology Group Co., Ltd.		29,969	Entity controlled by Mr. Zhang*	Loan receivables*, interest free and payment on demand.
Lihua Family Education Technology (Beijing) Co., Ltd.		3,333	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Chengdu First Carbon New Technology Co., Ltd.		5,192	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Yunnan Three Three One Education Technology Co., Ltd.		339	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Zunyi Huichuan Hengshi Education and Training School		139	Cooperative education projects	Loan receivables*, interest free and payment on demand.
Yunnan Long-Spring Education Technology Co., Ltd.		3,173	Controlled by the same shareholder Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Yunnan Huayiweiming Technology Co., Ltd.		15,503	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Beijing Long-Spring International Education Technology Research Institute		25	Entity significantly influenced by Mr. Zhang	Loan receivables*, interest free and payment on demand.
Beijing Tomorrow Future Plus Education Technology Co., Ltd.		1	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Kunming Xinxiaoling Human Resources Co., Ltd.		277	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Mengzi Long-Spring Experimental Secondary School		331	Cooperative education projects	Loan receivables*, interest free and payment on demand.
Shaanxi Long-Spring Enterprise Management Consulting Partnership (Limited Partnership)		10	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Campus Reserve Fund		12,123	Management	Loan receivables*, interest free and payment on demand.
Zunyi Huichuan Long-Spring Jincheng Education Consulting Co., Ltd.		1,976	Controlled by the same shareholder	Loan receivables*, interest free and payment on demand.
Zhang, Shaodong		1,059	Mr. Zhang’s immediate family member	Loan receivables*, interest free and payment on demand.
		73,450

F-47

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

DIVIDEND PAYABLES

Pursuant to a board meeting dated September 30, 2022, the Company declared a dividend of US$1,240 (approximately RMB8,564) to the shareholders. As December 31, 2022, RMB6,432 has been paid. As December 31, 2023, a balance RMB2,132 remains. The remaining dividend will be paid in October 2024.

SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date of the issuance of the consolidated financial statements and no subsequent event is identified.

RESTRICTED NET ASSETS

The Group’s ability to pay dividends is primarily dependent on the Group receiving distributions of funds from its subsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by the Group’s subsidiaries and VIEs incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with US GAAP differ from those reflected in the statutory financial statements of the Group’s subsidiaries and VIEs.

In accordance with the PRC laws and regulations, statutory reserve funds shall be made and can only be used for specific purposes and are not distributable as cash dividends. As a result of these PRC laws and regulations that require annual appropriations of 10% of net after tax profits to be set aside prior to payments of dividends as general reserve fund or statutory surplus fund; and in private school sector, annual appropriations of 25% of net after tax profits to be set aside prior to payments of dividends as development fund. The Group’s PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to the Company.

As of December 31, 2023, the total restricted net assets of the Company’s subsidiaries and VIEs incorporated in PRC and subjected to restriction amounted to RMB113,828.

CONDENSED FINANCIAL STATEMENTS OF THE COMPANY

The Company performed a test on the restricted net assets of its consolidated subsidiaries and VIEs (the “restricted net assets”) in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded that it was applicable to disclose the condensed financial information of the Company.

F-48

FIRST HIGH-SCHOOL EDUCATION GROUP CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of RMB, except share data and per share data, or otherwise noted)

The following condensed financial statements of the Company have been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the Company used the equity method to account for its investment in its subsidiaries and VIEs. Such investment is presented on the separate condensed balance sheets of the Company as “Investments in subsidiaries and VIEs”. The Company, its subsidiaries and VIEs were included in the consolidated financial statements whereby the inter-company balances and transactions were eliminated upon consolidation. The Company’s share of income/ (loss) from its subsidiaries and VIEs is reported as share of income/ (loss) from subsidiaries and VIEs in the condensed financial statements. Certain information and footnote disclosures generally included in financial statements prepared in accordance with US GAAP have been condensed and omitted.

As of December 31, 2023, there were no material commitments or contingencies, significant provisions for long-term obligations or guarantees of the Company, except for those which have been separately disclosed in the consolidated financial statements, if any.

Condensed Balance Sheets

	As of December 31,
	2022			2023
Assets
Current assets:
Cash		7,842			4,630
Amounts due from related parties		74,505			63,327
Prepaid expenses and other current assets		-			-
Total assets		82,347			67,957
Non-current assets
Investments in subsidiaries and VIEs		148,931			93,813
Total non-current assets and total assets		231,278			161,770

Liabilities and Shareholders’ Equity
Current liabilities
Amounts due to a related party		-			8,302
Accrued expenses and other current liabilities		1,045			-

Total current liabilities and total liabilities		1,045			8,302
Shareholders’ equity
Ordinary shares (US$0.00001 par value; 5,000,000,000 shares authorized; and 86,838,700 shares issued and outstanding as of December 31, 2022, and 86,838,700 shares issued and outstanding as of December 31, 2023, respectively)		6			6
Additional paid-in capital		357,689			356,622
Statutory reserves		54,366			51,425
Accumulated other comprehensive loss		2,430			2,836
Accumulated deficits		(184,258	)		(257,421	)

Total shareholders’ equity		230,233			153,468
Total liabilities and shareholders’ equity		231,278			161,770

Condensed Statements of Comprehensive Income

	Years Ended December 31,
	2021			2022			2023
Share of income from subsidiaries and VIEs		57,520			45,737			(44,559	)
Net Income/(loss) from discontinued operations		(4,827	)		(7,331	)		(26,084	)
Net income before income taxes		52,693			38,406			(70,643	)
Income tax expense		—			—			—
Net income of the Company		52,693			38,406			(70,643	)
Other comprehensive (expense)/income		3,635			6,127			5,319
Comprehensive income/(loss)		56,328			44,533			(65,324	)

F-49